ECON – 2020 – Chapter: 4-5

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Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:
under the demand curve and above the actual price.
An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:
maximum willingness to pay exceeds minimum acceptable price.
Which of the following is an example of a public good?
A weather warning system.
Public goods are those for which there:
are nonrivalry and nonexcludability.
Economists consider governments to be “wasteful”:
whenever they over- or underallocate resources to a project.
If a good that generates positive externalities were produced and priced to take into account these spillover benefits, then its:
price and output would increase.
The socially optimal amount of pollution abatement occurs where society’s marginal:
benefit of abatement equals its marginal cost of abatement.
Sellers will opt out of markets in which:
information about buyers is inadequate, and some buyers can impose high costs on the sellers.
Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the:
adverse selection problem.
Which of the following is a key difference between the economic activities of government and those of private firms?
Government has the legal right to force people to do things; private firms do not.
Which of the following is an activity of government that is not an activity of private firms?
Enforcing involuntary transactions.
The government of Southland wants to improve resource allocation in the country. Which of the following actions by the Southland government is most likely to accomplish this?
Taxing polluters and subsidizing firms that are creating significant positive externalities.
In what way, if any, does the invisible hand affect government resource allocation?
It does not help resource allocation, as there are no competitive forces within government that automatically direct resources to their best uses.
In representative democracy, voters are ____________ and politicians are ______________.
principals; agents
A special-interest issue is one whose passage yields:
Large economic gains to a small number of people and small economic losses to a large number of people.
(Consider This) From an economist’s perspective, when is government too big?
When the marginal costs from additional government spending exceed marginal benefits.
(Consider This) Government passes a law requiring all domestic clothing factories to pay workers at least $20 per hour. As a result, domestic clothing companies move their operations overseas, leaving domestic workers unemployed. This situation illustrates the problem of:
unintended consequences.
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