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Econ Final

43 Questions
Economics Quizzes & Trivia
Questions and Answers
  • 1. 
    When firms have the ability to restrict output, raise prices, stifle competition, and inhibit innovation the market failure involved is: 
    • A. 

      Public goods.

    • B. 

      Externalities.

    • C. 

      Market power.

    • D. 

      Inequities.

  • 2. 
    Market failure: 
    • A. 

      Occurs whenever the government intervenes in the market mechanism.

    • B. 

      Occurs whenever the government pursues laissez-faire policies

    • C. 

      Occurs whenever an imperfection in the market mechanism prevents optimal outcomes.

    • D. 

      Never occurs.

  • 3. 
    Which of the following is a form of government intervention? 
    • A. 

      Natural monopoly

    • B. 

      Public Goods

    • C. 

      Regulation

    • D. 

      Externalities

  • 4. 
    The goal of antitrust laws is to: 
    • A. 

      Control the structure of an industry only

    • B. 

      Alter industry behavior only.

    • C. 

      Prevent monopolies from forming.

    • D. 

      Control the structure of an industry and alter industry behavior

  • 5. 
    All of the following are examples of natural monopolies except: 
    • A. 

      Local telephone companies.

    • B. 

      Electricity companies.

    • C. 

      College bookstores.

    • D. 

      Railroad companies.

  • 6. 
    If a natural monopoly was broken into several smaller competing firms: 
    • A. 

      Consumers would lose because of less competition.

    • B. 

      Producers would be better off because they would have greater market share.

    • C. 

      Society would be worse off because the economies of scale would be destroyed.

    • D. 

      Workers would be worse off because fewer jobs would be available.

  • 7. 
    If a natural monopoly was forced to break up into several small competitive firms, then the: 
    • A. 

      Cost of production should fall as the smaller firms become more efficient.

    • B. 

      Price charged by the competitive firms should decrease as the firms become more efficient.

    • C. 

      Price charged by the competitive firms should increase because the firms will be less efficient.

    • D. 

      . Total production for the industry should increase because of the efficiency generated by increased competition.

  • 8. 
    According to the text, what type of market failure provides the best case for government regulation? 
    • A. 

      Market power

    • B. 

      Public goods

    • C. 

      Inequalities

    • D. 

      Natural monopoly

  • 9. 
    If a natural monopoly is forced to use marginal cost pricing, which of the following is not true? 
    • A. 

      Average total costs increase

    • B. 

      Output increases

    • C. 

      Allocative efficiency is achieved

    • D. 

      Economic profits are reduced

  • 10. 
    Which of the following is not a regulatory option when the government is trying to prevent market failure in the case of a natural monopoly? 
    • A. 

      Cost Regulation

    • B. 

      Profit Regulation

    • C. 

      Output Regulation

    • D. 

      Price Regulation

  • 11. 
    If the government regulated a natural monopolist to achieve price efficiency without subsidies or price discrimination, the monopolist would: 
    • A. 

      Lose money and go out of business.

    • B. 

      Earn only normal profits.

    • C. 

      Earn economic profits.

    • D. 

      Earn less of a profit than before, but still earn a profit.

  • 12. 
    A major drawback of providing subsidies to private companies that are natural monopolies is that: 
    • A. 

      Taxpayers dislike this use of their tax dollars.

    • B. 

      Private companies are less efficient than public companies.

    • C. 

      The companies have no incentive to limit costs.

    • D. 

      The companies will allow product quality to decline.

  • 13. 
    Output regulation forces the natural monopolist to produce at an output: 
    • A. 

      That perfectly competitive firms would choose.

    • B. 

      Where MR = MC.

    • C. 

      Greater than its profit-maximizing choice.

    • D. 

      Where MR equals zero.

  • 14. 
    When market outcomes improve after government regulation is enforced: 
    • A. 

      Technical efficiency is achieved.

    • B. 

      The net effect of government intervention on society is definitely beneficial.

    • C. 

      Government intervention still may not be justified if the economic costs are too high.

    • D. 

      Allocative efficiency is achieved.

  • 15. 
    Government failure occurs when: 
    • A. 

      Dealing with a natural monopoly.

    • B. 

      There is market power.

    • C. 

      Government intervention fails to improve economic outcomes.

    • D. 

      Public goods are present.

  • 16. 
    Braden and Brendon considered starting a new skydiving company. Once they read the government regulations they would have to comply with, they changed their minds. This is an example of: 
    • A. 

      An administrative cost of regulation.

    • B. 

      An efficiency cost of regulation.

    • C. 

      A compliance cost of regulation.

    • D. 

      An equity cost of regulation.

  • 17. 
    When the regulatory process itself becomes a drag on economic growth, society experiences: 
    • A. 

      Compliance costs of regulation.

    • B. 

      Administrative costs of regulation.

    • C. 

      Budgetary costs of regulation.

    • D. 

      Efficiency costs of regulation.

  • 18. 
    In cost-benefit analysis, regulatory intervention can be justified if the: 
    • A. 

      Marginal benefit of regulation exceeds its marginal cost.

    • B. 

      Economic cost of regulation exceeds the value of the improvements in government intervention.

    • C. 

      Value of government failure exceeds the value of market failure.

    • D. 

      Intervention improves market outcomes, regardless of costs.

  • 19. 
    Which of the following markets has not been subject to substantial deregulation? 
    • A. 

      Airlines

    • B. 

      Computers

    • C. 

      Telecommunications

    • D. 

      Cable TV

  • 20. 
    In the real world, the choice is between: 
    • A. 

      Perfect markets and perfect government intervention.

    • B. 

      Perfect markets and imperfect government intervention.

    • C. 

      Imperfect markets and perfect government intervention.

    • D. 

      Imperfect markets and imperfect government intervention.

  • 21. 
    • A. 

      Increase

    • B. 

      Decrease

    • C. 

      Remain Constant

    • D. 

      Shift toward the origin

  • 22. 
    • A. 

      Upward sloping to the right

    • B. 

      Vertical

    • C. 

      Downward sloping to the right

    • D. 

      Horizontal

  • 23. 
    Workers typically require higher wages in order to work additional hours because of the: 
    • A. 

      Increasing opportunity cost of labor.

    • B. 

      Increasing marginal utility of income.

    • C. 

      Decreasing value of leisure time forgone.

    • D. 

      Constant marginal utility of income.

  • 24. 
    The substitution effect of wages states that a decreased wage rate: 
    • A. 

      Encourages people to consume less leisure.

    • B. 

      Will shift the labor supply curve rightward.

    • C. 

      Will lead to a movement up along the existing supply curve.

    • D. 

      Encourages people to work less hours.

  • 25. 
    Higher wage rates allow a person to reduce the hours worked without losing income. This is known as the: 
    • A. 

      Substitution effect.

    • B. 

      Income effect.

    • C. 

      Law of diminishing marginal utility.

    • D. 

      Law of diminishing marginal leisure.

  • 26. 
    Kip will work less hours if his salary increases. For Kip, the ___________ effect must outweigh the __________ effect. 
    • A. 

      Substitution; income

    • B. 

      Income; substitution

    • C. 

      Income; utility

    • D. 

      Utility; substitution

  • 27. 
    The determinants of the market supply of labor include all of the following except: 
    • A. 

      Taxes.

    • B. 

      Market Wage Rate.

    • C. 

      Income & Wealth.

    • D. 

      Prices of Consumer Goods

  • 28. 
    The elasticity of labor supply does not depend on: 
    • A. 

      The demand for labor.

    • B. 

      The prices of consumer goods.

    • C. 

      Income and wealth.

    • D. 

      Expectations for income or consumption.

  • 29. 
    The demand for labor and other factors of production typically declines in a recession because those factors: 
    • A. 

      Have become relatively more scarce than before the recession.

    • B. 

      Are no longer offered for sale in factor markets.

    • C. 

      Are derived from the demand for final output, which also declines in a recession.

    • D. 

      Have become more expensive than before the recession.

  • 30. 
    Students who major in computer science are paid a lot more when they graduate than those who major in philosophy because the: 
    • A. 

      Derived demand for computer science majors is less than the derived demand for philosophy majors.

    • B. 

      Marginal revenue product for computer science majors is less than the marginal revenue product for philosophy majors.

    • C. 

      The search for the meaning of life is a growth industry.

    • D. 

      Information technology is a growth industry.

  • 31. 
    When the MPP of labor is zero, ceteris paribus: 
    • A. 

      Employment can be increased only by offering a higher wage rate.

    • B. 

      No further increases in output can be achieved by using additional units of labor.

    • C. 

      MRP is at maximum.

    • D. 

      Additional units of labor must be employed because other factors of production are being wasted.

  • 32. 
    The marginal revenue product of labor is equal to: 
    • A. 

      The marginal physical product multiplied by the marginal revenue of the output.

    • B. 

      The change in the quantity of labor divided by the change in total revenue.

    • C. 

      The change in total output divided by the change in the quantity of labor.

    • D. 

      The percentage change in total revenue divided by the percentage change in the quantity of labor.

  • 33. 
    Marginal physical product diminishes as additional workers are hired because: 
    • A. 

      Each worker has an increasingly smaller amount of other factors with which to work.

    • B. 

      Each worker has an increasingly larger amount of other factors with which to work.

    • C. 

      Later hires are not as skilled as earlier hires.

    • D. 

      Later hires do not work as hard as earlier hires.

  • 34. 
    As marginal physical product diminishes, marginal revenue product: 
    • A. 

      Also diminishes.

    • B. 

      Is not effected.

    • C. 

      Rises.

    • D. 

      Rises at a diminishing rate and falls.

  • 35. 
    A competitive firm should continue to hire workers until the MRP is equal to: 
    • A. 

      Demand.

    • B. 

      The number of workers hired.

    • C. 

      The market wage rate.

    • D. 

      Zero.

  • 36. 
    As labor productivity increases, which of the following shifts in the labor market should occur? 
    • A. 

      Supply of labor should shift to the left

    • B. 

      Demand for labor should shift to the left

    • C. 

      Supply of labor should shift to the right

    • D. 

      Demand for labor should shift to the right

  • 37. 
    Other things being equal, which of the following would increase the market demand for labor? 
    • A. 

      A fall in the wage rate

    • B. 

      An increase in the marginal productivity of labor

    • C. 

      A decrease in the cost effectiveness of labor relative to other inputs

    • D. 

      A decrease in the market demand for the firm's output

  • 38. 
    If the demand for hair gel increases, the effect on the hair gel manufacturing job market will be to: 
    • A. 

      Increase the demand for labor and increase equilibrium wages.

    • B. 

      Reduce the supply of labor and increase equilibrium wages.

    • C. 

      Decrease the demand for labor and reduce equilibrium wages.

    • D. 

      Have no impact on equilibrium wages.

  • 39. 
    When there are more qualified applicants than job openings, this indicates that the: 
    • A. 

      Economy must be in a recession.

    • B. 

      Labor supply curve must be backward bending.

    • C. 

      Wages being offered are too high.

    • D. 

      Available jobs must be very desirable and pay high wages.

  • 40. 
    Republicans argue that labor demand is ________, so ________ jobs will be lost when the minimum wage is raised: 
    • A. 

      Inelastic; few

    • B. 

      Inelastic; many

    • C. 

      Elastic; few

    • D. 

      Elastic; many

  • 41. 
    The proportion of total income received by a particular group is called the groups: 
    • A. 

      Market share.

    • B. 

      Income share.

    • C. 

      Gini coefficient.

    • D. 

      Functional distribution of income

  • 42. 
    If the area between the diagonal line of absolute equality and the Lorenz curve is greater for the United States than for Japan, we can conclude that the: 
    • A. 

      Distribution of income in Japan is closer to being equal than in the United States.

    • B. 

      Distribution of income in Japan is as equal as in the United States.

    • C. 

      Distribution of income in Japan is less equal than in the United States.

    • D. 

      Relative distribution of income between the two countries is the same.

  • 43. 
    If the percentage of income paid in taxes increases as income rises, then the tax system is: 
    • A. 

      Regressive

    • B. 

      Progressive

    • C. 

      Marginal

    • D. 

      Nominal