Market Economy Quiz Questions 22-23

What can cause market failure?

Externalities and market power

Which of the following represents an externality?

Factory pollution impacting people's health nearby

If a copper refinery does not bear the entire cost of emitted smoke, what is the likely outcome?

Emitting excess smoke

Which activity is most likely to result in an external benefit?

Elderly woman planting a flower garden Signup and view all the answers

If education produces external benefits for society, what might NOT be an appropriate policy for society to adopt?

Imposing penalties for not attending school Signup and view all the answers

Which of the following is true about a market economy compared to a centrally-planned economy in terms of efficiency?

It has less efficiency than a centrally-planned economy. Signup and view all the answers

How do prices direct economic activity in a market economy?

By influencing the actions of buyers and sellers. Signup and view all the answers

Which type of firm is most likely to have market power?

The last gas station in New Mexico for 100 miles. Signup and view all the answers

How does the 'invisible hand' direct economic activity?

Through prices. Signup and view all the answers

What can hinder the invisible hand's ability to coordinate decisions in an economy?

Government actions that distort prices. Signup and view all the answers

What is a primary function of prices in a market economy?

Relevant economic information. Signup and view all the answers

What was the average cost per house for the first 50 houses built by the construction company?

$160,000 Signup and view all the answers

If the company builds the 51st house, what will be the marginal cost of this additional house?

$180,000 Signup and view all the answers

Why are people willing to pay more for a diamond than for a bottle of water?

The marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. Signup and view all the answers

What impact have seat belt laws had based on the evidence provided?

All of the above are correct Signup and view all the answers

Which group benefits most from mandatory seat belt laws according to the available evidence?

Drivers Signup and view all the answers

If the company can experience a marginal benefit of $190,000 by building the 51st house, what should they do?

Build the house as it provides a benefit. Signup and view all the answers

What does market power refer to?

Power of a single person or small group to influence market prices Signup and view all the answers

Why could higher income tax rates on rich people be justified in the United States?

Enhanced equity for society Signup and view all the answers

What do the basic principles of economics imply policymakers should do?

Rely on markets to guide economic activity, except when markets produce inefficient or inequitable outcomes Signup and view all the answers

If you have $100 to invest and choose Project 1, what would be the total cost (including opportunity cost)?

$117 Signup and view all the answers

Which of the following is NOT a reason higher income tax rates on rich people could be justified?

Superior resource allocation Signup and view all the answers

What is one way policymakers should not intervene in economic activity?

Encourage people to specialize in particular economic activities Signup and view all the answers

What is the characteristic of rational people when making decisions at the margin?

Comparing marginal costs and marginal benefits Signup and view all the answers

How is a marginal change typically defined?

Small, incremental adjustment Signup and view all the answers

What does the marginal benefit of eating the third orange refer to?

Total benefit minus the total benefit she would have enjoyed from the first two oranges Signup and view all the answers

If three seats remain unsold on the Floating-On-Air Bus trip, how could the bus company increase its profit?

Charged at least $15 for each of the three remaining seats Signup and view all the answers

In the scenario provided, what type of people are described as making decisions at the margin?

Rational individuals Signup and view all the answers

What concept is used to determine Teresa's willingness to eat another orange in the scenario?

Marginal benefit analysis Signup and view all the answers