Chapter 1 part 4
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Chapter 1 part 4

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Questions and Answers

Market failure can be caused by

  • low consumer demand.
  • government intervention and price controls.
  • externalities and market power. (correct)
  • high prices and foreign competition.

    • An example of an externality is the impact of

  • bad weather on the income of farmers.
  • the personal income tax on a person's ability to purchase goods and services.
  • pollution from a factory on the health of people in the vicinity of the factory. (correct)
  • increases in health care costs on the health of individuals in society.

    • If a copper refinery does not bear the entire cost of the smoke it emits, it will

  • not emit any smoke so as to avoid the entire cost of the smoke.
  • emit lower levels of smoke.
  • emit an acceptable level of smoke.
  • emit too much smoke. (correct)

    • Which of these activities will most likely result in an external benefit?

    <p>An elderly woman plants a flower garden on the vacant lot next to her house.</p> Signup and view all the answers

    If education produces external benefits for society, which of the following might NOT be an appropriate policy for society to adopt regarding education?

    <p>programs which promote the hiring of high school dropouts</p> Signup and view all the answers

    Market power refers to the

    <p>power of a single person or small group to influence market prices.</p> Signup and view all the answers

    In the United States, higher income tax rates on rich people could be justified on the basis of

    <p>enhanced equity for society.</p> Signup and view all the answers

    The basic principles of economics imply that policymakers should

    <p>rely on markets to guide economic activity, except when markets produce inefficient or inequitable outcomes.</p> Signup and view all the answers

    Suppose you have $100 to invest. There are 3 potential one-year projects you can choose from and they only differ in their returns. After one year, you can get $110 from Project 1, $102 from Project 2, and $115 from Project 3. What would be the total cost (including the opportunity cost) if you choose Project 1?

    <p>$115</p> Signup and view all the answers

    Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. He can sell the boat as it is now for $300. What are the cost and benefit associating with the decision of making the additional repair?

    <p>700, 800</p> Signup and view all the answers

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