Macro+Practice+test+2 (1)

Macro+Practice+test+2 (1) - MACRO Practice Test 2 1...

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MACRO Practice Test 2 1. Spillover costs arise: A) when firms pay more than the opportunity cost of resources. B) when the demand curve for a product is located too far to the left. C) when firms "use" resources without being compelled to pay for their full costs. D) only in capitalistic societies. 2. Spillover benefits refer to: A) benefits that accrue to parties other than the producer and buyer of a good. B) the benefits that resource suppliers obtain from the production and sale of a good. C) the benefit that a consumer receives from buying a good. D) the combined benefits that buyer and seller receive from a voluntary market transaction. 3. A spillover cost or spillover benefit is also known as a(n): A) marginal benefit. B) principal-agent problem. C) transfer payment. D) externality. 4. When spillovers cause substantial positive benefits for third parties, a competitive market: A) underallocates resources to the production of the good. B) overallocates resources to the production of the good. C) is allocatively efficient. D) compensates people for the value of the benefits that these third parties receive. 5. If a market is competitive but externalities are present, the resulting equilibrium output: A) will also be the most efficient output. B) will always be less than the most efficient output. C) will always be greater than the most efficient output. D) may be either larger or smaller than the most efficient output. Page 1
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6. When the production or consumption of a good involves an externality: A) resources are necessarily overallocated to the product. B) resources are necessarily underallocated to the product. C) someone not involved in buying or selling the good is affected. D) the market will efficiently allocate resources to its production. 7. If there are important spillover benefits associated with the consumption of a product: A) government should enact legislation to prohibit the production of the commodity. B) special excise taxes should be levied on producers of the product. C) the market demand curve understates the relative importance of the product and resources are therefore underallocated to its production. D) the market supply curve for the product lies too far to the right to provide an efficient allocation of resources. 8. Unlike a private good, a public good: A) produces no spillover benefits or spillover costs. B) has no opportunity costs. C) has benefits that are available to all, regardless of payment. D) is characterized by rivalry and excludability. 9. An example of a public good is: A) a movie theater. B) a freight train. C) the war on terrorism. D) Disneyland. 10. Nonexcludability is the idea that: A) government actions cannot remedy market failure. B)
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Macro+Practice+test+2 (1) - MACRO Practice Test 2 1...

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