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Unformatted text preview: Chapter 10 Externalities MULTIPLE CHOICE 1. Which of the following is the best statement about markets? a. Markets are usually a good way to organize economic activity. b. Markets are generally inferior to central planning as a way to organize economic activity. c. Markets fail and are therefore not an acceptable way to organize economic activity. d. Markets are a good way to organize economic activity in developed nations, but not in less-developed nations. ANSWER: a. Markets are usually a good way to organize economic activity. TYPE: M SECTION: 0 DIFFICULTY: 1 2. In a market economy, economic activity is guided by a. the government. b. businesses. c. central planners. d. prices. ANSWER: d. prices. TYPE: M SECTION: 0 DIFFICULTY: 1 3. Because decisions in a market economy are guided by individual self-interest, there is a. a strong need for government intervention in the market. b. less efficiency in market economies than in command economies. c. nevertheless the ability to achieve desirable economic well-being for society as a whole. d. more need for a strong legal system to control individual greed. ANSWER: c. nevertheless the ability to achieve desirable economic well-being for society as a whole. TYPE: M SECTION: 0 DIFFICULTY: 1 4. The “invisible hand” leads a market to maximize a. producer profit from that market. b. total benefit to society from that market. c. both equity and efficiency in that market. d. output of goods or services in that market. ANSWER: b. total benefit to society from that market. TYPE: M SECTION: 0 DIFFICULTY: 2 5. In the absence of externalities the invisible hand of the market place a. leads to a market outcome that maximizes total benefit to society. b. is unable to resolve inherent inefficiencies in the market system. c. induces people to act in a manner inconsistent with self interest. d. increases the transactions cost of contracting between parties to an exchange. ANSWER: a. leads to a market outcome that maximizes total benefit to society. TYPE: M SECTION: 0 DIFFICULTY:1 6. One advantage market economies have over other types of economies is that market economies a. provide an equal distribution of goods and services to consumers. b. establish government economic control. c. solve the problem of scarcity. d. are more efficient. ANSWER: d. are more efficient. TYPE: M SECTION: 0 DIFFICULTY: 1 21 22 ✦ Chapter 10/Externalities 7. The term market failure refers to a. a situation in which the market, on its own, fails to allocate resources efficiently....
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- Spring '10
- Externalities, producer, A., Difficulty