CHAPTER 5 When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreation-al waterway lowering the value boaters receive from the waterway, the Answer a. firm's cost of producing electricity will be higher than the community's true opportunity cost. b. community generally receives an external benefit from the production of electricity. c. firm will tend to produce too little electricity from the viewpoint of economic efficiency. d. firm's cost of producing electricity will be lower than the community's true opportunity cost. NOT B Does economic efficiency indicate that all pollution should be eliminated? Answer a. No, pollution does not harm most people, and therefore, we should not worry about it. b. Partially, pollution caused by business firms should be eliminated, but people should still be allowed to pollute if they want. c. Yes, pollution is bad; it harms both people and the environment, and therefore, it should be elimin-ated. d. No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost. D Markets fail to allocate resources efficiently when Answer a. the government refuses to intervene in private markets. b. prices fluctuate. c. people who have property rights abuse their privileges. d. property rights are poorly enforced or not well established. D Which of the following is the most fundamental function of government? Answer a. provision of postal services and garbage collection b. regulating prices and wages c. protection of individuals and their property d. imposing progressive taxes to fund income-transfer programs NOT D A free-rider problem exists when a good that has the following characteristic? Answer
a. Elastic demand. b. Inelastic demand. c. Rivalry in consumption. d. Nonexcludable. D As a general rule, if pollution costs are external, firms will produce Answer a. too little of a polluting good. b. an optimal amount of a polluting good. c. cannot be determined without additional information. d. too much of a polluting good. D When competitive forces in an industry are weak, Answer a. the operational efficiency of private firms will be enhanced. b. the absence of competition generally leads to overproduction. c. higher prices and less than optimal production may result. d. prices may exceed the amount consumers are willing to pay. C Which of the following goods is the market sector most likely to undersupply (relative to the criterion of ideal economic efficiency)? Answer a. television sets b. steel c. Internet access d. mosquito abatement programs D if production of a good creates external benefits, a competitive market may produce Answer a. more output than would maximize profit. b. more output than is efficient.
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