Test Bank For Principles of Economics International Edition 5th Edition By N. Gregory Mankiw
TRUE/FALSE
1. Markets sometimes fail to allocate resources efficiently.
ANS: T DIF: 2 REF: 10-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Interpretive
2. When a transaction between a buyer and seller directly affects a third party, the effect is called an externality.
ANS: T DIF: 1 REF: 10-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Definitional
3. Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.
ANS: T DIF: 2 REF: 10-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Interpretive
4. In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.
ANS: T DIF: 1 REF: 10-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Definitional
5. In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.
ANS: F DIF: 1 REF: 10-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Interpretive
6. Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.
ANS: F DIF: 1 REF: 10-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Applicative
7. The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.
ANS: T DIF: 1 REF: 10-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Definitional
8. Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.
ANS: F DIF: 1 REF: 10-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Negative externalities MSC: Applicative
9. When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.
ANS: T DIF: 1 REF: 10-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Interpretive
10. When firms internalize a negative externality, the market supply curve shifts to the left.
ANS: T DIF: 2 REF: 10-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Negative externalities MSC: Analytical
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