ECON 101 EXAM PRACTICE
QUESTIONS AND ANSWERS
Economic Benefit - CORRECT ANSWER-value of something
that provides "utility" (utility-derive from clean air, wilderness
and wildlife, from recreation--- Positive, monetary effects local
businesses have on a community.
Economic Cost - CORRECT AN...
Economic Benefit - CORRECT ANSWER-value of something
that provides "utility" (utility-derive from clean air, wilderness
and wildlife, from recreation--- Positive, monetary effects local
businesses have on a community.
Economic Cost - CORRECT ANSWER-The value of all
resources used to produce a good or service; opportunity cost
Marginal benefit - CORRECT ANSWER-= additional benefit
(change in total benefits) from an additional unit of the good
(change in quantity). MB=TB/Q Marginal Benefit= Total
Benefit/Quantity
Marginal Cost - CORRECT ANSWER-Additional cost (change
in total cost) from an additional unit of the good (change in
quantity): MC=TC/Q Marginal Cost= Total Cost/Quantity
Externality - CORRECT ANSWER-is an effect of a purchase or
use decision by one set of parties on others who did not have a
choice and whose interests were not taken into account.
Example: Pollution
Public Good - CORRECT ANSWER-is a good for which there is
nonrival consumption
, In terms of benefits and costs, the efficient level of an activity is
that level which - CORRECT ANSWER-maximizes net benefits
If a particular action causes net benefits to increase, then -
CORRECT ANSWER-) the Pareto Criterion can be met, since it
is possible to fully compensate any "losers" while leaving some
people better off
Pareto Criterion - CORRECT ANSWER-a change is Pareto
Superior if --at least one person is made better off and no one
is made worse off-- (relative to their initial endowment),
A market is operating efficiently when... - CORRECT
ANSWER-A) the sum of producer and consumer surplus is
maximized in that market
B) the net benefits obtained from that market are maximized
C) every unit for which the benefits exceed the costs is
produced, and no unit for which the costs exceed the benefits is
produced
Market Failure means the market mechanism will - CORRECT
ANSWER-fail to produce the efficient quantity of a good and/or
service.
Potential Sources of Market Failure: - CORRECT ANSWER-
Externalities, Public Goods, imperfect competition, imperfect
information
An Example of an external cost associated with the production
of a good - CORRECT ANSWER-any cost of production that is
not borne the producer or consumer of the good, but is borne
instead by some third party
A substantial external cost in the production of good X will tend
to cause - CORRECT ANSWER-Overproduction of good x and
the price of good x will be too low
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