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Question-1
If social marginal costs are _____________ private marginal costs, the level of output will be ____________ the socially optimal level.
(A)
Equal to, equal to
(B)
Greater than, higher than
(C)
Less than, lower than
(D)
All of the above
Question-2
When markets are imperfect and exhibit externalities:
(A)
There is an inefficient allocation and use of society's scarce resources
(B)
Government intervention will not improve market performance
(C)
Society's well-being is not affected
(D)
Government intervention will always improve market performance
Question-3
When you consume good Q, not only do you benefit from consuming the good, but other people benefit from your consumption as well. If firms produce good Q where P = MC, firms will be producing:
(A)
Less than the efficient level of output
(B)
The efficient level of output
(C)
More than the efficient level of output
(D)
So that consumer surplus is zero
Question-4
An externality is an example of a market failure because:
(A)
A good can be consumed by many people without having to pay for it
(B)
The market is under-producing a good
(C)
The price of the product does not reflect all costs
(D)
The price does not fluctuate with supply and demand
Question-5
All of the following statements are correct except:
(A)
When marginal social costs are greater than marginal private costs, there is a negative externality
(B)
When marginal social benefits are higher than marginal private benefits, governments should subsidize production
(C)
When marginal social costs are higher than marginal private costs, governments should tax production
(D)
When marginal private costs are equal to marginal private benefits, the level of output is socially optimal
Question-6
All of the following statements are wrong except:
(A)
A monopoly will always be Pareto efficient
(B)
A perfectly competitive market is not always Pareto efficient
(C)
Redistribution of income from producers to consumers can restore Pareto efficiency
(D)
The presence of externalities will preclude Pareto efficiency
Question-7
Which of the following would meet an economist's definition of a public good?
(A)
An elementary school
(B)
A hospital
(C)
A university
(D)
National defense
Question-8
If a large number of individuals are affected by an external benefit, private bargaining will not work because of:
(A)
The Coase theorem.
(B)
The fallacy of composition.
(C)
The free-rider problem.
(D)
Non-rivalry.
Question-9
Externalities are a problem only if:
(A)
The externalities are negative.
(B)
Decision makers do not take them into account.
(C)
All firms are perfectly competitive.
(D)
All firms are monopolistic.
Question-10
Market failure occurs when
(A)
Society chooses the optimal mix of output
(B)
When market prices signal what to produce
(C)
When a society does not vote on what should be produced
(D)
The market mechanism does not produce the optimal outcome
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Cambridge Secondary Grade 10
IGCSE
Practice in Related Chapters
Demand-Side and Supply-Side Policies
Elasticities
Competitive Markets Demand and Supply
The Foundation of Economics
The Theory of the Firms Production, Costs, Revenue and Profits
The Theory of the Firm II Market Structures
The Level of Over All Economic Activity
Aggregate Demand and Aggregate Supply
Government Intervention
Macroeconomic Objectives I : Low Unemployment,Low and Stable Rate of Inflation
Macro Economic Objectives II : Economic Growth and Equity in the Distribution of Income
Market Failure
International Trade
Exchange Rates and the Balance of Payments
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