Economics End of term 2 exam

Four years ago a man took over Tyrone’s country. With the help of the military he made major changes to the economy. All decisions are made by the ruler of Tyrone’s country. What is being produced, who gets which resources, and all major decisions are decided by the new ruler of Tyrone’s country. What kind of economic system is this?

• Market Economy

• Traditional Economy

• Mixed Economy

• Command Economy

Maeve lives in a city that really values art, and because they value art many artists live there and create new things. There is a demand for artist’s in Maeve’s city and this sets the price of the art work. What kind of a market system is this?

• Traditional Economy

• Market Economy

• Command Economy

• Mixed Economy

Most countries in the world, including the US, use what economic system?

• Traditional

• Command

• Market

• Mixed

Which question is NOT one of the three economic questions that every country must answer?

• What should we make?
• Who should we make things for?
• Why should we make something?

A situation of market failure is said to exist if;

• buyers and sellers pay for the true opportunity costs of their actions

• there are no externalities

• the government provides merit goods free

• third parties in society are affected and not compensated

When social costs are greater than private costs, there is a;

• positive externality

• negative externality

• less than socially optimal output

• socially optimal output

Which of the following show a positive externality?

• fireworks

• landscaping around my house

• profits are too low

• profits are too high

Public goods, such as defence, are not supplied by the price system because;

• the capital cost is too high

• of the free rider problem- there is no way to ensure that everybody benefiting from defence will pay for it

• public goods are necessities and therefore cannot be left to the price system

• monopolies would make supernormal profits

Which of the following is a characteristic of a merit good?

• It could be provided by the free market, but not in sufficient quantities

• It is always provided free to consumers

• It tends to generate negative externalities, so governments restrict its consumption

• Once the good has been supplied to one consumer, there is no additional cost in supplying it to others

A tin-mining company is found guilty of polluting a river. Which one of the following government measures would an economist describe as an appropriate solution to deal with this external cost?

• Imposition of regulations and direct control on the company

• A reduction of private property rights over the river

• Increase tax on the tin produced

• Nationalization of the tin-mining company