Managerial Economics, 7e (Keat)
Chapter 14 Government and Industry: Challenges and Opportunities for Today's Manager

Multiple-Choice Questions

1) Which of the following is not considered a rationale for the intervention of government in the market process in the United States?
A) the redistribution of income
B) the reallocation of resources
C) the long-run planning of scarce resources
D) the short-run stabilization of prices
E) All of the above
Answer: C
Diff: 2

2) Which of the following is the best example of a product or service that provides a benefit externality?
A) the construction of a private road that allows vehicles if a toll is paid
B) a public library
C) a bookstore that is open to everyone
D) All of the above
E) None of the above
Answer: B
Diff: 2

3) Which of the following is not an example of a cost externality?
A) the dumping of industrial waste into a lake
B) unsightly billboards
C) a neighbor that blasts his stereo system
D) the building of a new type of jet fighter bomber
E) All of the above
Answer: D
Diff: 2

4) The demand for products that provide benefit externalities is generally ________ the demand for products that do not.
A) greater than
B) less than
C) the same as
D) greater or less (depending on the market) than
Answer: B
Diff: 2

5) An example of a cost externality occurs when a mining company
A) dumps waste in river upstream from a popular fishing spot.
B) produces coal that is not in demand in a recession.
C) underpays its employees.
D) overwork its employees.
Answer: A
Diff: 2

6) An example of an activity that is likely to generate benefit (positive) externality is
A) a well manicured lawn of your neighbor.
B) growing wild flowers on city street islands.
C) fireworks on the 4th of July.
D) an educated workforce.
E) All of the above
Answer: E
Diff: 2

7) The supply for