Practice Questions
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What is the relationship between socially optimal output and actual output when negative externalities are present?
When negative externalities happen, the actual output is too high. Other options are incorrect because Some might think that the best output is more t...
What is the primary role of government intervention in achieving socially optimal output compared to actual output within an economy?
The government steps in to fix problems in the market. Other options are incorrect because Some might think the government should remove all businesse...
In the context of externalities, which of the following best describes the difference between socially optimal output and actual output when considering positive externalities?
Socially optimal output is higher than actual output when there are positive externalities. Other options are incorrect because This answer suggests t...
In a market experiencing positive externalities, what economic mechanism can the government use to encourage socially optimal output instead of the actual output, which may be lower due to underallocation of resources?
Subsidies are payments the government gives to help lower the cost of producing goods. Other options are incorrect because Some think taxes can help i...
In the context of market failure, which of the following strategies can effectively address negative externalities and promote socially optimal output?
Increasing taxes on goods that cause harm helps reduce their use. Other options are incorrect because Giving money to support harmful goods can make t...
What defines socially optimal output in economics?
Socially optimal output happens when the cost to produce one more item is equal to the benefit people get from it. Other options are incorrect because...
What is the main difference between socially optimal output and actual output in an economy?
Socially optimal output means the best level for everyone. Other options are incorrect because This idea suggests that we always make too much; This m...
In a competitive market, what is the relationship between socially optimal output and actual output at market equilibrium?
At market equilibrium, the amount produced is just right for society. Other options are incorrect because Some might think that the best output is alw...
Socially optimal output is to marginal cost as actual output is to what?
Socially optimal output happens when the cost to produce one more item equals the benefit to society. Other options are incorrect because Some might t...
In the context of socially optimal output, when the marginal social cost exceeds the marginal social benefit, it indicates that the market is producing at a(n) __________ level, leading to potential inefficiencies.
When the cost to society of producing one more unit is higher than the benefit, it means we are not using resources wisely. Other options are incorrec...
In a market where the actual output is greater than the socially optimal output, what is a likely consequence?
When production is too high, the cost to make one more item is greater than the benefit people get from it. Other options are incorrect because Some m...
If a government sets a price ceiling below the market equilibrium price, what is a likely effect on social welfare, and what is the underlying reason for this effect?
When the price is set too low, fewer goods are available. Other options are incorrect because Some might think lower prices always help everyone; It's...
Which of the following statements accurately describe the relationship between socially optimal output and actual output? Select all that apply.
None of the statements accurately describe the relationship between socially optimal output and actual output. Other options are incorrect because Thi...
A local government decides to impose a price ceiling on rent to make housing more affordable. Which of the following outcomes best represents the potential inefficiencies that could arise from this intervention?
When the government sets a limit on how much rent can be charged, landlords may not want to rent out their properties. Other options are incorrect bec...
Arrange the following steps in the correct order to analyze the effects of government intervention on socially optimal output: A) Evaluate the marginal costs and benefits of the intervention, B) Identify the presence of externalities in the market, C) Determine the actual output level, D) Assess the deadweight loss resulting from the intervention.
First, we need to find out if there are externalities, which are costs or benefits not reflected in the market. Other options are incorrect because Th...
How does the presence of externalities affect the socially optimal output compared to actual output in a market?
Externalities change the benefits and costs for everyone involved. Other options are incorrect because Some might think that externalities make the ac...
A local government decides to impose a price ceiling on rental apartments to make housing more affordable for low-income families. What is the likely outcome of this intervention in terms of socially optimal output and actual output?
When the government sets a price limit, landlords may not want to rent out their apartments. Other options are incorrect because Some might think that...
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