Chapter 6

1. ECONs believe that markets work because people respond to a signal. This signal is:

• Supply

• Demand

• Price

• Failure

2. Another key feature of markets is the idea of owning things like your labor, your land, and your belongings. ECONs refer to this concept as

• Free will

• Property rights

• Communism

• Advantage

3. An unintended outcome that has an effect on someone else is called

• Bad luck

• An optimum

• An equilibrium

• An externality

4. Which is an example of a positive externality?

• Chemicals leaking into drinking water

• Noise from a nearby airport

• The bad smell from a nearby factory

• Someone else’s music that you enjoy overhearing

5. ECONs consider global warming to be a classic negative externality problem because

• The full costs of activities are rarely felt by the users

• Negative externalities are easily measured

• Innovations keep shifting the problem around

• International activities rarely contribute to the problem

6. If markets are working well, a problem like global warming could be solved

• When governments stop all fossil fuel use

• When entrepreneurs come up with less expensive ways of producing energy

• When nations run out of oil

• When one company controls all fossil fuel production

7. To deal with externalities, governments need to be

• Fair and impartial

• Captured by special interests

• Ignorant of science

• Responsive to market power

8. One of the biggest problems with externalities is that

• They rarely occur

• They are often overlooked

• Their impact is difficult to measure

• They only occur in the United States

9. A powerful company that is causing pollution

• Might be able to influence the government to not enforce its laws

• Will always look to reduce pollution on its own

• Desires to pass its cost along to its customers

• Will want to relocate to an area with stricter pollution laws

10. Markets clearly have problems like market power and market failure. Most ECONs believe

• That we should abandon market economies

• Other systems of economics are better

• Despite these problems, this is still a better system than all others

• Governments should try to own all property