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This Document Contains Chapters 17 to 18 Chapter 17 The Land Market and Natural Resources MULTIPLE CHOICE 1. The category of resources economists call “land” refers to all of the following, except: A. nonrenewable natural resources. B. renewable natural resources. C. oceans. D. minerals. E. buildings. Answer: E 2. In the market for land as a resource, the demand curve is elastic while the supply curve is perfectly inelastic. Identify the underlying assumption. A. There are limited ways in which land can be used as a resource. B. Land as an input has large number of substitutes. C. There is a fixed supply of land. D. Land includes all immovable assets. E. Land looses productivity over time. Answer: C 3. The earnings of which of the following resources will comprise entirely of economic rent? A. Unskilled labor B. Coal C. Timber D. Water E. Biomass Answer: B 4. The supply curve in the market for land that has limited availability is: A. perfectly elastic. B. relatively inelastic. C. unit elastic. D. perfectly inelastic. E. relatively elastic. Answer: D 5. For resources with upward-sloping supply curves: A. earnings consist solely of economic rent. B. earnings consist of both transfer earnings and economic rent. C. earnings are called transfer earnings. D. earnings are called dividends. E. earnings consist entirely of in-kind transfers. Answer: B 6. What are the earnings of a resource with a perfectly elastic supply curve called? A. Transfer earnings B. Dividends C. Economic rent D. Capital gain E. Interest Answer: A 7. The returns that skilled engineering professionals earn consist of both transfer earnings and economic rent. This implies: A. demand for these professionals is highly elastic. B. the supply curve of skilled engineering professionals is upward-sloping. C. the supply curve of skilled engineering professionals is backward bending. D. demand for these professionals is perfectly inelastic. E. the supply curve of skilled engineering professionals is vertical. Answer: B 8. An increase in economic rent is simply a transfer from the buyer to the seller without any change in quantity. Identify the underlying assumption. A. Quantity supplied remains unchanged even when economic rent increases. B. Quantity supplied is positively related to economic rent. C. The relation between quantity supplied and economic rent is indeterminate for nonrenewable resources. D. Bargaining power of buyers is greater than sellers. E. Consumer surplus is a positive function of economic rent. Answer: A 9. When does the entire earning of a resource comprise of economic rent? A. When the supply curve of the resource is relatively elastic B. When the supply curve of the resource is horizontal C. When the supply curve of the resource is vertical D. When the supply curve of the resource is relatively inelastic E. When the supply curve of the resource is a ray through the origin Answer: C 10. Which of the following is true of earnings from land? A. An increase in economic rent leads to an increase in the supply of land. B. A decrease in transfer earnings from land leads to an increase in its demand. C. An increase in economic rent does not lead to an increase in the supply of land. D. A decrease in transfer earnings from land leads to a decrease in its supply. E. An increase in economic rent raises the elasticity of supply of land. Answer: C 11. Unproductive actions designed to increase income or wealth are known as: A. transfer search. B. incorporation. C. profit seeking. D. income search. E. rent seeking. Answer: E 12. Which of the following actions can be categorized as rent seeking? A. Increase in the income tax rates by the government B. Lobbying efforts of individuals or groups to gain favors from the government C. Profit maximizing firms charging a price greater than their marginal costs D. Export of goods from developing to developed countries E. Government intervention in the real estate market Answer: B 13. Lobbying efforts by individuals and firms: A. increase productive activities in the economy. B. merely transfer income and wealth from one individual or group to another. C. enable the firms to experience economies of scale. D. improves the overall standard of living in the economy. E. helps the economy to produce the efficient level of output. Answer: B NARRBEGIN: Figure 17. 1 The figure given below represents an imperfectly competitive resource market. Here common land (and not land used for specific purpose) is under consideration. Figure 17. 1 NARREND 14. In Figure 17. 1, the curve A indicates: A. demand curve for land. B. supply curve of land. C. marginal factor cost of land. D. marginal revenue product curve for land. E. value of marginal product curve of land. Answer: B 15. In Figure 17. 1, the curve B indicates: A. supply curve of land. B. marginal revenue product curve for land. C. value of marginal product curve of land. D. marginal factor cost curve of land. E. marginal product curve of land. Answer: B 16. The supply curve of land in the market for uses of land is: A. perfectly inelastic. B. nonexistent. C. perfectly elastic. D. positively sloped. E. negatively sloped. Answer: D 17. Which of the following is a nonrenewable source of energy? A. Corn B. Ethanol C. Petroleum D. Bagasse E. Biomass Answer: C 18. For any particular period of time, say a year, the supply of exhaustible resources: A. decreases infinitely with increase in price. B. remains unaffected by any change in price. C. increases infinitely with increase in price. D. increases to a certain extent with increase in price. E. decreases to a certain extent with increase in price. Answer: D 19. The marginal cost of extraction of a nonrenewable resource increases with passage of time because: A. the technology used in extraction depreciates in value. B. the price of the product that uses this resource increases. C. the exchange rate in the international market appreciates. D. the tragedy of commons problem is encountered. E. the resource gradually becomes scarce. Answer: E 20. What is the most likely consequence when people’s preference for current consumption rises in relation to future consumption? A. Interest rates will fall, and the rate of extraction of exhaustible natural resources will decrease. B. Interest rates will fall, and the rate of extraction of exhaustible natural resources will increase. C. Interest rates will rise, and the rate of extraction of exhaustible natural resources will decrease. D. Interest rates will rise, and the rate of extraction of exhaustible natural resources will increase. E. Interest rates will fall, and there will be no effect on the rate of extraction of exhaustible natural resources. Answer: D 21. Because there is a finite supply of a nonrenewable resource: A. it has inadequate substitutes. B. any use of that resource today will leave less available for tomorrow. C. such resources are replenished faster than they are consumed. D. the government subsidizes the extraction of such resources. E. any use of that resource today means the value of the resource in the future will be less. Answer: B 22. As extraction of a nonrenewable resource increases, the supply curve shifts up because: A. more substitutes become available. B. competition among the existing suppliers intensifies. C. the marginal cost of extracting any given amount increases. D. the resource finds alternative usage. E. the resource becomes less productive. Answer: C 23. On account of a massive construction boom in a country, the demand for iron ore increases substantially. This causes iron ore prices to escalate. Producers increase iron ore mining considerably in the short run, in spite of knowing that this will adversely affect future availability of ore. Which of the following is most similar to the scenario described above? A. Corn producers hoard their supplies in order to induce a price hike. B. Petroleum manufacturers increase extraction in response to sky-rocketing fuel prices. C. The government of a country makes afforestation mandatory for lumber firms. D. Impressive revenue generation induces the government of a country to impose additional fuel surcharge. E. To discourage smoking, the government of a country increases sales tax on cigarettes. Answer: B 24. The market’s role is to ensure that nonrenewable resources are allocated across time to where they are most highly valued. This implies, if more is used today: A. the future supply curve shifts downward. B. financial investments offer a lower rate of return. C. the return on saving the resource for future use rises. D. the expected demand for the resource in the future is low. E. technological advancement will guarantee a steady future supply. Answer: C 25. In the market for crude oil, everything held constant, if rate of interest of simple bank accounts or interest-bearing investments decline: A. the consumption of crude oil declines in the present period. B. the extraction of crude oil will increase today. C. the price of the crude oil in the international market falls in the present period. D. greater research and developments are conducted to locate new sites of crude oil in the present period. E. the extraction of crude oil will fall in the present period. Answer: E 26. As suppliers and potential suppliers of exhaustible resources continually calculate whether to extract now or in future, and how much to extract, an equilibrium arises when: A. the cost of extracting such resources is equal to its price. B. the rate of return for such resources equals the rate of interest on alternative uses of the funds. C. the cost of extracting such resources is equal to the price of the commodity using these resources. D. the price of such resources is equal to the rate of interest of bank accounts and other interest-bearing investments. E. the rate of return on alternative investments is equal to the cost of extracting such resources. Answer: B 27. The supply of hydro electric power: A. can be varied infinitely in the short run. B. remains fixed in the long run. C. decreases with increase in price in the short run. D. reduces in the future due to continuous consumption today. E. increases with increase in price in the long run. Answer: E 28. In the market for hardwood, everything else held constant, if the rate of interest increases: A. the price of the hardwood will fall today. B. the lumberjacks will harvest fewer trees today. C. prices of boats and furniture will increase in the present period. D. the lumberjacks will harvest all the trees leaving nothing for the future. E. the price of the hardwood will fall in the future. Answer: A 29. The markets for renewable and nonrenewable resources operate to ensure that: A. the producers using these resources earn above-normal profits even in the long run. B. the current and future prices of such resources remain high. C. the cost of extraction of such resources increase with increase in price. D. the current price of such resources should remain low but the future prices should increase to increase profitability of the producers. E. the current and future wants for these resources are satisfied in the least costly manner. Answer: E 30. The people of Andres, a small fishing village in a country, are facing extremely difficult times as their source of livelihood is threatened. Unregulated by the government, the coastline was subject to overfishing for a long time, adversely affecting the stock of fish. The variety of fish has declined and it takes much longer to haul in a decent catch these days. People in Andres are worried that they may have to migrate to other areas or look for alternative sources to earn a living. Which of the following is most similar to this scenario? A. Oil producers hoard the extracted oil to increase prices. B. Public highways get congested because they are nonexclusive. C. Poaching of the Javan rhino for its priced horns in unprotected forest belts of Indonesia has led to its near extinction. D. People in Jinbong village now have to pay to be able to fish in the local pond. E. A farmer shifts from potato to corn cultivation because the latter offers more profits. Answer: C 31. Lack of well-defined ____ may cause market failures. A. fiscal policies B. public transportation systems C. private property rights D. interest rates E. monetary policies Answer: C 32. Common ownership of resources: A. is a system by which the government allocates the rights to harvest renewable resources. B. may fail to ensure that harvesting of renewable resources does not exceed the maximum sustainable yield. C. is an environmentally effective method of correcting for an externality problem in renewable resource conservation. D. efficiently controls the harvesting of renewable resources. E. usually helps in preventing market failures. Answer: B 33. In the market for both renewable and nonrenewable resources, the timing of the use of resources depends on: A. the alternatives uses to which the resource is put. B. the market rate of interest. C. the availability of substitutes. D. the elasticity of demand for resources. E. government regulations. Answer: B TRUE/FALSE 1. For resources with vertical supply curves, earnings comprise of both economic rent and transfer earnings. Answer: False 2. The supply of land being fixed, the earnings from land are called transfer earnings. Answer: False 3. An increase in economic rent is accompanied by an increase in the quantity supplied of a resource. Answer: False 4. Like profit-seeking, rent seeking is also a productive activity and contributes to the growth of the economy. Answer: False 5. An increase in demand for housing will lead to less land to be available for cultivation. Answer: True 6. Extraction of petroleum in the current period will shift the supply curve of petroleum outward in the future resulting in a fall in price of petroleum. Answer: False 7. Gold mining and the supply of gold not only depend on its price but also on the market rate of interest. Answer: True 8. With the passage of time as the availability of an exhaustible resource declines, the cost of extraction of the resource increases. Answer: True 9. Anything that affects the marginal revenue product of a nonrenewable resource will affect the demand for that resource. Answer: True 10. If the owner of a nonrenewable resource expects his profits to be high in future, he will abstain from resource extraction in the present period. Answer: True 11. If a nonrenewable resource is used more in the current period, the return on saving the resource for future falls. Answer: False 12. If coal is extracted in an unsustainable manner in the current period, the price for steel is likely to increase in future. Answer: True 13. If corporate firms start offering higher dividends on their stock, the price of the exhaustible resource tends to fall in the current period. Answer: True 14. The role of the market for renewable resources is to determine a price at which the quantity of a resource is just sufficient to enable the resource to renew itself at a rate that best satisfies society’s wants. Answer: True 15. If the rate of extraction of a renewable resource is greater than its rate of replenishment, the price of the resource is likely to fall in future. Answer: False 16. Unlike nonrenewable resources, the timing of extraction of renewable resources are independent of the market rate of interest. Answer: False 17. The market for renewable resources often fail to allocate the resources to their highest-valued uses. Answer: False 18. A fisherman will catch and sell all the fishes in his pond in response to a substantial increase in the price of the fish even if he wishes to remain in the fishing business. Answer: False 19. Common ownership may fail to ensure that harvesting of renewable resources does not exceed the maximum sustainable yield. Answer: True 20. If a hydel power plant expects the interest rate to rise in near future, it might resort to installation of more turbines and dynamos in its firm in the present period. Answer: True 21. Privatization of common property leads to overexploitation of natural resources. Answer: False 22. When natural resources are commonly owned, the exhaustion of these resources are evenly spread over current and future periods. Answer: False Chapter 18 Aging, Social Security and Health Care MULTIPLE CHOICE 1. One of the major impacts of the aging of the population is: A. increase in the production of necessary goods in the economy. B. increase in government revenue generation. C. increase in the expenditure on health care. D. addition to the labor force. E. decrease in transfer payments made by the government. Answer: C 2. Which of the following acts specifies the tax contributions of the employer and the employee for the social security program in the U. S. ? A. The National Insurance Act B. The Child Support, Pension, and Social Security Act C. The Social Security Administration Act D. The Cost-of-Living Allowance Act E. The Federal Insurance Contributions Act Answer: E 3. Which of the following provides the best description of the Social Security System in the United States? A. A trust fund into which every American citizen has voluntarily paid a certain amount of money each year B. Funds that were deposited in a trust fund and allowed to accumulate interest-free for use in future years C. Funds that were deposited in a trust fund and allowed to accumulate at market rates of interest for general use in future years D. Funds that were deposited in a trust fund and allowed to accumulate at market rates of interest for the use in future years only by the individuals who voluntarily deposited the funds E. A transfer payment that taxes the working population today and pays benefits for current retirees from the proceeds of that tax. Answer: E 4. The social security system in the United States, which covers both social security and hospital insurance is financed by a: A. value added tax. B. payroll tax. C. insurance tax. D. property tax. E. mortgage registry tax. Answer: B 5. The demand for unskilled workers is highly price elastic. This means that a tax imposed partly on unskilled workers and partly on their employers: A. will be paid primarily by the employers. B. will be paid primarily by the employees. C. will be equally paid by employers and employees. D. will be totally passed on to consumers. E. will be paid only by the employers. Answer: B 6. The aging of the American population has brought to the forefront of the nation the concern that social security is no longer a viable option for future retirees and that the financial viability of the system depends on: A. how much each retiree has contributed over his or her lifetime to his or her individual social security account. B. the ratio of those working to those retired. C. the ratio of the total earning of an individual over his lifetime to the number of his service years. D. the interest rate in effect at the time a contributor first began to contribute to his or her individual social security account. E. the interest rate in effect over the entire course of time that a contributor has paid into the fund. Answer: B 7. A major concern about social security is that: A. individuals do not pay their contributions regularly into the social security fund. B. the money deposited by the contributors are invested in real estate market. C. the amount deposited in the social security fund is often inadequate and hence the amount received in retirement benefits is also negligible and insufficient to support a decent life. D. retirees have to undergo long drawn procedures to redeem their retirement benefits. E. the amount paid into the social security system by an individual is far less than the amount received by him in retirement benefits. Answer: E 8. The ratio of workers to social security beneficiaries has declined from 16. 5 in 1950 to about 3 in 2010 and is expected to decline to 2 by 2030. This trend indicates that: A. the surplus generated from the social security fund is going to increase over time. B. the revenue generated by the government from the social taxes is going to decline by 2030. C. the strength of the U. S. labor force will shrink over time. D. the social security contributions will fall short of the social security payments over time. E. the number of retirees will gradually decline and the youth employment in the economy will increase. Answer: C 9. Which of the following is the most controversial proposal suggested for making the system of social security more efficient? A. Privatizing the system of social security B. Raising the eligibility age from 75 years to 85 years C. Limiting the disbursement of retirement benefits to the backward section of the population only D. Paying social security benefits to everyone irrespective of their levels of income E. Reducing the amount disbursed in retirement benefits Answer: A 10. The money raised from the social security taxes is used: A. to invest in foreign bonds. B. to invest in domestic interest bearing assets. C. to meet recurring government expenditures. D. to fund the unemployment insurance program. E. to fund the scholarship programs in foreign universities. Answer: C 11. _____ taxes have risen more rapidly in the past two decades than any other tax. A. Social security B. Corporate C. Property D. Sales E. Income Answer: A 12. If social security is privatized: A. the contributors would receive fixed and defined retirement benefits. B. the contributors would earn on the basis of pay-as-you-go system. C. individuals would be paid on the basis of their incomes. D. individuals would earn returns on their investments made out of their savings. E. individuals would not be required to pay taxes and hence would receive no benefit. Answer: D 13. One proposal for solving the social security problem is privatization. This means: A. refusing to provide retirement benefits, thereby forcing people to use private savings. B. providing retirement benefits only to those who had worked for a private firm. C. providing retirement benefits only to those who also save privately. D. allowing participants to choose how their tax funds are to be invested. E. preventing participants from paying taxes on their retirement income. Answer: D 14. Privatization of the social security system would lead to which of the following adverse outcomes? A. The private companies would make a lot of profit and deprive the investors of their legitimate returns. B. Many people would invest irrationally and end up earning nothing. C. The amount of benefit received would drastically fall as the private firms do not have social obligations. D. It might lead to accumulation of substantial black money. E. There would be an increase in government borrowing and debt creation. Answer: B 15. Which of the following would not reduce the problem with the social security system? A. Reducing the benefits paid to the retirees B. Paying retirement benefits only to those without any alternative source of income C. Increasing the minimum age for receiving retirement benefits D. Privatizing the system by allowing individuals to decide how to invest their social security taxes E. Including everyone in the Congressional retirement program Answer: E 16. Which of the following factors are responsible for the growth of older population in the developed countries? A. High birth and death rates B. High birth rate and decreased life expectancy C. Low birth rates and increased life expectancy D. Low birth rates and high death rates. E. High birth rates and increased life expectancy. Answer: C 17. The ratio of the number of people in the population aged 65 and older to the number of people aged 20 to 64 has risen in most of the developed countries as: A. longevity has declined and the families have had many children. B. the family planning laws have been relaxed. C. birth rates have increased over time. D. there has been an increased preference for male child. E. longevity has increased and the families have had fewer children. Answer: E 18. The elderly support ratio recorded by the U. S. Bureau of the Census in 1985 is expected to rise post 2005 because: A. a large number of people born between 1946 and 1961 would still be in the labor force. B. the cost of medical care would increase over time. C. the availability of medical care would decline in future. D. a large working-age population would retire. E. population of every economy would continue to rise. Answer: D 19. Which of the following is a myth about social security? A. The money deposited by the depositors belong to the government. B. The social security fund is economically unviable. C. There can be deficit in the Social Security Trust Fund. D. The social security fund benefits only the low income earners and unemployed youth. E. Social security ensures that only the elderly poor are cared for. Answer: E 20. One of the myths about social security is that the government runs a surplus in the Social Security Trust Fund. Which of the following debunks this myth? A. The number of people retiring every year has steadily declined since 1950. B. There are no trust funds and the proceeds from the social security taxes are used to purchase Treasury bonds. C. The number of people joining the workforce is increasing over time. D. The social security taxes has been increased by the government since 1990. E. The retirees receive much less than the amount paid by the current workers under the pay-as-you go system. Answer: B 21. _____ account for a majority of the health care expenditure in the United States. A. Physician’s services B. Prescription drugs C. Personal health care services D. Hospital services E. Medical equipment’s at retail stores Answer: D 22. Which of the following is a joint federal and state health program that pays for the health care of poor families and disabled? A. Medicure B. Medicare C. Mediaid D. Medicaid E. Mediclaim Answer: D 23. Medicare is a federal program that provides health care for: A. women. B. victims of AIDS, child abuse, and drug addiction. C. the elderly and disabled. D. the homeless. E. poor families who could not otherwise obtain health care. Answer: C 24. Which of the following is a consequence of government programs like Medicare and Medicaid? A. Increased cost of medical care B. Increased price elasticity of demand for medical care C. Increase in the the number of private health insurance companies D. Increased demand for health care E. Increase in the marginal cost of medical care Answer: D 25. Which of the following has led to increased cost of health services? A. The demand for health services have declined over the time. B. The demand for health services has increased relative to its supply. C. Supply of health services have increased relative to its demand. D. Both demand and supply of health services have increased at the same pace. E. The government has invested heavily on health infrastructure. Answer: B 26. What is the effect of the aging population on the price of health care? A. The supply of health care rises, but the price remains constant. B. The demand for health care falls, and the price declines. C. The demand for health care rises, and the price increases. D. The supply of health care rises, and the price increases. E. The demand for health care rises, but price remains constant. Answer: C 27. The high cost of hospital care in the U. S. is primarily attributable to: A. the way in which capital purchases are financed. B. the increased occupancy rate in the hospitals. C. the lack of sufficient hospital beds. D. the greater availability of physicians. E. the increased malpractice by the physicians. Answer: A 28. “Rising health care costs might be considered a vicious circle. As health care costs rise, people want more, and this drives up demand, which in turn increases health care costs. ” What is wrong with this statement? A. If prices rise, people do not demand more. B. If costs rise, people are not willing and able to purchase more if they have to pay for the health care. C. If an increase in demand for health care is matched with an equal increase in supply, the cost of health care remains unaffected. D. Demand does not rise simply because health care costs rise. E. Health care costs do not rise simply because demand increases. Answer: B 29. Empirical evidence suggests that the aging of the population stimulates the demand for health care. In the light of this observation, identify the correct statement. A. The aged population accounts for around eleven percent of hospital expenditures. B. Per capita spending on personal health care for those 85 years of age or over is less than that for people of 60-65 years. C. The per capita consumption of nursing home care by people between 60-65 years is twice that of people of age 85 years or more. D. About sixty percent of the expenditure on nursing home care are for people aged between 30 and 40 years. E. About ninety percent of the expenditure on nursing home care are for people aged 65 years or over. Answer: E 30. Which of the following statements about Medicare is correct? A. Medicare covers the entire cost of hospital or nursing home care of the old people. B. Medicare had emerged in the 1950s. C. Medicare covers the first 100 days of hospital or nursing home care of the old people. D. Medicare is available on the basis of need. E. Medicare is funded by property taxes. Answer: C NARRBEGIN: Figure 18. 1 The figure given below shows the demand (D1 and D2) and supply (S) curves of medical care. Figure 18. 1 NARREND 31. Refer to Figure 18. 1. One possible reason for the shift of the demand curve from D1 to D2 is the: A. increase in the cost of producing new drugs. B. restriction imposed by the government on the sale of new drugs. C. emergence of Medicare and Medicaid programs of the U. S. government. D. economies of scale experienced while producing medical care. E. decrease in the cost of producing medical care. Answer: C 32. Which of the following can increase the price of medical care even if the demand for medical care remains constant? A. Decrease in the cost of medical care B. Availability of high end technology in modern medical care C. Increase in the cost of medical care D. General improvement in the standard of living E. An increase in preference for herbal medicines among people Answer: C 33. The bulk of the cost of hospital care is borne by third-parties. Such third-parties are: A. relatives and friends. B. financial institutions. C. insurance companies. D. voluntary organizations. E. employers. Answer: C NARRBEGIN: Figure 18. 2 The figure given below shows the demand (D) and supply (S1 and S2) curves of medical care. Figure 18. 2 NARREND 34. Refer to Figure 18. 1. The possible reason behind the shift of the supply curve from S1 to S2 is: A. increased preference for herbal medicine among the people. B. increase in the marginal cost of producing medical care. C. increase in the per capita income of the people. D. economies of scale being experienced in the production of medical care. E. greater health consciousness among the people. Answer: B 35. The increase in physicians’ fees in the U. S. is most likely to have resulted from a(n): A. decline of the supply of doctors. B. decline in the number of hospitals. C. increase in emigration from the U. S. D. increase in the supply of doctors. E. increase in the U. S. population. Answer: E 36. Which of the following has resulted from the payment system laid down by the American Medical Association? A. The payment system has discouraged specialization among workers. B. The cost of doing business for the physicians declined due to increased competition. C. The cost of malpractice insurance has declined. D. The quantity of medical equipments purchased by the physicians has increased. E. The number of tests ordered by physicians has decreased. Answer: D 37. Physicians’ fees have risen rapidly in the face of an expanding supply of physicians in the last two decades. Which of the following reasons best explains this phenomenon? A. Restrictions on advertising enable established physicians to keep new, entering physicians from competing for their customers. B. Fees charged by physicians are fixed by the government. C. Consumers are able to obtain complete information about fees or professional qualities of the physicians. D. Restrictions on physicians’ freedom to relocate within certain geographic boundaries have led to price fixing within the medical profession. E. The demand for physicians’ services has steadily declined over the past three decades. Answer: A 38. The American Medical Association’s payment system is an example of a: A. price floor. B. price ceiling. C. tariff. D. barrier to entry. E. quota. Answer: B 39. The American Medical Association helps increase: A. price competition among local physicians in the same area. B. the ability of each physician to act as a local monopoly. C. freedom of physicians to advertise. D. consumers’ ability to obtain complete information about prices or professional quality. E. the ability of new, entering physicians to compete with established ones by charging lower prices. Answer: B NARRBEGIN: Figure 18. 3 The figure given below represents demand for and supply of hospital beds in Anytown, U. S. A. , as shown by curves D and S1 in the following figure. If the hospital receives permission to expand, its new supply curve will be S2. Price level P1 is the fixed prospective payment reimbursement rate paid by Medicare to the hospital, regardless of actual cost. Figure 18. 3 NARREND 40. According to Figure 18. 3, the surplus of beds caused by the fixed reimbursement rate, before the hospital expansion, is the difference between _____ and _____. A. Q2; Q1 B. Q4; Q1 C. Q4; Q2 D. Q3; Q1 E. Q3; Q2 Answer: D 41. According to Figure 18. 3, the surplus of beds caused by the fixed reimbursement rate, after the expansion of the hospital is the difference between _____ and _____. A. Q5; Q1 B. Q5; Q2 C. Q4; Q2 D. Q3; Q2 E. Q3; Q1 Answer: A 42. According to Figure 18. 3, given the existing demand for its beds, after the hospital completes its expansion it will maximize its occupancy rate by charging a price level: A. P1. B. P2. C. P3. D. (P1+ P2)/2. E. P3-P1. Answer: C 43. Based on the information given in Figure 18. 3, in order to increase its occupancy rate prior to the expansion, this hospital should: A. discourage comparison-shopping by prospective patients. B. give financial incentives to doctors without privileges to admit patients. C. increase the number of beds. D. eliminate its advertising budget. E. lower its price for certain cost-effective medical procedures. Answer: E 44. In the context of the hospitals in the United States, which of the following statements is correct? A. In the past 20 years, the number of beds per hospital declined by 11 percent. B. In the past 20 years, inpatient days increased by 43 percent. C. The current occupancy rate in the hospitals is around 66 percent. D. In the past 20 years, the length of stay in the hospitals has increased by 24 percent. E. In the past 20 years, the occupancy rates have increased by nearly 13 percent. Answer: C 45. A physician who prescribes unnecessary tests to her patients is most likely defending: A. his patients against chronic diseases. B. the reputation of all physicians. C. the general health of the community. D. the hospital’s reputation and goodwill. E. himself or herself against the possibility of a malpractice suit. Answer: E 46. Which of the following facts is true of medicare? A. It has caused the price elasticity of the demand for health care to increase. B. It is financed by state excise and sales taxes and is available on the basis of need and not disability. C. It covers the cost of first 100 days of hospital treatment provided only to the unemployed people. D. It covers the cost of the first 100 days of hospital or nursing home care for the elderly. E. They are subsidies given by the U. S. government to private health insurance companies. Answer: D 47. Empirical evidences suggest that the expenditure on prescription drugs grew by an annual average of 15 percent since 1995. In the light of this observation which of the following statements is true? A. The restrictions imposed by the government on drug manufacturing firms were relaxed B. Medicare has increased the ability to buy drugs C. FDA has been easily granting permission to drug manufacturing companies to sell their new drugs. D. Cost of producing new drugs have declined E. Discovery of expensive new drugs reduced the demand for prescription drugs. Answer: B 48. Which of the following statements is true of the market for prescription drugs in the U. S. ? A. The FDA encourages the entry of new drugs in the market. B. The time required to bring a new drug to the market has declined over time. C. The drug manufacturing firms enjoy economies of scale, hence the cost of producing new drugs have declined. D. More than 60 percent of the biopharmaceutical products approved in the U. S. originated either in Europe or in Japan. E. The latest estimate of the cost to develop a new drug and bring it to market exceeds $800 million. Answer: E 49. Health care can be regarded as a(n): A. normal good. B. Giffen good. C. scarce good. D. luxury good. E. inferior good. Answer: C 50. Why is health care considered to be an economic good and is subject to the laws of economics? A. Health care at times can be obtained even without paying a price for it. B. Health care is easily available. C. The supply of health care is greater than its demand. D. Health care is a social good available at subsidized rates to the poor. E. Supply of health care is scarce compared to its demand. Answer: E 51. Which of the following reasons justifies the increase in the expenditure on prescription drugs in the U. S. ? A. Lack of sufficient investment in research and development of new drugs B. Proper functioning of the Medicare and Medicaid programs C. Insufficient supply of prescription drugs leading to a shortage D. Increasing returns to scale experienced by the drug manufacturers E. Decrease in the time required to introduce a new drug into the market Answer: B 52. Which of the following is true of the demand curve for medical care? A. The demand curve for medical care is infinitely elastic. B. The demand curve for medical care is relatively inelastic. C. The demand curve for medical care shifts upward due to an increase in the price of medical care. D. The demand curve for medical care is relatively flatter than the supply curve of medical care. E. The demand curve for medical care is horizontal at the equilibrium price of medical care. Answer: B NARRBEGIN: Figure 18. 4 The figure below shows the demand (AD) and supply (SS1) curves of medical care. Figure 18. 4 NARREND 53. In Figure 18. 4, which of the following regions on the graph represents those people who are not willing and able to pay the price P1 for availing medical care? A. AE B. SE C. AD D. ED E. ES1 Answer: D 54. Refer to Figure 18. 4. If the third-party system now induces those people to avail medical care who were earlier not willing to avail it, the demand curve AD would: A. shift inward. B. become perfectly elastic. C. become vertical. D. remain unchanged. E. shift outward. Answer: E 55. People who oppose the establishment of an open market in human organs justify their view on the ground that: A. it would yield huge profits to the privately owned medical care centers. B. it would lead to a chronic organ shortage. C. it would result in the exploitation of the poor. D. it would induce people to fritter away money earned through the sale of organs. E. although the poor people are in greater need of the organs, yet they would not be able to afford them because of their high price. Answer: C 56. Why does the demand curve for human organs tend to be relatively price inelastic? A. The demand for human organs change substantially with change in price. B. The people in demand of the organs are ready to pay almost anything to get the organs. C. The supply of human organs tend to be greater than the demand for the organs. D. There are a large number of people in the market for human organs who are in need of them but cannot afford them. E. There is a presence of strong parallel or underground market for the human organs. Answer: B NARRBEGIN: Figure 18. 5 The following figure shows the demand (D) and supply (S) curves of human organs Figure 18. 5 NARREND 57. In Figure 18. 5, the equilibrium quantity of human organs in the market is: A. Q5. B. Q2. C. Q3. D. Q1. E. Q4. Answer: D 58. In Figure 18. 5, if the price for human organs falls to P3: A. there will be a surplus of human organs by Q5 - Q2. B. there will be a shortage of human organs by Q4 - Q3. C. there will be a shortage of human organs by Q5 - Q3. D. there will be a surplus of human organs by Q4 - Q3. E. there will be a shortage of human organs by Q5 - Q1. Answer: B 59. Which of the following factors might have led to a fall in the price of human organs from P2 to P3 in Figure 18. 5? A. A decline in supply of human organs in the black market B. An increase in demand for human organs C. Increased supply of alternatives to organs created by technological changes D. A restriction imposed by the government on trading in human organs E. Reduced motivation among the donors to donate their organs Answer: C 60. Why are black markets for human organs less efficient than free markets? A. Prices are lower in black markets than in free markets. B. Traders are discreet in free markets. C. There are a more traders in the black market compared to the free markets. D. Buyers cannot meet openly with the sellers in black market as they can in free markets. E. There is a steady supply of human organs in the free market while the supply in black market is unpredictable. Answer: D 61. Why didn’t the supply of medical care increase in the United States in spite of increase in its price? A. Pharmacists were earlier restricted to dispense drugs but now they are allowed to do so B. New drugs can easily enter the U. S. market as government regulations are lax C. The Medicare system restricts the movement of resources from one part of the market to another D. Relaxation of the restrictions imposed by the U. S. government earlier E. The market for medical care is a free and unregulated market. Answer: C TRUE/FALSE 1. The social security taxes that the working population pays today are used to provide benefits for current retirees. Answer: True 2. If the ratio of those working to those retired increases it implies that “The World is Aging. ” Answer: False 3. As three-quarters of the world’s population resides in the developing countries, these areas contain around 80 percent of the world’s elderly population. Answer: False 4. One way in which the U. S. government can reduce the deficit in the social security fund is by lowering the social security tax rate. Answer: False 5. The social security system in Chile is partially privatized as a part of the taxes is used to run government expenses and the rest can be invested by the worker. Answer: False 6. It has been argued that a worker would receive a greater return if they invest in prospective ventures than what they would earn from social security. Answer: True 7. The U. S. government spends more on social security than it spends on national defense. Answer: True 8. The social security tax proceeds are often used to purchase government bonds. Answer: True 9. The system of adjusting social security benefits annually as the cost of living increases in the United States has been a result of intellectual foresight by the American economists. Answer: False 10. The results of privatizing the social security system has been negative at large in most of the economies. Answer: False 11. Direct payments for medical care consist of out-of-pocket payments made by individuals, copayments, and deductibles required by many third-party payers. Answer: True 12. Medicare helps only the neediest people, including many elderly people whose Medicaid benefits have run out. Answer: False 13. The new technologies developed in the field of medical care are cost-increasing innovations and because costs are not paid by the users, the increased technology increases demand. Answer: True 14. Demand for medical care remaining constant, if the supply of medical care is decreased, the price of medical care increases. Answer: True 15. The American Medical Association restricts advertising by the physicians, thus it can be partly held responsible for the inability of consumers to obtain complete information about prices or professional quality of physicians. Answer: True 16. As per the payment system laid down by the American Medical Association the physicians are reimbursed on the basis of their speciality. Answer: True 17. Medical care in the United States is not only expensive but also technologically backward than other nations. Answer: False 18. The American Medical Association encourages the young physicians to advertise to attract more patients. Answer: False 19. The existence of new drugs reduces the demand for drugs as they are highly expensive. Answer: False 20. The demand curve for medical care is positively sloped. Thus irrespective of the high price of medical care its demand is always high. Answer: False 21. Government programs like Medicaid and Medicare have been created as per the belief that everyone has an inalienable right to medical care. Answer: True 22. The introduction of government and private insurance programs to cover the cost of medical care has led to a decline in the price of medical care. Answer: False 23. Many doctors, lawyers, and economists opine that an existence of a legal market for human organs will help cure their chronic shortage that is gripping transplant medicine. Answer: True 24. A part of the supply to the human organs market comes from the organs harvested from people who die suddenly, such as those killed in accidents. Answer: True 25. Government restrictions prevent the market from allocating resources to where they have the highest value. Answer: True 26. If a futures market for human organs can be developed, everyone would tend to volunteer to donate organs as they would receive some income for almost no cost. Answer: True 27. It has been pointed out that there is a unidirectional flow of human organs- from poor to rich, from the Third World to the First World. Answer: True Test Bank for Microeconomics William Boyes, Michael Melvin 9781111826154

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