AMERICAN HERITAGE FINAL EXAM UPDATED
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
1. List all the founding principles
Answer:
The Good Society
Freedom/Virtue/Welfare
Rule of Law
Market Economics
The Declaration of Independence
Question:
2. What are the differences between our nation at the time
of the founding and today?
Answer:
Agricultural and Rural --> Urban
Large Families --> Small Families
Little Formal Education --> Education Crucial
Low Life Expectancy --> High Life Expectancy
Largely Christian Believers with Common Moral View --> Diverse Religious Views
with Growing Minority of Non- Believers
Low Levels of Ethnic and Racial Diversity (+ Slavery) --> High Levels of Ethnic and
Racial Diversity
Concentrated on Eastern Seaboard --> Stretch from Coast to Coast
Question:
3. What are the implications questioning as a result of deep
change in our nation?
Answer:
How do these changes affect our understanding of the Constitution? Specifically,
what role, if any, should government play in the economy?
Question:
4. List all the market weaknesses
Answer:
Imperfect Information
Monopoly
Public Goods
Externalities
Economic Instability or Recession
Economic Injustice
,Question:
5. What are the three questions we need to ask when
analyzing market weaknesses?
Answer:
1. Problem: What is the source of the market breakdown?
2. Intervention: What could government do to correct the problem?
3. Evaluation: How successful is government intervention likely to be?
Unintended consequences?
Question:
6. Describe imperfect information
Answer:
Because they do not have complete or correct information, parties make
exchanges that might be harmful.
The value/cost of the good is not accurate.
Both parties are not better off
Question:
7. what are possible government responses to imperfect
information?
Answer:
Use the courts to recover damages
Require information labels and warnings
Control production and marketing of goods
Question:
8. What are the challenges of government intervention in
relieving imperfect information?
Answer:
they can prevent good exchanges from happening - like the example of FDA,
maybe lives could be lost
Question:
9. Describe monopoly and the problems?
Answer:
A monopoly can exercise significant control over prices because
it has exclusive control over production.
Inequality: Monopolist receives greater benefit from exchange
and can amass great wealth.
Inefficiency: exchanges are restricted because of price
, Question:
10. What are possible government responses to
monopolies?
Answer:
Government may regulate economically powerful firms, forcing them to
price their products and behave like competitive firms.
Example: Local utility company.
Government may take action to foster competition in order to eliminate
the economic power of firms.
Example: FCC decisions on exclusive cable TV deals for apartment
complexes.
Question:
11. What are the challenges of government intervention in
relieving monopolies?
Answer:
Differences in interests
Businesses have powerful incentives to lobby regulatory
agencies. Individual consumers have relatively small stakes
(and thus a collective action problem).
Antitrust laws
Court cases can be expensive, time-consuming
Question:
12. What is a recession?
Answer:
Definition: "a significant decline in economic activity spread across the
country, lasting more than a few months ..."
National Bureau of Economic Research Business Cycle Dating
Committee
Great Depression lasted 43 months
Previous post-WWII recessions have lasted from 6 to 16 months
(average: 10 months)
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
1. List all the founding principles
Answer:
The Good Society
Freedom/Virtue/Welfare
Rule of Law
Market Economics
The Declaration of Independence
Question:
2. What are the differences between our nation at the time
of the founding and today?
Answer:
Agricultural and Rural --> Urban
Large Families --> Small Families
Little Formal Education --> Education Crucial
Low Life Expectancy --> High Life Expectancy
Largely Christian Believers with Common Moral View --> Diverse Religious Views
with Growing Minority of Non- Believers
Low Levels of Ethnic and Racial Diversity (+ Slavery) --> High Levels of Ethnic and
Racial Diversity
Concentrated on Eastern Seaboard --> Stretch from Coast to Coast
Question:
3. What are the implications questioning as a result of deep
change in our nation?
Answer:
How do these changes affect our understanding of the Constitution? Specifically,
what role, if any, should government play in the economy?
Question:
4. List all the market weaknesses
Answer:
Imperfect Information
Monopoly
Public Goods
Externalities
Economic Instability or Recession
Economic Injustice
,Question:
5. What are the three questions we need to ask when
analyzing market weaknesses?
Answer:
1. Problem: What is the source of the market breakdown?
2. Intervention: What could government do to correct the problem?
3. Evaluation: How successful is government intervention likely to be?
Unintended consequences?
Question:
6. Describe imperfect information
Answer:
Because they do not have complete or correct information, parties make
exchanges that might be harmful.
The value/cost of the good is not accurate.
Both parties are not better off
Question:
7. what are possible government responses to imperfect
information?
Answer:
Use the courts to recover damages
Require information labels and warnings
Control production and marketing of goods
Question:
8. What are the challenges of government intervention in
relieving imperfect information?
Answer:
they can prevent good exchanges from happening - like the example of FDA,
maybe lives could be lost
Question:
9. Describe monopoly and the problems?
Answer:
A monopoly can exercise significant control over prices because
it has exclusive control over production.
Inequality: Monopolist receives greater benefit from exchange
and can amass great wealth.
Inefficiency: exchanges are restricted because of price
, Question:
10. What are possible government responses to
monopolies?
Answer:
Government may regulate economically powerful firms, forcing them to
price their products and behave like competitive firms.
Example: Local utility company.
Government may take action to foster competition in order to eliminate
the economic power of firms.
Example: FCC decisions on exclusive cable TV deals for apartment
complexes.
Question:
11. What are the challenges of government intervention in
relieving monopolies?
Answer:
Differences in interests
Businesses have powerful incentives to lobby regulatory
agencies. Individual consumers have relatively small stakes
(and thus a collective action problem).
Antitrust laws
Court cases can be expensive, time-consuming
Question:
12. What is a recession?
Answer:
Definition: "a significant decline in economic activity spread across the
country, lasting more than a few months ..."
National Bureau of Economic Research Business Cycle Dating
Committee
Great Depression lasted 43 months
Previous post-WWII recessions have lasted from 6 to 16 months
(average: 10 months)
