buyers.
ii) Pizza sellers will produce pizzas at the point where the cost of production is less than or equal to the
market price of $1.
iii) Buyers will consume pizza as long as the benefit that they derive from consumption is at least equal to
the market price of $1.
Difficulty: Medium
AACSB: Application of Knowledge
Topic: The Second Principle of Economics: Equilibrium
6) When a market is in equilibrium, both buyers and sellers do not perceive a benefit from changing their
behavior. Why?
Answer: In most economic situations, an economic agent is not optimizing individually. His decision is
influenced by the decisions taken by other economic agents. In equilibrium, each and every economic
agent is doing the best that they can do, given the information they have and given the actions of other
economic agents. Therefore, nobody perceives a benefit from changing his or her behavior.
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Second Principle of Economics: Equilibrium
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7) The term ʺfree ridersʺ refers to people who ________.
A) donʹt contribute but still benefit from othersʹ actions
B) make economic decisions randomly and are not rational
C) selflessly pay for othersʹ consumption of goods and services
D) haggle over the prices of the goods and services that they buy
Answer: A
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Free‐Rider Problem
8) Who among the following is an example of a free rider?
A) An individual who sneaks into a music concert
B) A consumer who buys her groceries from a nearby store
C) A taxpayer who exercises in the public park near his house
D) A club member who makes voluntary contributions to the club
Answer: A
Difficulty: Medium
AACSB: Application of Knowledge
Topic: The Free‐Rider Problem
9) Who among the following is an example of a free rider?
A) A housekeeper cleaning a house
B) A tax evader enjoying national security
C) A consumer paying for pollution control
D) An individual who buys a ticket for a baseball game
Answer: B
Difficulty: Medium
AACSB: Application of Knowledge
Topic: The Free‐Rider Problem
10) Each member in a group might do whatʹs best for himself or herself instead of behaving in a way that
optimizes the well‐being of the entire group. This gives rise to the problem of ________.
A) Pareto inefficiency
B) free riding
C) irrational behavior
D) disequilibrium
Answer: B
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Free‐Rider Problem
11) Which of the following statements is true of free riding?
A) Free riding is easy to detect and punish.
B) Free riding is reduced with social pressure.
C) Free riding is not affected by incentives.