Question 1

Agencies such as the Environmental Protection Agency widely use

Accepted Answer

A) assignments of property rights to internalize externalities. 
B) user fees. 
C) command and control methods. 
D) cost-benefit remedies. 
E) private remedies. 
A) assignments of property rights to internalize externalities. 
B) user fees. 
C) command and control methods. 
D) cost-benefit remedies. 
E) private remedies.

Question 2

Which of the following statements is true?

Accepted Answer

A) Markets respond to consumer preferences, whereas government responds only to societal preferences. 
B) Markets keep costs low because producers desire to please people regardless of cost. 
C) Government keeps costs low because it has a moral obligation to voters. 
D) It is safe to assume that government will do what is best for society, whereas markets do what is best for business owners. 
E) The lack of the profit motive encourages supervisors in government agencies to make decisions concerning employees on the basis of issues other than merit. 
A) Markets respond to consumer preferences, whereas government responds only to societal preferences. 
B) Markets keep costs low because producers desire to please people regardless of cost. 
C) Government keeps costs low because it has a moral obligation to voters. 
D) It is safe to assume that government will do what is best for society, whereas markets do what is best for business owners. 
E) The lack of the profit motive encourages supervisors in government agencies to make decisions concerning employees on the basis of issues other than merit.

Question 3

An example of a good for which there is rivalry in consumption is

Accepted Answer

A) national defense. 
B) clean air. 
C) grapes. 
D) education. 
E) a radio signal transmitted through the air. 
A) national defense. 
B) clean air. 
C) grapes. 
D) education. 
E) a radio signal transmitted through the air.

Question 4

Government failure occurs as a result of corruption.

Accepted Answer

A) True 
 B)False

Question 5

The tendency of the major parties in a two-party system to have very similar policy positions is a result of the convergence of positions.

Accepted Answer

A) True 
 B)False

Question 6

The free-rider nature of a good prevents the private market from supplying the good.

Accepted Answer

A) True 
 B)False

Question 7

Marginal social cost equals the sum of marginal costs of producers.

Accepted Answer

A) True 
 B)False

Question 8

Postal delivery is a service that has

Accepted Answer

A) rivalry in consumption and excludability. 
B) none of these. 
C) nonrivalry in consumption and excludability. 
D) rivalry in consumption and nonexcludability. 
E) nonrivalry in consumption and nonexcludability. 
A) rivalry in consumption and excludability. 
B) none of these. 
C) nonrivalry in consumption and excludability. 
D) rivalry in consumption and nonexcludability. 
E) nonrivalry in consumption and nonexcludability.

Question 9

A positive externality occurs when the marginal social benefits are less than the marginal private benefits.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that workers in a candy factory have the right to noise-pollute near a hospital that employs 400 doctors. Which of the following statements is true?

Accepted Answer

A) The workers will require payment from the doctors to stop polluting. 
B) None of the 400 doctors can refuse to provide health care to the workers. 
C) All of the doctors will have to provide health care to the workers at no charge. 
D) Doctors who refuse to provide health care to candy workers will not have a free ride on any private agreement between the hospital and the workers. 
E) The hospital must expand its services in order to pay for the workers to stop the noise. 
A) The workers will require payment from the doctors to stop polluting. 
B) None of the 400 doctors can refuse to provide health care to the workers. 
C) All of the doctors will have to provide health care to the workers at no charge. 
D) Doctors who refuse to provide health care to candy workers will not have a free ride on any private agreement between the hospital and the workers. 
E) The hospital must expand its services in order to pay for the workers to stop the noise.

Question 11

Government can internalize externalities by

Accepted Answer

A) taxing goods with negative externalities and subsidizing goods with positive externalities. 
B) taxing goods with positive externalities and subsidizing goods with negative externalities. 
C) taxing goods with either positive or negative externalities. 
D) subsidizing goods with either positive or negative externalities. 
E) letting private markets determine output levels. 
A) taxing goods with negative externalities and subsidizing goods with positive externalities. 
B) taxing goods with positive externalities and subsidizing goods with negative externalities. 
C) taxing goods with either positive or negative externalities. 
D) subsidizing goods with either positive or negative externalities. 
E) letting private markets determine output levels.

Question 12

Exhibit 15-3  
-Exhibit 15-3 shows the preference rankings of voters Tom, Dick, and Harry for policies A, B, and C. If an election were held between policy A and policy B, which voter or voters would vote for policy A?

Accepted Answer

A) Dick 
B) Tom 
C) Tom and Harry 
D) Tom and Dick 
E) Dick and Harry 
A) Dick 
B) Tom 
C) Tom and Harry 
D) Tom and Dick 
E) Dick and Harry

Question 13

Reducing pollution by regulating what firms or individuals produce is a classic example of

Accepted Answer

A) command and control. 
B) free-riding. 
C) transactions costs. 
D) private remedies. 
E) the importance of assigning private property rights. 
A) command and control. 
B) free-riding. 
C) transactions costs. 
D) private remedies. 
E) the importance of assigning private property rights.

Question 14

Exhibit 15-1  
-Refer to Exhibit 15-1. The price and quantity combination that represents social efficiency for this market is

Accepted Answer

A) P1 and Q1. 
B) P1 and Q2. 
C) P2 and Q1. 
D) P2 and Q2. 
E) P3 and Q1. 
A) P1 and Q1. 
B) P1 and Q2. 
C) P2 and Q1. 
D) P2 and Q2. 
E) P3 and Q1.

Question 15

Exhibit 15-2  
-Refer to Exhibit 15-2. The diagram illustrates an example of

Accepted Answer

A) a free-rider problem. 
B) efficiency. 
C) a tax. 
D) a positive externality. 
E) a negative externality. 
A) a free-rider problem. 
B) efficiency. 
C) a tax. 
D) a positive externality. 
E) a negative externality.

Question 16

Suppose a local city constructs an expressway that provides better access to its downtown area. The project is financed by raising the community's property taxes. If you live in a nearby town but often visit that community's downtown area, are you a free rider? Why? What can the community do to eliminate the free-rider problem?

Accepted Answer

You are a free rider in this case becaus

Question 17

A producer cannot at low cost exclude people from the benefits of

Accepted Answer

A) computers. 
B) grapes. 
C) national defense. 
D) lumber. 
E) cars. 
A) computers. 
B) grapes. 
C) national defense. 
D) lumber. 
E) cars.

Question 18

National defense is a good example of a free-rider problem.

Accepted Answer

A) True 
 B)False

Question 19

The table below shows the marginal benefit per year (in dollars) and the marginal cost per year (in dollars) of hiring additional police officers in a small community.

Accepted Answer

The answer of The table below shows the marginal benefit...

Question 20

An example of a good produced by the government that does not have the features of a public good is

Accepted Answer

A) the judicial and legal system. 
B) postal delivery. 
C) police protection. 
D) national defense. 
E) highways. 
A) the judicial and legal system. 
B) postal delivery. 
C) police protection. 
D) national defense. 
E) highways.

Exam 15: Public Goods, Externalities, and Government Behavior

Agencies such as the Environmental Protection Agency widely use

Which of the following statements is true?

An example of a good for which there is rivalry in consumption is

Government failure occurs as a result of corruption.

The tendency of the major parties in a two-party system to have very similar policy positions is a result of the convergence of positions.

The free-rider nature of a good prevents the private market from supplying the good.

Marginal social cost equals the sum of marginal costs of producers.

Postal delivery is a service that has

A positive externality occurs when the marginal social benefits are less than the marginal private benefits.

Suppose that workers in a candy factory have the right to noise-pollute near a hospital that employs 400 doctors. Which of the following statements is true?

Government can internalize externalities by

Exhibit 15-3 -Exhibit 15-3 shows the preference rankings of voters Tom, Dick, and Harry for policies A, B, and C. If an election were held between policy A and policy B, which voter or voters would vote for policy A?

Reducing pollution by regulating what firms or individuals produce is a classic example of

Exhibit 15-1 -Refer to Exhibit 15-1. The price and quantity combination that represents social efficiency for this market is

Exhibit 15-2 -Refer to Exhibit 15-2. The diagram illustrates an example of

A producer cannot at low cost exclude people from the benefits of

National defense is a good example of a free-rider problem.

The table below shows the marginal benefit per year (in dollars) and the marginal cost per year (in dollars) of hiring additional police officers in a small community.

An example of a good produced by the government that does not have the features of a public good is

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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