Question 1

When transactions costs are high or free-rider problems exist, a private remedy for an externality may be feasible.

Accepted Answer

A) True 
 B)False

Question 2

The main reason special interest groups are able to get costly programs enacted that favor their interests is that

Accepted Answer

A) politicians are corrupt. 
B) those in special interest groups have no morals. 
C) many politicians are members of such special interest groups, and they have similar interests. 
D) program costs are spread out, so individuals have little incentive to lobby against such programs. 
E) special interest group representatives are very persuasive, and they convince the majority of voters of the need for such programs. 
A) politicians are corrupt. 
B) those in special interest groups have no morals. 
C) many politicians are members of such special interest groups, and they have similar interests. 
D) program costs are spread out, so individuals have little incentive to lobby against such programs. 
E) special interest group representatives are very persuasive, and they convince the majority of voters of the need for such programs.

Question 3

When a good is produced or consumed, the side effects on the people who are not directly involved in the market are called

Accepted Answer

A) transaction costs. 
B) complements. 
C) free riders. 
D) externalities. 
E) public goods. 
A) transaction costs. 
B) complements. 
C) free riders. 
D) externalities. 
E) public goods.

Question 4

The tradable permits market needs the government not so much to define the rights but to make the market work and achieve efficiency.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 15-2  
-Refer to Exhibit 15-2. The deadweight loss due to externality is represented by the area

Accepted Answer

A) A + B. 
B) C + D. 
C) A + B + C + D. 
D) E + F. 
E) A + B + E + F. 
A) A + B. 
B) C + D. 
C) A + B + C + D. 
D) E + F. 
E) A + B + E + F.

Question 6

If college education produces a positive externality, the government may

Accepted Answer

A) subsidize college education. 
B) try to convert college education into a negative externality. 
C) try to ignore college education. 
D) try to recover each student's marginal social benefit from education. 
E) tax education. 
A) subsidize college education. 
B) try to convert college education into a negative externality. 
C) try to ignore college education. 
D) try to recover each student's marginal social benefit from education. 
E) tax education.

Question 7

What is a free-rider problem and how does the government deal with this type of problem?

Accepted Answer

A free-rider problem arises when those w

Question 8

If government associates an external benefit with the production of a good or service, it may correct for the misallocation of resources by shifting the

Accepted Answer

A) supply curve to the left. 
B) demand curve to the left. 
C) supply curve to the right. 
D) demand curve to the right. 
E) supply and demand curves to the left. 
A) supply curve to the left. 
B) demand curve to the left. 
C) supply curve to the right. 
D) demand curve to the right. 
E) supply and demand curves to the left.

Question 9

The median voter theorem states that the politician holding the median view among politicians will get the majority of votes.

Accepted Answer

A) True 
 B)False

Question 10

Pollution-abatement expenditures are

Accepted Answer

A) taxes on companies that produce pollution. 
B) a method of defining private property rights. 
C) the same as tradable permits. 
D) the costs of reducing pollution. 
E) a private remedy. 
A) taxes on companies that produce pollution. 
B) a method of defining private property rights. 
C) the same as tradable permits. 
D) the costs of reducing pollution. 
E) a private remedy.

Question 11

Exhibit 15-1  
-Suppose that people value the continued presence of certain species of animals in rural areas, but home-building in those areas reduces the populations of the animals. Home-building creates

Accepted Answer

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

Question 12

Many people like command and control because

Accepted Answer

A) it is the most direct method of dealing with pollution externalities. 
B) the total amount of pollution can be controlled better than with a tax. 
C) it is the least expensive method for controlling pollution. 
D) it provides an opportunity to find all those who are polluting the environment. 
E) it allows firms to use technology to change the amount of pollution associated with production. 
A) it is the most direct method of dealing with pollution externalities. 
B) the total amount of pollution can be controlled better than with a tax. 
C) it is the least expensive method for controlling pollution. 
D) it provides an opportunity to find all those who are polluting the environment. 
E) it allows firms to use technology to change the amount of pollution associated with production.

Question 13

Balancing the costs and benefits of a good or service is called

Accepted Answer

A) cost minimization. 
B) cost-benefit analysis. 
C) marginal revenue analysis. 
D) profit maximization. 
E) average benefit analysis. 
A) cost minimization. 
B) cost-benefit analysis. 
C) marginal revenue analysis. 
D) profit maximization. 
E) average benefit analysis.

Question 14

Suppose a candy producer's operation interferes with doctors working at a hospital. Ronald Coase's solution to the problem most likely would be to

Accepted Answer

A) do nothing. 
B) shut down the candy production facility. 
C) find a private remedy. 
D) ask the city mayor to intervene on the part of the hospital. 
E) ask the city mayor to intervene on the part of the candy producer. 
A) do nothing. 
B) shut down the candy production facility. 
C) find a private remedy. 
D) ask the city mayor to intervene on the part of the hospital. 
E) ask the city mayor to intervene on the part of the candy producer.

Question 15

What is involved in a cost-benefit analysis aimed at determining whether to increase the size of a city police force?

Accepted Answer

City government should consider the marg

Question 16

A free-rider problem occurs when

Accepted Answer

A) people who pay for a good do not benefit from the good. 
B) people who do not pay for a good benefit from the good. 
C) no one benefits from the good. 
D) no firm produces the good. 
E) the good does not exist. 
A) people who pay for a good do not benefit from the good. 
B) people who do not pay for a good benefit from the good. 
C) no one benefits from the good. 
D) no firm produces the good. 
E) the good does not exist.

Question 17

Tradable permits work well in the case of

Accepted Answer

A) sulfur dioxide emissions. 
B) global warming. 
C) air pollution in cities. 
D) ocean oil spills. 
E) water pollution in rivers. 
A) sulfur dioxide emissions. 
B) global warming. 
C) air pollution in cities. 
D) ocean oil spills. 
E) water pollution in rivers.

Question 18

A negative global externality occurs when one country does research and others benefit.

Accepted Answer

A) True 
 B)False

Question 19

The aspect of a good in which one person's increased consumption of it does not decrease the amount available for consumption by others is called

Accepted Answer

A) exclusiveness. 
B) nonexcludability. 
C) rivalry. 
D) nonrivalry. 
E) excludability. 
A) exclusiveness. 
B) nonexcludability. 
C) rivalry. 
D) nonrivalry. 
E) excludability.

Question 20

If government associates an external cost with the production of a good or service, it may correct for the misallocation of resources by shifting the

Accepted Answer

A) supply curve to the right. 
B) demand curve to the left. 
C) supply curve to the left. 
D) demand curve to the right. 
E) supply and demand curves to the left. 
A) supply curve to the right. 
B) demand curve to the left. 
C) supply curve to the left. 
D) demand curve to the right. 
E) supply and demand curves to the left.

Exam 15: Public Goods, Externalities, and Government Behavior

When transactions costs are high or free-rider problems exist, a private remedy for an externality may be feasible.

The main reason special interest groups are able to get costly programs enacted that favor their interests is that

When a good is produced or consumed, the side effects on the people who are not directly involved in the market are called

The tradable permits market needs the government not so much to define the rights but to make the market work and achieve efficiency.

Exhibit 15-2 -Refer to Exhibit 15-2. The deadweight loss due to externality is represented by the area

If college education produces a positive externality, the government may

What is a free-rider problem and how does the government deal with this type of problem?

If government associates an external benefit with the production of a good or service, it may correct for the misallocation of resources by shifting the

The median voter theorem states that the politician holding the median view among politicians will get the majority of votes.

Pollution-abatement expenditures are

Exhibit 15-1 -Suppose that people value the continued presence of certain species of animals in rural areas, but home-building in those areas reduces the populations of the animals. Home-building creates

Many people like command and control because

Balancing the costs and benefits of a good or service is called

Suppose a candy producer's operation interferes with doctors working at a hospital. Ronald Coase's solution to the problem most likely would be to

What is involved in a cost-benefit analysis aimed at determining whether to increase the size of a city police force?

A free-rider problem occurs when

Tradable permits work well in the case of

A negative global externality occurs when one country does research and others benefit.

The aspect of a good in which one person's increased consumption of it does not decrease the amount available for consumption by others is called

If government associates an external cost with the production of a good or service, it may correct for the misallocation of resources by shifting the

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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