Question 1

The external costs of severe air pollution are usually paid:

Accepted Answer

A) by no one. 
B) by the producer alone. 
C) in part by the public through higher medical bills. 
D) totally by the consumers who purchase the product. 
A) by no one. 
B) by the producer alone. 
C) in part by the public through higher medical bills. 
D) totally by the consumers who purchase the product. C

Question 2

Refer to the below diagram of the market for product X.Curve St embodies all costs (including spillovers) and Dt embodies all benefits (including spillovers) associated with the production and consumption of X.Assuming the equilibrium output is Q2, we can conclude that the existence of spillover:

Accepted Answer

A) costs have resulted in an over-allocation of resources to X. 
B) benefits have resulted in an over-allocation of resources to X. 
C) costs have resulted in an under-allocation of resources to X. 
D) benefits have resulted in an under-allocation of resources to X. 
A) costs have resulted in an over-allocation of resources to X. 
B) benefits have resulted in an over-allocation of resources to X. 
C) costs have resulted in an under-allocation of resources to X. 
D) benefits have resulted in an under-allocation of resources to X. A

Question 3

When producing a good generates external or negative externalities, the private market for that good tends to produce too:

Accepted Answer

A) much of the product at too low a price. 
B) much of the product at too high a price. 
C) little of the product at too low a price. 
D) little of the product at too high a price 
A) much of the product at too low a price. 
B) much of the product at too high a price. 
C) little of the product at too low a price. 
D) little of the product at too high a price A

Question 4

The optimal quantity of a public good occurs where the marginal benefit of the citizen who has the highest preference for the good just equals the good's marginal cost.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is correct?

Accepted Answer

A) Private goods are subject to rivalry and excludability 
B) Private goods are indivisible. 
C) Private goods are subject to the free-rider problem. 
D) Private goods are produced in efficient or optimal amounts despite substantial externalities. 
A) Private goods are subject to rivalry and excludability 
B) Private goods are indivisible. 
C) Private goods are subject to the free-rider problem. 
D) Private goods are produced in efficient or optimal amounts despite substantial externalities.

Question 6

Suppose that a large tree on Shawn's property is blocking Sam's view of the lake below.Shawn accepts Sam's offer to pay Shawn $100 for the right to cut down the tree.This situation describes:

Accepted Answer

A) the Coase Theorem. 
B) the diamond-water paradox. 
C) logrolling. 
D) a market for externality rights. 
A) the Coase Theorem. 
B) the diamond-water paradox. 
C) logrolling. 
D) a market for externality rights.

Question 7

From society's perspective, if MB2 and MC1 are relevant:

Accepted Answer

A) Q4 represents too little pollution moderation. 
B) Q1 represents too little pollution moderation. 
C) Q3 represents an optimal amount of pollution moderation. 
D) none of these is true. 
A) Q4 represents too little pollution moderation. 
B) Q1 represents too little pollution moderation. 
C) Q3 represents an optimal amount of pollution moderation. 
D) none of these is true.

Question 8

Which one of the following might shift the marginal cost curve from MC1 to MC2?

Accepted Answer

A) major new studies strongly linking cancer to pollution 
B) improved technology for reducing pollution 
C) a change in consumer tastes from services to manufactured goods 
D) an increase in the price of recycled goods 
A) major new studies strongly linking cancer to pollution 
B) improved technology for reducing pollution 
C) a change in consumer tastes from services to manufactured goods 
D) an increase in the price of recycled goods

Question 9

Answer the next question on the basis of the following information is for public good.Pa and Pb represent the prices that citizens (a) and (b), the only two people in this nation, are willing to pay for additional units of a quantity (Qc) of the public good.Qs represents the quantity of the public good supplied by government at each of the collective prices.In equilibrium, the marginal benefit and cost of the public good will be:

Accepted Answer

A) $7 
B) $6 
C) $5 
D) $3 
A) $7 
B) $6 
C) $5 
D) $3

Question 10

A public good can be best defined as one that:

Accepted Answer

A) has no externality associated with its production or consumption. 
B) entails rising costs of production. 
C) yields widespread benefits which cannot readily be denied to the public at large. 
D) yields benefits only to individuals who decide to buy it. 
A) has no externality associated with its production or consumption. 
B) entails rising costs of production. 
C) yields widespread benefits which cannot readily be denied to the public at large. 
D) yields benefits only to individuals who decide to buy it.

Question 11

The Coase Theorem:

Accepted Answer

A) applies only to circumstances in which externalities are extensive and bargaining costs are high. 
B) holds that the median voter will decide the outcome of elections. 
C) states that in some circumstances majority voting can yield inconsistent results. 
D) suggests that in some circumstances government intervention is not needed to resolve externality problems. 
A) applies only to circumstances in which externalities are extensive and bargaining costs are high. 
B) holds that the median voter will decide the outcome of elections. 
C) states that in some circumstances majority voting can yield inconsistent results. 
D) suggests that in some circumstances government intervention is not needed to resolve externality problems.

Question 12

Answer the question based on the following information.Way-Below Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism.The university is now considering several alternative levels of crime control.This table shows the expected annual costs and benefits of these alternatives.The marginal costs of additional levels of crime control are:

Accepted Answer

A) $60,000 for Level Two. 
B) $20,000 for Level Three. 
C) $5,000 for Level Five. 
D) $10,000 for Levels Two, Three, Four, and Five. 
A) $60,000 for Level Two. 
B) $20,000 for Level Three. 
C) $5,000 for Level Five. 
D) $10,000 for Levels Two, Three, Four, and Five.

Question 13

The difference between the price consumers are willing to pay and the actual price they do pay is referred to as:

Accepted Answer

A) consumer surplus. 
B) producer surplus. 
C) Positive cash flows. 
D) Cash outflows. 
A) consumer surplus. 
B) producer surplus. 
C) Positive cash flows. 
D) Cash outflows.

Question 14

There is a positive relationship between equilibrium price and the amount of producer surplus.

Accepted Answer

A) True 
 B)False

Question 15

The following information is for four highway programs of increasing scope.All figures are in millions of dollars.The data indicate that:

Accepted Answer

A) there is no highway program which is economically justifiable on the basis of cost-benefit analysis. 
B) the marginal cost and marginal benefit of Program A are $2 and $9 respectively. 
C) the marginal cost and marginal benefit of Program C are $12 and $21 respectively. 
D) the marginal cost and marginal benefit of Program A cannot be determined. 
A) there is no highway program which is economically justifiable on the basis of cost-benefit analysis. 
B) the marginal cost and marginal benefit of Program A are $2 and $9 respectively. 
C) the marginal cost and marginal benefit of Program C are $12 and $21 respectively. 
D) the marginal cost and marginal benefit of Program A cannot be determined.

Question 16

Which of the following statements is correct?

Accepted Answer

A) Private goods yield direct benefits to the purchaser and are financed by government. 
B) Public goods yield widespread external benefits and are purchased by government with tax revenues. 
C) Public goods are bought voluntarily out of private incomes and yield no significant external benefits. 
D) Public goods are bought voluntarily out of private incomes and yield widespread external benefits. 
A) Private goods yield direct benefits to the purchaser and are financed by government. 
B) Public goods yield widespread external benefits and are purchased by government with tax revenues. 
C) Public goods are bought voluntarily out of private incomes and yield no significant external benefits. 
D) Public goods are bought voluntarily out of private incomes and yield widespread external benefits.

Question 17

There is little incentive for an individual firm to voluntarily internalize its negative externalities because to do so would:

Accepted Answer

A) cause it to forgo the diseconomies of agglomeration. 
B) shift its cost curves downward. 
C) put it at a competitive disadvantage compared to rival producers. 
D) make it subject to emission or effluent fees. 
A) cause it to forgo the diseconomies of agglomeration. 
B) shift its cost curves downward. 
C) put it at a competitive disadvantage compared to rival producers. 
D) make it subject to emission or effluent fees.

Question 18

Market for asparagus.At the market price of $2, area A + B represents:

Accepted Answer

A) total consumer benefit. 
B) total revenue to sellers. 
C) consumer surplus. 
D) returns to capital and to labour. 
A) total consumer benefit. 
B) total revenue to sellers. 
C) consumer surplus. 
D) returns to capital and to labour.

Question 19

Refer to the below competitive market diagram for product Z.Assume that the current market demand and supply curves for Z are D2 and S2.If there are substantial negative externalities associated with the production of Z, it can be argued that:

Accepted Answer

A) a price lower than B and an output greater than G would improve resource allocation. 
B) government should levy a per unit excise tax on Z to shift the demand curve to the right. 
C) government should levy a per unit excise tax on Z to shift the supply curve toward S1. 
D) government should subsidize the production of Z to lower equilibrium price and increase equilibrium output. 
A) a price lower than B and an output greater than G would improve resource allocation. 
B) government should levy a per unit excise tax on Z to shift the demand curve to the right. 
C) government should levy a per unit excise tax on Z to shift the supply curve toward S1. 
D) government should subsidize the production of Z to lower equilibrium price and increase equilibrium output.

Question 20

When the full cost of producing a good or service is not reflected in the resultant curve this is referred to as what type of failure?

Accepted Answer

A) Supply side 
B) Demand side 
C) Market side 
D) Demand-supply side 
A) Supply side 
B) Demand side 
C) Market side 
D) Demand-supply side

Exam 4: B: Market Failures: Public Goods and Externalities

The external costs of severe air pollution are usually paid:

Refer to the below diagram of the market for product X.Curve St embodies all costs (including spillovers) and Dt embodies all benefits (including spillovers) associated with the production and consumption of X.Assuming the equilibrium output is Q2, we can conclude that the existence of spillover:

When producing a good generates external or negative externalities, the private market for that good tends to produce too:

The optimal quantity of a public good occurs where the marginal benefit of the citizen who has the highest preference for the good just equals the good's marginal cost.

Which of the following is correct?

Suppose that a large tree on Shawn's property is blocking Sam's view of the lake below.Shawn accepts Sam's offer to pay Shawn $100 for the right to cut down the tree.This situation describes:

From society's perspective, if MB2 and MC1 are relevant:

Which one of the following might shift the marginal cost curve from MC1 to MC2?

A public good can be best defined as one that:

The Coase Theorem:

The difference between the price consumers are willing to pay and the actual price they do pay is referred to as:

There is a positive relationship between equilibrium price and the amount of producer surplus.

The following information is for four highway programs of increasing scope.All figures are in millions of dollars.The data indicate that:

Which of the following statements is correct?

There is little incentive for an individual firm to voluntarily internalize its negative externalities because to do so would:

Market for asparagus.At the market price of $2, area A + B represents:

Refer to the below competitive market diagram for product Z.Assume that the current market demand and supply curves for Z are D2 and S2.If there are substantial negative externalities associated with the production of Z, it can be argued that:

When the full cost of producing a good or service is not reflected in the resultant curve this is referred to as what type of failure?

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

From society's perspective, if MB₂ and MC₁ are relevant:

Which one of the following might shift the marginal cost curve from MC₁ to MC₂?

Refer to the below competitive market diagram for product Z.Assume that the current market demand and supply curves for Z are D₂ and S₂.If there are substantial negative externalities associated with the production of Z, it can be argued that: