Question 1

A market for pollution rights can be expected to:

Accepted Answer

A) eliminate all pollution. 
B) produce a shortage of pollution. 
C) encourage potential polluters to increase emissions. 
D) provide potential polluters with a monetary incentive to reduce emissions. 
A) eliminate all pollution. 
B) produce a shortage of pollution. 
C) encourage potential polluters to increase emissions. 
D) provide potential polluters with a monetary incentive to reduce emissions.

Question 2

A demand-side market failure occurs when demand curves do not reflect consumers' lack of willingness to pay for a good or service.

Accepted Answer

A) True 
 B)False

Question 3

Refer to the below supply and demand graph.Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective.If government decides to correct this externality with a subsidy to consumers, then the:

Accepted Answer

A) demand curve will shift from D2 to D1. 
B) supply curve will shift from S1 to S2. 
C) demand curve will shift from D1 to D2. 
D) supply curve will shift from S2 to S1. 
A) demand curve will shift from D2 to D1. 
B) supply curve will shift from S1 to S2. 
C) demand curve will shift from D1 to D2. 
D) supply curve will shift from S2 to S1.

Question 4

The following table presents the demand schedule for product Z:   If the price of product Z increases to $15, what would be the consumer surplus?

Accepted Answer

A) $3 
B) $8 
C) $5 
D) $15 
A) $3 
B) $8 
C) $5 
D) $15

Question 5

The following information is for a public good.Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it.These people are the only two members of society.Suppose the government has already produced 4 units of this public good.The amount individual B is willing to voluntarily pay for the 4th unit is:

Accepted Answer

A) $14 
B) $5 
C) $2 
D) $0 
A) $14 
B) $5 
C) $2 
D) $0

Question 6

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

Accepted Answer

A) total consumer utility. 
B) total revenue to sellers. 
C) consumer surplus. 
D) economic profit. 
A) total consumer utility. 
B) total revenue to sellers. 
C) consumer surplus. 
D) economic profit.

Question 7

The principle that private negotiation can resolve potential externalities without resort to government intervention is known as the Coase Theorem.

Accepted Answer

A) True 
 B)False

Question 8

The term "productive efficiency" refers to:

Accepted Answer

A) the situation where producer surplus is greater than consumer surplus. 
B) the production of the product-mix most desired by consumers. 
C) the production of a good in the least costly way. 
D) the production of any good which producer desires to produce. 
A) the situation where producer surplus is greater than consumer surplus. 
B) the production of the product-mix most desired by consumers. 
C) the production of a good in the least costly way. 
D) the production of any good which producer desires to produce.

Question 9

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.Without government interference, this market will result in:

Accepted Answer

A) an optimal allocation of society's resources. 
B) an under-allocation of resources to this product. 
C) an over-allocation of resources to this product. 
D) a higher price than is consistent with an optimal allocation of resources. 
A) an optimal allocation of society's resources. 
B) an under-allocation of resources to this product. 
C) an over-allocation of resources to this product. 
D) a higher price than is consistent with an optimal allocation of resources.

Question 10

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Accepted Answer

A) True 
 B)False

Question 11

For which one of the following would we need to sum individual demand curves vertically to obtain the total demand curve?

Accepted Answer

A) frozen yogurt 
B) bubble gum 
C) microwave popcorn 
D) courts of law 
A) frozen yogurt 
B) bubble gum 
C) microwave popcorn 
D) courts of law

Question 12

In a market where there are external or negative externalities associated with consumption and production, the equilibrium will not be efficient because:

Accepted Answer

A) price will be greater than MC. 
B) firms will shut down until costs are reduced. 
C) costs of production will, on average, be too high. 
D) too many resources will be allocated to production of the good. 
A) price will be greater than MC. 
B) firms will shut down until costs are reduced. 
C) costs of production will, on average, be too high. 
D) too many resources will be allocated to production of the good.

Question 13

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 Q1, 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.

Question 14

The optimal reduction of an externality occurs when:

Accepted Answer

A) society's marginal cost of reducing that externality is greater than its marginal benefit. 
B) public agencies could make a great deal of money. 
C) society's marginal cost and marginal benefit of reducing that externality are equal. 
D) society's marginal benefit of reducing that externality is greater than its marginal cost. 
A) society's marginal cost of reducing that externality is greater than its marginal benefit. 
B) public agencies could make a great deal of money. 
C) society's marginal cost and marginal benefit of reducing that externality are equal. 
D) society's marginal benefit of reducing that externality is greater than its marginal cost.

Question 15

Quasi-public goods are:

Accepted Answer

A) government produced goods that can be produced so that exclusion is possible. 
B) government produced goods that can be produced so that exclusion is not possible. 
C) privately produced goods that can be produced so that exclusion is possible. 
D) privately produced goods that can be produced so that exclusion is not possible. 
A) government produced goods that can be produced so that exclusion is possible. 
B) government produced goods that can be produced so that exclusion is not possible. 
C) privately produced goods that can be produced so that exclusion is possible. 
D) privately produced goods that can be produced so that exclusion is not possible.

Question 16

Ed, Mike, and Scott are the only three people in a community and Ed is willing to pay $20 for the 5th unit of a public good; Mike, $15; Scott, $25.The government should produce the 5th unit of the public good if the marginal cost is:

Accepted Answer

A) less than $150. 
B) less than $100. 
C) less than $60. 
D) less than $300. 
A) less than $150. 
B) less than $100. 
C) less than $60. 
D) less than $300.

Question 17

Consumer surplus refers to:

Accepted Answer

A) The total amount consumer pays for the product 
B) The area under the demand curve 
C) The price consumer pays for the product 
D) The difference between the total amount consumers pays for the product and the value of the purchase to the consumers 
A) The total amount consumer pays for the product 
B) The area under the demand curve 
C) The price consumer pays for the product 
D) The difference between the total amount consumers pays for the product and the value of the purchase to the consumers

Question 18

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building.The Coase Theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:

Accepted Answer

A) the owners themselves. 
B) city government officials. 
C) a zoning ordinance restricting high-rise buildings. 
D) a government fine for the builder of the high-rise. 
A) the owners themselves. 
B) city government officials. 
C) a zoning ordinance restricting high-rise buildings. 
D) a government fine for the builder of the high-rise.

Question 19

Society's optimal amount of pollution moderation is where society's marginal benefit of moderation is zero.

Accepted Answer

A) True 
 B)False

Question 20

The creation of a market for pollution rights would:

Accepted Answer

A) reduce air and water pollution to zero. 
B) stimulate the search for pollution-reducing technologies. 
C) induce an increase in the supply of pollution rights. 
D) be in conflict with the concept of user charges. 
A) reduce air and water pollution to zero. 
B) stimulate the search for pollution-reducing technologies. 
C) induce an increase in the supply of pollution rights. 
D) be in conflict with the concept of user charges.

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

A market for pollution rights can be expected to:

A demand-side market failure occurs when demand curves do not reflect consumers' lack of willingness to pay for a good or service.

Refer to the below supply and demand graph.Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective.If government decides to correct this externality with a subsidy to consumers, then the:

The following table presents the demand schedule for product Z: If the price of product Z increases to $15, what would be the consumer surplus?

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

The principle that private negotiation can resolve potential externalities without resort to government intervention is known as the Coase Theorem.

The term "productive efficiency" refers to:

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.Without government interference, this market will result in:

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

For which one of the following would we need to sum individual demand curves vertically to obtain the total demand curve?

In a market where there are external or negative externalities associated with consumption and production, the equilibrium will not be efficient because:

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 Q1, we can conclude that the existence of spillover:

The optimal reduction of an externality occurs when:

Quasi-public goods are:

Ed, Mike, and Scott are the only three people in a community and Ed is willing to pay $20 for the 5th unit of a public good; Mike, $15; Scott, $25.The government should produce the 5th unit of the public good if the marginal cost is:

Consumer surplus refers to:

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building.The Coase Theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:

Society's optimal amount of pollution moderation is where society's marginal benefit of moderation is zero.

The creation of a market for pollution rights would:

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

Refer to the diagram in which S is the market supply curve and S₁ is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.Without government interference, this market will result in:

Ed, Mike, and Scott are the only three people in a community and Ed is willing to pay $20 for the 5^th unit of a public good; Mike, $15; Scott, $25.The government should produce the 5^th unit of the public good if the marginal cost is: