Question 1

If a good that generates negative externalities was priced to take into account these negative externalities, then its:

Accepted Answer

A) price would decrease and its output would increase. 
B) output would increase but its price would remain constant. 
C) price would increase and its output would decrease. 
D) price would increase but its output would remain constant. 
A) price would decrease and its output would increase. 
B) output would increase but its price would remain constant. 
C) price would increase and its output would decrease. 
D) price would increase but its output would remain constant.

Question 2

Refer to the supply and demand graph for a public good.Which line segment would indicate the amount by which the marginal benefit of this public good is greater than the marginal cost?

Accepted Answer

A) de 
B) da 
C) ef 
D) ab 
A) de 
B) da 
C) ef 
D) ab

Question 3

The term "Efficiency losses" refers to:

Accepted Answer

A) the producer loss due to the high cost of production. 
B) the reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product. 
C) the consumer surplus minus the producer surplus. 
D) the sum of consumer and producer surplus. 
A) the producer loss due to the high cost of production. 
B) the reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product. 
C) the consumer surplus minus the producer surplus. 
D) the sum of consumer and producer surplus.

Question 4

The following table presents the demand schedule for product Z:   Assuming that the price of Z at equilibrium is $12, what is the total consumer surplus?

Accepted Answer

A) $12 
B) $11 
C) $8 
D) $20 
A) $12 
B) $11 
C) $8 
D) $20

Question 5

The MB curves in the diagram slope downward because of the law of:

Accepted Answer

A) conservation of matter and energy. 
B) diminishing returns. 
C) diminishing marginal utility. 
D) increasing cost. 
A) conservation of matter and energy. 
B) diminishing returns. 
C) diminishing marginal utility. 
D) increasing cost.

Question 6

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 benefits of crime control for Level Two are:

Accepted Answer

A) $20000 
B) $40000 
C) $60000 
D) $140000 
A) $20000 
B) $40000 
C) $60000 
D) $140000

Question 7

Which of these is an example of an external cost?

Accepted Answer

A) an increase in the value of land you own when a nearby development is completed. 
B) the costs paid by a company to build an automated factory. 
C) decreased property values in a neighbourhood where several houses are burglarized. 
D) the higher price you pay when you buy a heavily advertised product. 
A) an increase in the value of land you own when a nearby development is completed. 
B) the costs paid by a company to build an automated factory. 
C) decreased property values in a neighbourhood where several houses are burglarized. 
D) the higher price you pay when you buy a heavily advertised product.

Question 8

A positive externality or external benefit occurs when:

Accepted Answer

A) product differentiation increases the variety of products available to consumers. 
B) the benefits associated with a product exceed those accruing to people who consume it. 
C) a firm produces at the P = MC output. 
D) economic profits are zero in the long run. 
A) product differentiation increases the variety of products available to consumers. 
B) the benefits associated with a product exceed those accruing to people who consume it. 
C) a firm produces at the P = MC output. 
D) economic profits are zero in the long run.

Question 9

A supply-side market failure occurs when supply curves do not reflect the full cost of producing a good or service.

Accepted Answer

A) True 
 B)False

Question 10

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.This supply and demand graph indicates that there is (are):

Accepted Answer

A) positive externalities to the production of this product. 
B) negative externalities to the production of this product. 
C) an overallocation of resources to the production of this product. 
D) a negative externality from the production of this product. 
A) positive externalities to the production of this product. 
B) negative externalities to the production of this product. 
C) an overallocation of resources to the production of this product. 
D) a negative externality from the production of this product.

Question 11

Refer to the supply and demand graph for a public good.Point c on the graph shows where the:

Accepted Answer

A) total benefit equals the total cost of the public good. 
B) marginal benefit equals the marginal cost of the public good. 
C) average benefit equals the average cost of the public good. 
D) total benefit equals the marginal cost of the public good. 
A) total benefit equals the total cost of the public good. 
B) marginal benefit equals the marginal cost of the public good. 
C) average benefit equals the average cost of the public good. 
D) total benefit equals the marginal cost of the public good.

Question 12

A public good:

Accepted Answer

A) generally results in substantial negative externalities. 
B) can never be provided by a nongovernmental organization. 
C) can't be provided to one person without making it available to others as well. 
D) costs essentially nothing to produce and thus is provided by the government at a zero price. 
A) generally results in substantial negative externalities. 
B) can never be provided by a nongovernmental organization. 
C) can't be provided to one person without making it available to others as well. 
D) costs essentially nothing to produce and thus is provided by the government at a zero price.

Question 13

Efficiency loss refers to:

Accepted Answer

A) the situation where the maximum willingness to pay for a product is less than minimum acceptable price. 
B) the situation where the maximum willingness to pay for a product is equal to the minimum acceptable price. 
C) the difference between consumer and producer surplus. 
D) the sum of consumer and producer surplus. 
A) the situation where the maximum willingness to pay for a product is less than minimum acceptable price. 
B) the situation where the maximum willingness to pay for a product is equal to the minimum acceptable price. 
C) the difference between consumer and producer surplus. 
D) the sum of consumer and producer surplus.

Question 14

Producer surplus refers to:

Accepted Answer

A) The total amount producer spends for making the product 
B) The area under the demand curve above the equilibrium price 
C) The price the producer receives. 
D) The difference between producer's revenue from selling the product and the cost of producing it. 
A) The total amount producer spends for making the product 
B) The area under the demand curve above the equilibrium price 
C) The price the producer receives. 
D) The difference between producer's revenue from selling the product and the cost of producing it.

Question 15

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

Accepted Answer

A) taxed. 
B) prohibited. 
C) subsidized. 
D) left alone. 
A) taxed. 
B) prohibited. 
C) subsidized. 
D) left alone.

Question 16

If there are external benefits or positive externalities associated with consumption and production of a product, it can be said that the:

Accepted Answer

A) government should consider placing a special tax on producers. 
B) government should consider prohibiting the production of the commodity. 
C) supply curve for the product lies too far to the right to provide an efficient allocation of resources. 
D) demand curve understates the total benefit from the product and resources are under-allocated to its production. 
A) government should consider placing a special tax on producers. 
B) government should consider prohibiting the production of the commodity. 
C) supply curve for the product lies too far to the right to provide an efficient allocation of resources. 
D) demand curve understates the total benefit from the product and resources are under-allocated to its production.

Question 17

If the price of a product increases:

Accepted Answer

A) the consumer surplus will decrease. 
B) the consumer surplus will increase. 
C) total revenue will increase if demand is price elastic. 
D) total revenue will decrease if demand is price inelastic. 
A) the consumer surplus will decrease. 
B) the consumer surplus will increase. 
C) total revenue will increase if demand is price elastic. 
D) total revenue will decrease if demand is price inelastic.

Question 18

Which of the following methods is used to correct both negative and positive externalities?

Accepted Answer

A) Private bargaining 
B) Tax on producers 
C) Subsidy to consumers 
D) Direct controls 
A) Private bargaining 
B) Tax on producers 
C) Subsidy to consumers 
D) Direct controls

Question 19

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

Accepted Answer

A) True 
 B)False

Question 20

The graphs below refer to two separate product markets.Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b).The shift of the supply curve from S to S2 in diagram (b) might be caused by a per unit:

Accepted Answer

A) subsidy paid to the producers of this product. 
B) tax on the producers of this product. 
C) subsidy paid to the buyers of this product. 
D) tax on the buyers of this product. 
A) subsidy paid to the producers of this product. 
B) tax on the producers of this product. 
C) subsidy paid to the buyers of this product. 
D) tax on the buyers of this product.

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

If a good that generates negative externalities was priced to take into account these negative externalities, then its:

Refer to the supply and demand graph for a public good.Which line segment would indicate the amount by which the marginal benefit of this public good is greater than the marginal cost?

The term "Efficiency losses" refers to:

The following table presents the demand schedule for product Z: Assuming that the price of Z at equilibrium is $12, what is the total consumer surplus?

The MB curves in the diagram slope downward because of the law of:

Which of these is an example of an external cost?

A positive externality or external benefit occurs when:

A supply-side market failure occurs when supply curves do not reflect the full cost of producing 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.This supply and demand graph indicates that there is (are):

Refer to the supply and demand graph for a public good.Point c on the graph shows where the:

A public good:

Efficiency loss refers to:

Producer surplus refers to:

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

If there are external benefits or positive externalities associated with consumption and production of a product, it can be said that the:

If the price of a product increases:

Which of the following methods is used to correct both negative and positive externalities?

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

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

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