Question 1

What problems are associated with determining how much of a public good should be provided?

Accepted Answer

The problems associated with the provisi

Question 2

Demonstrate graphically and explain verbally the impact of a positive externality on a supply and demand market outcome.

Accepted Answer

The presence of a positive externality r

Question 3

John and Jack are both trying to sell a used car to Jim. John's car is a lemon, a car that has a serious but nonobvious problem. Jack's car is a cherry, a car that has no problems. Jim cannot tell the difference between the cars. Economists say this information problem might be solved with signaling. Who has an incentive to find a way to signal quality?

Accepted Answer

A) Both Jack and John 
B) Jack but not John 
C) John but not Jack 
D) Jim 
A) Both Jack and John 
B) Jack but not John 
C) John but not Jack 
D) Jim

Question 4

Demonstrate graphically and explain verbally the impact of a negative externality on a supply and demand market outcome.

Accepted Answer

The presence of a negative externality r

Question 5

One of the solutions to pollution that economists advocate more often than non-economists is a marketable certificate program.Explain how such a program would work,and why economists tend to favor such an approach.

Accepted Answer

Marketable certificates are a device for

Question 6

What are the arguments for and against government intervention to deal with externalities?

Accepted Answer

Government intervention can respond to a

Question 7

Carbon dioxide emissions are thought to contribute to global warming, and there is a concern that changes in climate will be costly. Emitting carbon dioxide is an example of:

Accepted Answer

A) a public good. 
B) a negative externality. 
C) an adverse selection problem. 
D) an effluent fee. 
A) a public good. 
B) a negative externality. 
C) an adverse selection problem. 
D) an effluent fee.

Question 8

Suppose that government wants a policy that will encourage people to use less oil. For this policy to be efficient, it must:

Accepted Answer

A) induce those with the highest cost of conserving to reduce their oil consumption the most. 
B) induce those with the lowest cost of conserving to reduce their oil consumption the most. 
C) force everyone to reduce oil consumption equally. 
D) force rich people to reduce oil consumption proportionally more than poor people. 
A) induce those with the highest cost of conserving to reduce their oil consumption the most. 
B) induce those with the lowest cost of conserving to reduce their oil consumption the most. 
C) force everyone to reduce oil consumption equally. 
D) force rich people to reduce oil consumption proportionally more than poor people.

Question 9

What is the moral hazard problem? Give an example.

Accepted Answer

The moral hazard is a problem that arise

Question 10

Economists are most likely to suggest that societies address the inefficiencies created by negative externalities by:

Accepted Answer

A) direct regulation. 
B) voluntary conservation. 
C) making the price people pay reflect the cost of the externality. 
D) leaving environmental problems alone so that the market can deal effectively with them. 
A) direct regulation. 
B) voluntary conservation. 
C) making the price people pay reflect the cost of the externality. 
D) leaving environmental problems alone so that the market can deal effectively with them.

Question 11

A person buying a used car could ask the seller for permission to take the car to a mechanic for an inspection. If the seller says no, the prospective buyer has gained information about the car. This process is known as:

Accepted Answer

A) screening. 
B) signaling. 
C) licensing. 
D) internalizing the externality. 
A) screening. 
B) signaling. 
C) licensing. 
D) internalizing the externality.

Question 12

Describe how voluntary restrictions can be used to address externalities.What problem tends to arise with this method?

Accepted Answer

Voluntary restrictions simply refer to a

Question 13

Both opponents of and proponents of government intervention most likely would agree with which of the following?

Accepted Answer

A) Government can and does create proper incentives to correct for externalities. 
B) Property rights eliminate the need for government. 
C) The market is inherently fair. 
D) Property rights must exist for a market to operate. 
A) Government can and does create proper incentives to correct for externalities. 
B) Property rights eliminate the need for government. 
C) The market is inherently fair. 
D) Property rights must exist for a market to operate.

Question 14

An individual with a highly elastic demand for gasoline will:

Accepted Answer

A) cut consumption more than an individual with a highly inelastic demand when price goes up. 
B) cut consumption less than an individual with a highly inelastic demand when price goes up. 
C) refuse to cut consumption for any reason. 
D) stop using gasoline entirely if a tax is imposed. 
A) cut consumption more than an individual with a highly inelastic demand when price goes up. 
B) cut consumption less than an individual with a highly inelastic demand when price goes up. 
C) refuse to cut consumption for any reason. 
D) stop using gasoline entirely if a tax is imposed.

Question 15

If buyers cannot distinguish between "lemons" and "cherries" in the used car market but sellers can, the price buyers are willing to pay for used cars will be:

Accepted Answer

A) high enough to guarantee that at least 50 percent of the used cars offered for sale are "cherries." 
B) so low that sellers with "cherries" will be unwilling to sell. 
C) so low that sellers with "lemons" will be unwilling to sell. 
D) equal to zero since no one will take the chance of purchasing a "lemon" even if the value of a car known to be a lemon is greater than zero. 
A) high enough to guarantee that at least 50 percent of the used cars offered for sale are "cherries." 
B) so low that sellers with "cherries" will be unwilling to sell. 
C) so low that sellers with "lemons" will be unwilling to sell. 
D) equal to zero since no one will take the chance of purchasing a "lemon" even if the value of a car known to be a lemon is greater than zero.

Question 16

Which of the following is not an example of an externality?

Accepted Answer

A) Carbon dioxide from energy generation that adds to the worldwide long-term greenhouse effect. 
B) Heat from a factory that makes the neighboring tomato patches more productive. 
C) A defective part that causes an automobile to break down three months after purchase. 
D) Acidic by-products of fossil fuel combustion that produce acid rain. 
A) Carbon dioxide from energy generation that adds to the worldwide long-term greenhouse effect. 
B) Heat from a factory that makes the neighboring tomato patches more productive. 
C) A defective part that causes an automobile to break down three months after purchase. 
D) Acidic by-products of fossil fuel combustion that produce acid rain.

Question 17

Which of the following methods of reducing the amount of trash society generates is most likely to be efficient?

Accepted Answer

A) A mandatory recycling program 
B) A completely voluntary recycling program 
C) A "trash tax" 
D) Landfills and incinerators 
A) A mandatory recycling program 
B) A completely voluntary recycling program 
C) A "trash tax" 
D) Landfills and incinerators

Question 18

With regard to a public good provided by the government:

Accepted Answer

A) individuals reveal their demand when they buy the good. 
B) a free rider problem is unlikely. 
C) individuals have an incentive to conceal their willingness to buy the good if they will not be taxed. 
D) individuals have an incentive to exaggerate their willingness to buy the good if they will not be taxed. 
A) individuals reveal their demand when they buy the good. 
B) a free rider problem is unlikely. 
C) individuals have an incentive to conceal their willingness to buy the good if they will not be taxed. 
D) individuals have an incentive to exaggerate their willingness to buy the good if they will not be taxed.

Question 19

What is a market failure? Why do market failures occur?

Accepted Answer

A market failure is a situatio

Question 20

College education provides higher income for the individual but also a more productive and more educated person who will contribute to society in many ways. Higher education is an example of:

Accepted Answer

A) a positive externality. 
B) a negative externality. 
C) a nonexcludable service. 
D) adverse selection. 
A) a positive externality. 
B) a negative externality. 
C) a nonexcludable service. 
D) adverse selection.

Exam 8: Market Failure Versus Government Failure

What problems are associated with determining how much of a public good should be provided?

Demonstrate graphically and explain verbally the impact of a positive externality on a supply and demand market outcome.

Demonstrate graphically and explain verbally the impact of a negative externality on a supply and demand market outcome.

One of the solutions to pollution that economists advocate more often than non-economists is a marketable certificate program.Explain how such a program would work,and why economists tend to favor such an approach.

What are the arguments for and against government intervention to deal with externalities?

Carbon dioxide emissions are thought to contribute to global warming, and there is a concern that changes in climate will be costly. Emitting carbon dioxide is an example of:

Suppose that government wants a policy that will encourage people to use less oil. For this policy to be efficient, it must:

What is the moral hazard problem? Give an example.

Economists are most likely to suggest that societies address the inefficiencies created by negative externalities by:

A person buying a used car could ask the seller for permission to take the car to a mechanic for an inspection. If the seller says no, the prospective buyer has gained information about the car. This process is known as:

Describe how voluntary restrictions can be used to address externalities.What problem tends to arise with this method?

Both opponents of and proponents of government intervention most likely would agree with which of the following?

An individual with a highly elastic demand for gasoline will:

If buyers cannot distinguish between "lemons" and "cherries" in the used car market but sellers can, the price buyers are willing to pay for used cars will be:

Which of the following is not an example of an externality?

Which of the following methods of reducing the amount of trash society generates is most likely to be efficient?

With regard to a public good provided by the government:

What is a market failure? Why do market failures occur?

College education provides higher income for the individual but also a more productive and more educated person who will contribute to society in many ways. Higher education is an example of:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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