Question 1

If government action is likely to do some good, it is always best for government to intervene in the marketplace.

Accepted Answer

A) True 
 B)False

Question 2

Problems that involve an externality (such as pollution)may be addressed by a number of alternative means.The most obvious is direct regulation,in which the use of some resource is directly limited by government.For example,pollution might be prohibited or limited to some fixed amount by direct regulation.Economists generally prefer some alternative solution to direct regulation,because regulation will not generally get persons to act so as to equate marginal social costs and marginal social benefits.Suppose it has been decided to implement a social policy to reduce electricity consumption by 10%,because the production of electricity results in pollution and consumes valuable resources.
(a)Give an example of how this goal could be achieved by direct regulation.What effect on incentives will the direct regulation you propose have? Will it equate the marginal benefits and marginal costs of electricity consumption? Why or why not?
(b)Now suggest two alternative methods to achieve the goal of 10% reduction in electricity consumption.What effect will these alternatives have on incentives? Will they result in the marginal benefits and marginal costs of electricity consumption being made equal?

Accepted Answer

(a)The reduction of electricity consumpt

Question 3

The rule for making optimal decisions is that an activity should be increased until:

Accepted Answer

A) average costs are minimized. 
B) total costs are minimized. 
C) total benefits are maximized. 
D) marginal benefits equal marginal costs. 
A) average costs are minimized. 
B) total costs are minimized. 
C) total benefits are maximized. 
D) marginal benefits equal marginal costs.

Question 4

Refer to the graph shown. The amount of a tax sufficient to reduce quantity supplied to the level that individuals would have supplied had they included the cost in their decision on third parties is:

Accepted Answer

A) $2.50. 
B) $1.70. 
C) $1.00. 
D) $0.80. 
A) $2.50. 
B) $1.70. 
C) $1.00. 
D) $0.80.

Question 5

Refer to the graph shown. Say that there is a negative externality associated with the production of the good depicted. The marginal social cost from consuming this good at the competitive equilibrium output level is:

Accepted Answer

A) either greater than or less than P0, depending on the elasticities of supply and demand. 
B) greater than P0. 
C) less than P0. 
D) equal to P0. 
A) either greater than or less than P0, depending on the elasticities of supply and demand. 
B) greater than P0. 
C) less than P0. 
D) equal to P0.

Question 6

Opponents of government intervention in the economy argue that externalities:

Accepted Answer

A) do not create problems for the model. 
B) are themselves the inevitable result of government policies. 
C) should be corrected with regulations rather than subsidies. 
D) may not be effectively corrected by the government. 
A) do not create problems for the model. 
B) are themselves the inevitable result of government policies. 
C) should be corrected with regulations rather than subsidies. 
D) may not be effectively corrected by the government.

Question 7

An optimal corrective tax levied on polluters will:

Accepted Answer

A) be equal to the marginal cost of their actions imposed on third parties. 
B) not generate enough revenue to pay for the cost of the damage resulting from pollution that occurs at the efficient output of the good. 
C) decrease pollution to zero. 
D) increase the supply of polluting goods. 
A) be equal to the marginal cost of their actions imposed on third parties. 
B) not generate enough revenue to pay for the cost of the damage resulting from pollution that occurs at the efficient output of the good. 
C) decrease pollution to zero. 
D) increase the supply of polluting goods.

Question 8

Economists' attitude toward voluntary programs causes them to:

Accepted Answer

A) actively oppose them on the grounds that they will do more harm than good. 
B) actively oppose them on the grounds that they are unfair. 
C) be skeptical of the potential success of such programs. 
D) favor these programs over alternative solutions. 
A) actively oppose them on the grounds that they will do more harm than good. 
B) actively oppose them on the grounds that they are unfair. 
C) be skeptical of the potential success of such programs. 
D) favor these programs over alternative solutions.

Question 9

Economists generally oppose direct regulation because:

Accepted Answer

A) it is unlikely to achieve the desired end as efficiently as possible. 
B) it assumes that people behave rationally. 
C) it is generally unfair. 
D) it does not assume that people behave rationally. 
A) it is unlikely to achieve the desired end as efficiently as possible. 
B) it assumes that people behave rationally. 
C) it is generally unfair. 
D) it does not assume that people behave rationally.

Question 10

An economist is most likely to support all of the following methods to address the negative externalities created by the waste from newspapers except:

Accepted Answer

A) requiring publishers to cut the volume of newspapers generated but allowing them to sell certificates so that others can meet those requirements for them. 
B) taxing the suppliers of newspaper by the pound. 
C) having the cost of the externality be paid by the government. 
D) ensuring that the social cost of buying a newspaper is reflected in its price. 
A) requiring publishers to cut the volume of newspapers generated but allowing them to sell certificates so that others can meet those requirements for them. 
B) taxing the suppliers of newspaper by the pound. 
C) having the cost of the externality be paid by the government. 
D) ensuring that the social cost of buying a newspaper is reflected in its price.

Question 11

Which policy is likely to be the most efficient in dealing with automobile emission pollution?

Accepted Answer

A) A mandatory requirement to reduce pollution 
B) Voluntary emission control guidelines 
C) Subsidizing research and development for alternative forms of transportation 
D) An emission tax 
A) A mandatory requirement to reduce pollution 
B) Voluntary emission control guidelines 
C) Subsidizing research and development for alternative forms of transportation 
D) An emission tax

Question 12

A policy that requires all the people to certify that they have reduced total consumption, not necessarily their own individual consumption, by a specified amount, is a(n):

Accepted Answer

A) external incentive plan. 
B) internal incentive plan. 
C) tax incentive plan. 
D) market incentive plan. 
A) external incentive plan. 
B) internal incentive plan. 
C) tax incentive plan. 
D) market incentive plan.

Question 13

If a program requires people to pay a price that reflects the cost of an externality associated with their actions that they previously did not pay, it will be in their best interest to change their behavior.

Accepted Answer

A) True 
 B)False

Question 14

What is a government failure? List four reasons why it might occur.

Accepted Answer

A government failure occurs when the gov

Question 15

What are the three alternative methods of dealing with externalities? Briefly explain each one.

Accepted Answer

The three methods are:
(a)Direct regulat

Question 16

If a consumer is willing to pay $100 for a used vintage record player that is a "cherry" and $30 for a used vintage record player that is a "lemon," the consumer will offer:

Accepted Answer

A) $30 for any used vintage record player even if the probability that it is a "lemon" is 50 percent. 
B) $100 for any used vintage record player even if the probability that is a "cherry" is 50 percent. 
C) $65 for any used vintage record player if the probability that it is a "lemon" is 50 percent. 
D) $130 for any used vintage record player if the probability that it is a "cherry" is 50 percent. 
A) $30 for any used vintage record player even if the probability that it is a "lemon" is 50 percent. 
B) $100 for any used vintage record player even if the probability that is a "cherry" is 50 percent. 
C) $65 for any used vintage record player if the probability that it is a "lemon" is 50 percent. 
D) $130 for any used vintage record player if the probability that it is a "cherry" is 50 percent.

Question 17

Economists generally call the effect of an agreement on others that is not taken into account by the parties making the agreement:

Accepted Answer

A) excess burden. 
B) welfare loss. 
C) Pareto optimality. 
D) an externality. 
A) excess burden. 
B) welfare loss. 
C) Pareto optimality. 
D) an externality.

Question 18

Three methods of dealing with externalities are direct regulation,incentive policies,and voluntary restrictions.Explain and evaluate each of these options.

Accepted Answer

(1)Direct regulation: The amount of a go

Question 19

Why do information problems constitute market failures?

Accepted Answer

Individuals do not always have the neces

Question 20

When positive externalities exist in the consumption of a good, the marginal social benefit:

Accepted Answer

A) equals the marginal benefit received by consumers of the good minus the marginal benefit to third parties. 
B) equals the marginal cost of producing the good plus the marginal cost to third parties. 
C) equals the marginal benefit received by consumers of the good plus the marginal benefit to third parties. 
D) could be either greater than or less than the marginal benefit received by consumers of the good depending on the equilibrium price determined in competitive markets. 
A) equals the marginal benefit received by consumers of the good minus the marginal benefit to third parties. 
B) equals the marginal cost of producing the good plus the marginal cost to third parties. 
C) equals the marginal benefit received by consumers of the good plus the marginal benefit to third parties. 
D) could be either greater than or less than the marginal benefit received by consumers of the good depending on the equilibrium price determined in competitive markets.

Exam 8: Market Failure Versus Government Failure

If government action is likely to do some good, it is always best for government to intervene in the marketplace.

The rule for making optimal decisions is that an activity should be increased until:

Refer to the graph shown. The amount of a tax sufficient to reduce quantity supplied to the level that individuals would have supplied had they included the cost in their decision on third parties is:

Refer to the graph shown. Say that there is a negative externality associated with the production of the good depicted. The marginal social cost from consuming this good at the competitive equilibrium output level is:

Opponents of government intervention in the economy argue that externalities:

An optimal corrective tax levied on polluters will:

Economists' attitude toward voluntary programs causes them to:

Economists generally oppose direct regulation because:

An economist is most likely to support all of the following methods to address the negative externalities created by the waste from newspapers except:

Which policy is likely to be the most efficient in dealing with automobile emission pollution?

A policy that requires all the people to certify that they have reduced total consumption, not necessarily their own individual consumption, by a specified amount, is a(n):

If a program requires people to pay a price that reflects the cost of an externality associated with their actions that they previously did not pay, it will be in their best interest to change their behavior.

What is a government failure? List four reasons why it might occur.

What are the three alternative methods of dealing with externalities? Briefly explain each one.

If a consumer is willing to pay $100 for a used vintage record player that is a "cherry" and $30 for a used vintage record player that is a "lemon," the consumer will offer:

Economists generally call the effect of an agreement on others that is not taken into account by the parties making the agreement:

Three methods of dealing with externalities are direct regulation,incentive policies,and voluntary restrictions.Explain and evaluate each of these options.

Why do information problems constitute market failures?

When positive externalities exist in the consumption of a good, the marginal social benefit:

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

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The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

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Macro Policy in a Global Setting

Structural Stagnation and Globalization

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