Question 1

The government receives all of the benefits associated with the production of a public good.

Accepted Answer

A) True 
 B)False

Question 2

Non excludability describes a condition where

Accepted Answer

A) one person's consumption of a good does not prevent consumption of the good by others. 
B) there is no effective way to keep people from using a good once it comes into being. 
C) sellers can withhold the benefits of a good from those unwilling to pay for it. 
D) there is no potential for free-riding behavior. 
A) one person's consumption of a good does not prevent consumption of the good by others. 
B) there is no effective way to keep people from using a good once it comes into being. 
C) sellers can withhold the benefits of a good from those unwilling to pay for it. 
D) there is no potential for free-riding behavior.

Question 3

Production subsidies are a way of internalizing external costs among polluting firms.

Accepted Answer

A) True 
 B)False

Question 4

Buyers will opt out of markets in which

Accepted Answer

A) there are significant negative externalities. 
B) standardized products are being produced. 
C) there is inadequate information about sellers and their products. 
D) there are only foreign sellers. 
A) there are significant negative externalities. 
B) standardized products are being produced. 
C) there is inadequate information about sellers and their products. 
D) there are only foreign sellers.

Question 5

When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

Accepted Answer

A) True 
 B)False

Question 6

Deadweight losses occur when the quantity of an output produced is

Accepted Answer

A) less than, but not when it is greater than, the competitive equilibrium quantity. 
B) greater than, but not when it is less than, the competitive equilibrium quantity. 
C) less than or greater than the competitive equilibrium quantity. 
D) such that the marginal benefit of the output is just equal to the marginal cost. 
A) less than, but not when it is greater than, the competitive equilibrium quantity. 
B) greater than, but not when it is less than, the competitive equilibrium quantity. 
C) less than or greater than the competitive equilibrium quantity. 
D) such that the marginal benefit of the output is just equal to the marginal cost.

Question 7

(Consider This) According to the Coase theorem,

Accepted Answer

A) government should levy excise taxes on firms that generate spillover or external costs. 
B) taxes should be levied such that they change private behavior as little as possible. 
C) private individuals can often negotiate their own resolution of externality problems, without the need for government intervention. 
D) private firms should not provide public goods. 
A) government should levy excise taxes on firms that generate spillover or external costs. 
B) taxes should be levied such that they change private behavior as little as possible. 
C) private individuals can often negotiate their own resolution of externality problems, without the need for government intervention. 
D) private firms should not provide public goods.

Question 8

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Accepted Answer

A) True 
 B)False

Question 9

Consumer surplus arises in a market because

Accepted Answer

A) the quantity supplied is greater than quantity demanded at the current market price. 
B) the quantity demanded is greater than quantity supplied at the current market price. 
C) the market price is below what some consumers are willing to pay for the product. 
D) the market price is higher than what some consumers are willing to pay for the product. 
A) the quantity supplied is greater than quantity demanded at the current market price. 
B) the quantity demanded is greater than quantity supplied at the current market price. 
C) the market price is below what some consumers are willing to pay for the product. 
D) the market price is higher than what some consumers are willing to pay for the product.

Question 10

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero.This is because completely eliminating the externality would involve

Accepted Answer

A) a much greater marginal benefit than marginal cost. 
B) a much greater marginal cost than marginal benefit. 
C) having shortages in the market. 
D) having surpluses in the market. 
A) a much greater marginal benefit than marginal cost. 
B) a much greater marginal cost than marginal benefit. 
C) having shortages in the market. 
D) having surpluses in the market.

Question 11

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display.Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

Accepted Answer

A) the display creates negative externalities. 
B) government should tax the producers of holiday lighting. 
C) resources are currently overallocated to the provision of holiday lighting in Anytown. 
D) resources are currently underallocated to the provision of holiday lighting in Anytown. 
A) the display creates negative externalities. 
B) government should tax the producers of holiday lighting. 
C) resources are currently overallocated to the provision of holiday lighting in Anytown. 
D) resources are currently underallocated to the provision of holiday lighting in Anytown.

Question 12

Which of the following is an example of market failure?

Accepted Answer

A) negative externalities 
B) positive externalities 
C) public goods 
D) all of these 
A) negative externalities 
B) positive externalities 
C) public goods 
D) all of these

Question 13

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) too few resources will be allocated toward producing the good. 
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 toward producing the good. 
A) too few resources will be allocated toward producing the good. 
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 toward producing the good.

Question 15

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Accepted Answer

A) True 
 B)False

Exam 4: Market Failures: Public Goods and Externalities

The government receives all of the benefits associated with the production of a public good.

Non excludability describes a condition where

Production subsidies are a way of internalizing external costs among polluting firms.

Buyers will opt out of markets in which

When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

Deadweight losses occur when the quantity of an output produced is

(Consider This) According to the Coase theorem,

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Consumer surplus arises in a market because

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero.This is because completely eliminating the externality would involve

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display.Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

Which of the following is an example of market failure?

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

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

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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