Question 1

Deﬁne positive externality, and explain how getting a vaccination is an example.

Accepted Answer

A positive externality is a beneﬁt obtai

Question 2

Refer to the provided graph of a competitive market. If the output level is Q1, then there are eﬃciency losses indicated by the area

Accepted Answer

A)  0abe. 
B)  bce. 
C)  0eQ1. 
D)  ecf. 
A)  0abe. 
B)  bce. 
C)  0eQ1. 
D)  ecf.

Question 3

Refer to the provided graph. Suppose consumers do not fully appreciate the beneﬁts of the product whose market is shown in the graph. If an external agency is able to provide full information to
Consumers about the beneﬁts of the product, then

Accepted Answer

A)  the supply curve will shift to the left. 
B)  the demand curve will shift to the right. 
C)  both the new equilibrium price and quantity will be lower. 
D)  the new equilibrium price will be higher but the equilibrium quantity will be either higher or lower. 
A)  the supply curve will shift to the left. 
B)  the demand curve will shift to the right. 
C)  both the new equilibrium price and quantity will be lower. 
D)  the new equilibrium price will be higher but the equilibrium quantity will be either higher or lower.

Question 4

A positive externality or spillover 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 does not bear all of the costs of producing a good or service. 
D)  ﬁrms earn positive economic proﬁts. 
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 does not bear all of the costs of producing a good or service. 
D)  ﬁrms earn positive economic proﬁts.

Question 5

(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 6

What resource problem is created by negative externalities?

Accepted Answer

A negative externality occurs as an over

Question 7

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external beneﬁts associated with the
Production of Z, then

Accepted Answer

A)  eﬃcient resource allocation occurs at output G and price B because the market mechanism does not measure all beneﬁts. 
B)  an output smaller than G would improve resource allocation. 
C)  government should levy a per-unit excise tax on Z to shift the demand curve toward D1. 
D)  an output greater than G would result in a more eﬃcient allocation of resources. 
A)  eﬃcient resource allocation occurs at output G and price B because the market mechanism does not measure all beneﬁts. 
B)  an output smaller than G would improve resource allocation. 
C)  government should levy a per-unit excise tax on Z to shift the demand curve toward D1. 
D)  an output greater than G would result in a more eﬃcient allocation of resources.

Question 8

If the market price of a product increases, then the total

Accepted Answer

A)  consumer surplus will decrease. 
B)  consumer surplus will increase. 
C)  revenues of sellers will deﬁnitely increase. 
D)  revenues of sellers will deﬁnitely decrease. 
A)  consumer surplus will decrease. 
B)  consumer surplus will increase. 
C)  revenues of sellers will deﬁnitely increase. 
D)  revenues of sellers will deﬁnitely decrease.

Question 9

Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates

Accepted Answer

A)  the adverse selection problem. 
B)  the moral hazard problem. 
C)  the special interest effect. 
D)  logrolling. 
A)  the adverse selection problem. 
B)  the moral hazard problem. 
C)  the special interest effect. 
D)  logrolling.

Question 10

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer
information about sellers.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following would be an example of a moral hazard problem?

Accepted Answer

A)  a person in poor health who purchases life insurance 
B)  a person who is taxed on the purchase of a carton of cigarettes 
C)  a person who purchases auto insurance and then drives more recklessly 
D)  a person who receives a subsidy from the Federal government to insulate a home 
A)  a person in poor health who purchases life insurance 
B)  a person who is taxed on the purchase of a carton of cigarettes 
C)  a person who purchases auto insurance and then drives more recklessly 
D)  a person who receives a subsidy from the Federal government to insulate a home

Question 12

A competitive market produces the economically eﬃcient outcome if the following conditions are met, except

Accepted Answer

A)  the market produces only units for which beneﬁts are at least equal to cost. 
B)  the market demand curve reﬂects the buyers' full willingness to pay. 
C)  the market supply curve reﬂects all costs of production. 
D)  the market produces only units for which costs are at least equal to beneﬁts. 
A)  the market produces only units for which beneﬁts are at least equal to cost. 
B)  the market demand curve reﬂects the buyers' full willingness to pay. 
C)  the market supply curve reﬂects all costs of production. 
D)  the market produces only units for which costs are at least equal to beneﬁts.

Question 13

As it applies to insurance, the adverse selection problem is the tendency for

Accepted Answer

A)  those most likely to collect on insurance to buy it. 
B)  those who buy insurance to take less precaution in avoiding the insured risk. 
C)  sellers to price discriminate. 
D)  sellers to restrict output and charge high prices. 
A)  those most likely to collect on insurance to buy it. 
B)  those who buy insurance to take less precaution in avoiding the insured risk. 
C)  sellers to price discriminate. 
D)  sellers to restrict output and charge high prices.

Question 14

The MC curves in the diagram slope upward because of the law of

Accepted Answer

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

Question 15

An emission fee levied against polluting ﬁrms will tend to shift the

Accepted Answer

A)  supply curve of the ﬁrms to the left. 
B)  supply curve of the ﬁrms to the right. 
C)  demand curve for the product to the left. 
D)  demand curve for the product to the right. 
A)  supply curve of the ﬁrms to the left. 
B)  supply curve of the ﬁrms to the right. 
C)  demand curve for the product to the left. 
D)  demand curve for the product to the right.

Question 16

If a good that generates positive externalities was produced and priced to take into account these spillover beneﬁts, then its

Accepted Answer

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

Question 17

What two conditions must hold for a competitive market to produce eﬃcient outcomes?

Accepted Answer

A)  Demand curves must reﬂect all costs of production, and supply curves must reﬂect consumers' full willingness to pay. 
B)  Supply curves must reﬂect all costs of production, and demand curves must reﬂect consumers' full willingness to pay. 
C)  Firms must minimize production costs, and consumers must minimize total expenditures. 
D)  Firms must maximize proﬁts, and consumers must all pay prices equal to their maximum willingness to pay. 
A)  Demand curves must reﬂect all costs of production, and supply curves must reﬂect consumers' full willingness to pay. 
B)  Supply curves must reﬂect all costs of production, and demand curves must reﬂect consumers' full willingness to pay. 
C)  Firms must minimize production costs, and consumers must minimize total expenditures. 
D)  Firms must maximize proﬁts, and consumers must all pay prices equal to their maximum willingness to pay.

Question 18

(Last Word) A cap-and-trade program

Accepted Answer

A)  assigns a property right to the atmosphere. 
B)  mandates that every ﬁrm individually cut its emissions to below a certain level. 
C)  assigns a property right to polluting the atmosphere. 
D)  is easy to establish and enforce. 
A)  assigns a property right to the atmosphere. 
B)  mandates that every ﬁrm individually cut its emissions to below a certain level. 
C)  assigns a property right to polluting the atmosphere. 
D)  is easy to establish and enforce.

Question 19

It has been proposed that a government agency be charged with the task of determining the amount of pollution that the atmosphere (or a body of water) can safely absorb, establish "rights" to
This limited amount of pollution, and sell those limited amount of rights to ﬁrms. The ﬁrms can then
Buy and sell these rights among themselves later. This approach is known as the

Accepted Answer

A)  taxes and subsidies system. 
B)  cap-and-trade system. 
C)  property rights system. 
D)  market and command system. 
A)  taxes and subsidies system. 
B)  cap-and-trade system. 
C)  property rights system. 
D)  market and command system.

Question 20

Which of the following does not illustrate the asymmetric information problem?

Accepted Answer

A)  Ordinary ﬁnancial investors do not know the motivations of ﬁnancial advisers. 
B)  Ordinary customers do not know how sanitarily the food is prepared in a restaurant. 
C)  Ordinary stock buyers do not know what will happen to the stock's price next week. 
D)  Ordinary car buyers do not know the actual quality of the various cars in the dealer's lot. 
A)  Ordinary ﬁnancial investors do not know the motivations of ﬁnancial advisers. 
B)  Ordinary customers do not know how sanitarily the food is prepared in a restaurant. 
C)  Ordinary stock buyers do not know what will happen to the stock's price next week. 
D)  Ordinary car buyers do not know the actual quality of the various cars in the dealer's lot.

Deﬁne positive externality, and explain how getting a vaccination is an example.

Refer to the provided graph of a competitive market. If the output level is Q1, then there are eﬃciency losses indicated by the area

Refer to the provided graph. Suppose consumers do not fully appreciate the beneﬁts of the product whose market is shown in the graph. If an external agency is able to provide full information to Consumers about the beneﬁts of the product, then

A positive externality or spillover beneﬁt occurs when

(Consider This) According to the Coase theorem,

What resource problem is created by negative externalities?

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external beneﬁts associated with the Production of Z, then

If the market price of a product increases, then the total

Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

Which of the following would be an example of a moral hazard problem?

A competitive market produces the economically eﬃcient outcome if the following conditions are met, except

As it applies to insurance, the adverse selection problem is the tendency for

The MC curves in the diagram slope upward because of the law of

An emission fee levied against polluting ﬁrms will tend to shift the

If a good that generates positive externalities was produced and priced to take into account these spillover beneﬁts, then its

What two conditions must hold for a competitive market to produce eﬃcient outcomes?

(Last Word) A cap-and-trade program

Which of the following does not illustrate the asymmetric information problem?

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Public Goods, Public Choice, and Government Failure

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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Exam 4: Market Failures Caused by Externalities Asymmetric Information

Deﬁne positive externality, and explain how getting a vaccination is an example.

Refer to the provided graph of a competitive market. If the output level is Q1, then there are eﬃciency losses indicated by the area

Refer to the provided graph. Suppose consumers do not fully appreciate the beneﬁts of the product whose market is shown in the graph. If an external agency is able to provide full information to Consumers about the beneﬁts of the product, then

A positive externality or spillover beneﬁt occurs when

(Consider This) According to the Coase theorem,

What resource problem is created by negative externalities?

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external beneﬁts associated with the Production of Z, then

If the market price of a product increases, then the total

Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

Which of the following would be an example of a moral hazard problem?

A competitive market produces the economically eﬃcient outcome if the following conditions are met, except

As it applies to insurance, the adverse selection problem is the tendency for

The MC curves in the diagram slope upward because of the law of

An emission fee levied against polluting ﬁrms will tend to shift the

If a good that generates positive externalities was produced and priced to take into account these spillover beneﬁts, then its

What two conditions must hold for a competitive market to produce eﬃcient outcomes?

(Last Word) A cap-and-trade program

Which of the following does not illustrate the asymmetric information problem?

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Public Goods, Public Choice, and Government Failure

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

Filters