Question 1

Negative externalities lead to an underallocation of resources in that area relative to that which is socially desirable.

Accepted Answer

A) True 
 B)False

Question 2

Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defined.

Accepted Answer

A) True 
 B)False

Question 3

What are private costs?

Accepted Answer

A)  costs borne by the government 
B)  costs borne by both an item's producer and outside parties affected by a negative externality 
C)  costs borne by the producer of an item 
D)  costs borne by outside parties affected by a negative externality 
A)  costs borne by the government 
B)  costs borne by both an item's producer and outside parties affected by a negative externality 
C)  costs borne by the producer of an item 
D)  costs borne by outside parties affected by a negative externality

Question 4

Which of the following is an example of a negative externality?

Accepted Answer

A)  the benefit you receive when your neighbour installs a smoke detector 
B)  the reduction in profits for your company that occurs when there is a decrease in consumer demand for the product you manufacture 
C)  the change in the property values of your neighbours' homes when you paint your house and landscape your front yard 
D)  the sleep you lose when your neighbour throws a loud party next door that keeps you awake 
A)  the benefit you receive when your neighbour installs a smoke detector 
B)  the reduction in profits for your company that occurs when there is a decrease in consumer demand for the product you manufacture 
C)  the change in the property values of your neighbours' homes when you paint your house and landscape your front yard 
D)  the sleep you lose when your neighbour throws a loud party next door that keeps you awake

Question 5

Which of the following is likely to be a common resource?

Accepted Answer

A)  sockeye salmon 
B)  the view from the top of the CN Tower 
C)  Black Angus cattle 
D)  cable television 
A)  sockeye salmon 
B)  the view from the top of the CN Tower 
C)  Black Angus cattle 
D)  cable television

Question 6

TABLE 6-1
Henry demands jazz CDs according to the following demand schedule:
  
-Refer to Table 6-1. If the price of jazz CDs equals $15, what is the consumer surplus Henry receives from purchasing jazz CDs?

Accepted Answer

A)  $15 
B)  $25 
C)  $30 
D)  $55 
A)  $15 
B)  $25 
C)  $30 
D)  $55

Question 7

When does a free-rider problem arise?

Accepted Answer

A)  whenever the government provides goods or services 
B)  whenever the price of a good is very low 
C)  whenever goods cease to be scarce 
D)  whenever goods cannot be provided exclusively to those who pay for them 
A)  whenever the government provides goods or services 
B)  whenever the price of a good is very low 
C)  whenever goods cease to be scarce 
D)  whenever goods cannot be provided exclusively to those who pay for them

Question 8

Which of the following best illustrates the free-rider problem?

Accepted Answer

A)  Individuals contribute toward a national defence program by paying taxes to the government. 
B)  Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road. 
C)  A tollbooth is constructed at the entrance of a privately funded highway. 
D)  A homeowner erects a locked gate around his swimming pool to keep out unsupervised children. 
A)  Individuals contribute toward a national defence program by paying taxes to the government. 
B)  Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road. 
C)  A tollbooth is constructed at the entrance of a privately funded highway. 
D)  A homeowner erects a locked gate around his swimming pool to keep out unsupervised children.

Question 9

Under what circumstances does the free-rider problem arise?

Accepted Answer

A)  when the marginal benefit to a private individual outweighs the marginal cost of producing a good 
B)  when goods can't be provided exclusively to paying customers 
C)  when goods are produced by the government 
D)  when goods cease to be scarce 
A)  when the marginal benefit to a private individual outweighs the marginal cost of producing a good 
B)  when goods can't be provided exclusively to paying customers 
C)  when goods are produced by the government 
D)  when goods cease to be scarce

Question 10

Many in the public are unwilling to contribute money toward neuromuscular disease research until members of their own families suffer from a neuromuscular ailment. If left strictly to the private market, what is the likely outcome?

Accepted Answer

A)  an overallocation of resources to neuromuscular disease research, relative to the efficient level 
B)  an efficient quantity of resources devoted to neuromuscular disease research 
C)  an underallocation of resources to neuromuscular disease research, relative to the efficient level 
D)  zero dollars devoted to neuromuscular disease research 
A)  an overallocation of resources to neuromuscular disease research, relative to the efficient level 
B)  an efficient quantity of resources devoted to neuromuscular disease research 
C)  an underallocation of resources to neuromuscular disease research, relative to the efficient level 
D)  zero dollars devoted to neuromuscular disease research

Question 11

Which of the following is an example of a public good?

Accepted Answer

A)  a delivery truck 
B)  national defence 
C)  milk 
D)  a pizza 
A)  a delivery truck 
B)  national defence 
C)  milk 
D)  a pizza

Question 12

FIGURE 6-1
  
-Refer to Figure 6-1. What area identifies the consumer surplus created when the market price equals P₂?

Accepted Answer

A)  area A 
B)  area C + D + F 
C)  area B + E 
D)  area A + B + E 
A)  area A 
B)  area C + D + F 
C)  area B + E 
D)  area A + B + E

Question 13

An example of a public good is a flood-control project that protects all the homes and properties near a river.

Accepted Answer

A) True 
 B)False

Question 14

Why does consumer surplus arise?

Accepted Answer

A)  Sellers manufacture more units of a good than consumers are willing to purchase. 
B)  Consumers buy less of some commodities than they need. 
C)  Consumers value some goods purchased higher than the price they have to pay to acquire them. 
D)  Consumers buy more of some commodities than they need. 
A)  Sellers manufacture more units of a good than consumers are willing to purchase. 
B)  Consumers buy less of some commodities than they need. 
C)  Consumers value some goods purchased higher than the price they have to pay to acquire them. 
D)  Consumers buy more of some commodities than they need.

Question 15

As the market price of a good falls due to a decrease in demand, what happens to producer surplus?

Accepted Answer

A)  It does not change. 
B)  It rises. 
C)  It falls. 
D)  It can fall, rise, or stay the same. 
A)  It does not change. 
B)  It rises. 
C)  It falls. 
D)  It can fall, rise, or stay the same.

Question 16

Which of the following describes an external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

A)  A flu shot is less expensive than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get a flu shot. 
C)  A flu shot reduces the likelihood that others will catch the flu from you. 
D)  A flu shot reduces the likelihood that you will miss work as a result of sickness, and, therefore, you will earn more income. 
A)  A flu shot is less expensive than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get a flu shot. 
C)  A flu shot reduces the likelihood that others will catch the flu from you. 
D)  A flu shot reduces the likelihood that you will miss work as a result of sickness, and, therefore, you will earn more income.

Question 17

Grayson's marginal utility per dollar spent on bananas is 10 and his marginal utility per dollar spent on oranges is 20, how should he spend his income?

Accepted Answer

A)  He should purchase fewer oranges and more bananas. 
B)  He should purchase an equal amount of oranges and bananas. 
C)  He should purchase more oranges and fewer bananas. 
D)  He should purchase more bananas and oranges. 
A)  He should purchase fewer oranges and more bananas. 
B)  He should purchase an equal amount of oranges and bananas. 
C)  He should purchase more oranges and fewer bananas. 
D)  He should purchase more bananas and oranges.

Question 18

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

Accepted Answer

They ignore it because it is never a res

Question 19

Which of the following activities represents an external cost?

Accepted Answer

A)  the increase in local property values when the city creates a neighbourhood park 
B)  the price you pay for the prime ribs that you consume at a local restaurant 
C)  the reduction in the incidence of chicken pox when children are inoculated against the disease 
D)  the damage to a person's health from second-hand smoke 
A)  the increase in local property values when the city creates a neighbourhood park 
B)  the price you pay for the prime ribs that you consume at a local restaurant 
C)  the reduction in the incidence of chicken pox when children are inoculated against the disease 
D)  the damage to a person's health from second-hand smoke

Question 20

What is the additional satisfaction that an individual gets from consuming one more unit of a product called?

Accepted Answer

A)  net gains 
B)  marginal utility 
C)  total utility 
D)  aggregate gains 
A)  net gains 
B)  marginal utility 
C)  total utility 
D)  aggregate gains

Negative externalities lead to an underallocation of resources in that area relative to that which is socially desirable.

Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defined.

What are private costs?

Which of the following is an example of a negative externality?

Which of the following is likely to be a common resource?

TABLE 6-1 Henry demands jazz CDs according to the following demand schedule: -Refer to Table 6-1. If the price of jazz CDs equals $15, what is the consumer surplus Henry receives from purchasing jazz CDs?

When does a free-rider problem arise?

Which of the following best illustrates the free-rider problem?

Under what circumstances does the free-rider problem arise?

Many in the public are unwilling to contribute money toward neuromuscular disease research until members of their own families suffer from a neuromuscular ailment. If left strictly to the private market, what is the likely outcome?

Which of the following is an example of a public good?

FIGURE 6-1 -Refer to Figure 6-1. What area identifies the consumer surplus created when the market price equals P₂?

An example of a public good is a flood-control project that protects all the homes and properties near a river.

Why does consumer surplus arise?

As the market price of a good falls due to a decrease in demand, what happens to producer surplus?

Which of the following describes an external benefit resulting from an individual's purchase of a winter flu shot?

Grayson's marginal utility per dollar spent on bananas is 10 and his marginal utility per dollar spent on oranges is 20, how should he spend his income?

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

Which of the following activities represents an external cost?

What is the additional satisfaction that an individual gets from consuming one more unit of a product called?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 6: Market Efficiency and Market Failure

Negative externalities lead to an underallocation of resources in that area relative to that which is socially desirable.

Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defined.

What are private costs?

Which of the following is an example of a negative externality?

Which of the following is likely to be a common resource?

TABLE 6-1 Henry demands jazz CDs according to the following demand schedule: -Refer to Table 6-1. If the price of jazz CDs equals $15, what is the consumer surplus Henry receives from purchasing jazz CDs?

When does a free-rider problem arise?

Which of the following best illustrates the free-rider problem?

Under what circumstances does the free-rider problem arise?

Many in the public are unwilling to contribute money toward neuromuscular disease research until members of their own families suffer from a neuromuscular ailment. If left strictly to the private market, what is the likely outcome?

Which of the following is an example of a public good?

FIGURE 6-1 -Refer to Figure 6-1. What area identifies the consumer surplus created when the market price equals P₂?

An example of a public good is a flood-control project that protects all the homes and properties near a river.

Why does consumer surplus arise?

As the market price of a good falls due to a decrease in demand, what happens to producer surplus?

Which of the following describes an external benefit resulting from an individual's purchase of a winter flu shot?

Grayson's marginal utility per dollar spent on bananas is 10 and his marginal utility per dollar spent on oranges is 20, how should he spend his income?

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

Which of the following activities represents an external cost?

What is the additional satisfaction that an individual gets from consuming one more unit of a product called?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labour Markets and the Distribution of Income

The Environment

Filters