Question 1

Public goods are both:

Accepted Answer

A)  nonrival and nonexcludable. 
B)  rival and nonexcludable. 
C)  nonrival and excludable. 
D)  rival and excludable. 
A)  nonrival and nonexcludable. 
B)  rival and nonexcludable. 
C)  nonrival and excludable. 
D)  rival and excludable.

Question 2

Use Figure: Negative Externality and Deadweight Loss I. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. The government should impose an excise tax of _____ to arrive at the socially optimal quantity.
​
Figure: Negative Externality and Deadweight Loss I

Accepted Answer

A)  $5 
B)  $4 
C)  $3 
D)  $2 
A)  $5 
B)  $4 
C)  $3 
D)  $2

Question 3

Which of the following statements is NOT true?

Accepted Answer

A)  If the purchase of a good involves a positive externality, then the equilibrium quantity that is purchased in a free market is less than socially optimal. 
B)  If the purchase of a good involves a positive externality, then the equilibrium price of the good in a free market is higher than the socially optimally price. 
C)  If the purchase of a good involves a positive externality, then the marginal social benefit is greater than the marginal private benefit. 
D)  If the purchase of a good involves a positive externality, then free markets lead to a deadweight loss. 
A)  If the purchase of a good involves a positive externality, then the equilibrium quantity that is purchased in a free market is less than socially optimal. 
B)  If the purchase of a good involves a positive externality, then the equilibrium price of the good in a free market is higher than the socially optimally price. 
C)  If the purchase of a good involves a positive externality, then the marginal social benefit is greater than the marginal private benefit. 
D)  If the purchase of a good involves a positive externality, then free markets lead to a deadweight loss.

Question 4

A national highway that requires its users to pay a toll is an example of a good that is both:

Accepted Answer

A)  nonrival and excludable. 
B)  nonrival and nonexcludable. 
C)  rival and excludable. 
D)  rival and nonexcludable. 
A)  nonrival and excludable. 
B)  nonrival and nonexcludable. 
C)  rival and excludable. 
D)  rival and nonexcludable.

Question 5

If the marginal social cost of producing a good is $8 and the marginal external cost of producing it is $2, then the marginal private cost of producing the good is _____, and the production of the good creates a _____ externality.

Accepted Answer

A)  $6; positive 
B)  $10; positive 
C)  $6; negative 
D)  $10; negative 
A)  $6; positive 
B)  $10; positive 
C)  $6; negative 
D)  $10; negative

Question 6

Use Figure: Negative Externality and Deadweight Loss II. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. The marginal external cost that is associated with producing the good is:
​
Figure: Negative Externality and Deadweight Loss II

Accepted Answer

A)  $2. 
B)  $4. 
C)  $6. 
D)  $8. 
A)  $2. 
B)  $4. 
C)  $6. 
D)  $8.

Question 7

Which of the following is a solution to the free-riding problem of providing public goods?

Accepted Answer

A)  Require users to pay coinsurance. 
B)  Require users to pay a high deductible. 
C)  Provide a subsidy for the use of the public good. 
D)  Fund the provision of the public good through taxes. 
A)  Require users to pay coinsurance. 
B)  Require users to pay a high deductible. 
C)  Provide a subsidy for the use of the public good. 
D)  Fund the provision of the public good through taxes.

Question 8

Use Figure: Negative Externality and Deadweight Loss I. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. The socially optimal price is _____, and the socially optimal quantity is _____ units.
​
Figure: Negative Externality and Deadweight Loss I

Accepted Answer

A)  $8; 80 
B)  $8; 60 
C)  $11; 80 
D)  $11; 60 
A)  $8; 80 
B)  $8; 60 
C)  $11; 80 
D)  $11; 60

Question 9

How can imperfectly competitive markets contribute to market failure? Justify your answer with a graph.

Accepted Answer

Imperfectly competitive markets are thos

Question 10

Michael is selling a used PlayStation video game console on eBay. However, this PlayStation does not work properly, and the buyers are not aware of the problem. This situation is an example of:

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  positive externality. 
D)  negative externality. 
A)  moral hazard. 
B)  adverse selection. 
C)  positive externality. 
D)  negative externality.

Question 11

If the marginal private cost of producing the fiftieth unit of a good is $3 and the marginal social cost of producing the fiftieth unit of the good is $5, then producing the good creates _____ externalities, and the marginal external cost is:

Accepted Answer

A)  positive; $8. 
B)  positive; $2. 
C)  negative; $8. 
D)  negative; $2. 
A)  positive; $8. 
B)  positive; $2. 
C)  negative; $8. 
D)  negative; $2.

Question 12

Which of the following conditions will lead a market away from an efficient allocation of resources?

Accepted Answer

A)  The market is perfectly competitive. 
B)  Consumers cannot use any goods or services without paying for them. 
C)  Positive externalities are present. 
D)  Consumers and firms have all of the information that is relevant to their decision making. 
A)  The market is perfectly competitive. 
B)  Consumers cannot use any goods or services without paying for them. 
C)  Positive externalities are present. 
D)  Consumers and firms have all of the information that is relevant to their decision making.

Question 13

Use Figure: Negative Externality and Deadweight Loss II. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. The free-market equilibrium price of the good is _____, and the equilibrium quantity is _____ units.
​
Figure: Negative Externality and Deadweight Loss II

Accepted Answer

A)  $18; 45 
B)  $18; 55 
C)  $16; 45 
D)  $16; 55 
A)  $18; 45 
B)  $18; 55 
C)  $16; 45 
D)  $16; 55

Question 14

Use Figure: Negative Externality and Deadweight Loss II. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. At the free-market equilibrium, the deadweight loss associated with the externality is:
​
Figure: Negative Externality and Deadweight Loss II

Accepted Answer

A)  $10. 
B)  $20. 
C)  $30. 
D)  $40. 
A)  $10. 
B)  $20. 
C)  $30. 
D)  $40.

Question 15

If beekeepers benefit from their neighbor's flower garden, then the flower garden is a source of:

Accepted Answer

A)  negative externality. 
B)  positive externality. 
C)  asymmetric information. 
D)  tragedy of the commons 
A)  negative externality. 
B)  positive externality. 
C)  asymmetric information. 
D)  tragedy of the commons

Question 16

National defense is an example of a service that is both:

Accepted Answer

A)  rival and excludable. 
B)  nonrival and excludable. 
C)  rival and nonexcludable. 
D)  nonrival and nonexcludable. 
A)  rival and excludable. 
B)  nonrival and excludable. 
C)  rival and nonexcludable. 
D)  nonrival and nonexcludable.

Question 17

Suppose that the marginal private benefit from buying an extra unit of a good is $10 and the marginal social benefit of buying the extra unit is $13. In this case, the purchase of the good involves a _____ externality, and the equilibrium quantity purchased in a free market will be ____ than socially optimal.

Accepted Answer

A)  negative; more 
B)  negative; less 
C)  positive; more 
D)  positive; less 
A)  negative; more 
B)  negative; less 
C)  positive; more 
D)  positive; less

Question 18

Use Figure: Externalities and Deadweight Loss I. The figure shows the marginal private benefit, marginal social benefit, and marginal private cost for a good. The socially optimal price of the good is _____, and the socially optimal quantity is_____ units.
​
Figure: Externalities and Deadweight Loss I

Accepted Answer

A)  $25; 40 
B)  $30; 30 
C)  $25; 30 
D)  $30; 40 
A)  $25; 40 
B)  $30; 30 
C)  $25; 30 
D)  $30; 40

Question 19

Honey bees are one of the foremost natural pollinators. Therefore, if someone keeps them for their honey, then a positive externality is created for flower growers. Suppose that a beekeeper who sells honey also creates a $1 positive externality for all the flower growers.
a. Draw a supply and demand graph that clearly marks the following:
1) marginal private benefit curve
2) marginal social benefit curve
3) marginal cost curve (assume that private and social costs are the same)
b. On the graph, mark the points that show the free-market equilibrium and the socially optimal level of price and quantity.
c. Mark the area of deadweight loss, and explain why the free-market equilibrium leads to a deadweight loss.
d. Provide one remedy for the negative externality associated with the production of plastic.

Accepted Answer

a. The graph is similar to Figure 12.1 i

Question 20

Use Figure: Positive Externalities and Deadweight Loss. The figure shows the marginal private benefit, marginal social benefit, and marginal private cost for a good. The government should offer a _____ subsidy to arrive at the socially optimal quantity.
​
Figure: Positive Externalities and Deadweight Loss

Accepted Answer

A)  $5 
B)  $10 
C)  $15 
D)  $13 
A)  $5 
B)  $10 
C)  $15 
D)  $13

Public goods are both:

Which of the following statements is NOT true?

A national highway that requires its users to pay a toll is an example of a good that is both:

If the marginal social cost of producing a good is $8 and the marginal external cost of producing it is $2, then the marginal private cost of producing the good is _, and the production of the good creates a _ externality.

Which of the following is a solution to the free-riding problem of providing public goods?

How can imperfectly competitive markets contribute to market failure? Justify your answer with a graph.

Michael is selling a used PlayStation video game console on eBay. However, this PlayStation does not work properly, and the buyers are not aware of the problem. This situation is an example of:

If the marginal private cost of producing the fiftieth unit of a good is $3 and the marginal social cost of producing the fiftieth unit of the good is $5, then producing the good creates _____ externalities, and the marginal external cost is:

Which of the following conditions will lead a market away from an efficient allocation of resources?

If beekeepers benefit from their neighbor's flower garden, then the flower garden is a source of:

National defense is an example of a service that is both:

Use Figure: Externalities and Deadweight Loss I. The figure shows the marginal private benefit, marginal social benefit, and marginal private cost for a good. The socially optimal price of the good is _, and the socially optimal quantity is_ units. Figure: Externalities and Deadweight Loss I

Foundations of Economics

Extension: Understanding Graphs

Markets and Economies

Demand

Supply

Market Equilibrium

Elasticity

Consumer Behavior

Production Costs

Perfect Competition

Market Power

Factor Markets

Measuring an Economys Performance

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money and Banking

Monetary Policy

Economic Growth and Development

International Trade and Finance

Filters

Exam 12: Market Failure and Government Failure

Public goods are both:

Which of the following statements is NOT true?

A national highway that requires its users to pay a toll is an example of a good that is both:

If the marginal social cost of producing a good is $8 and the marginal external cost of producing it is $2, then the marginal private cost of producing the good is _____, and the production of the good creates a _____ externality.

Which of the following is a solution to the free-riding problem of providing public goods?

How can imperfectly competitive markets contribute to market failure? Justify your answer with a graph.

Michael is selling a used PlayStation video game console on eBay. However, this PlayStation does not work properly, and the buyers are not aware of the problem. This situation is an example of:

If the marginal private cost of producing the fiftieth unit of a good is $3 and the marginal social cost of producing the fiftieth unit of the good is $5, then producing the good creates _____ externalities, and the marginal external cost is:

Which of the following conditions will lead a market away from an efficient allocation of resources?

If beekeepers benefit from their neighbor's flower garden, then the flower garden is a source of:

National defense is an example of a service that is both:

Foundations of Economics

Extension: Understanding Graphs

Markets and Economies

Demand

Supply

Market Equilibrium

Elasticity

Consumer Behavior

Production Costs

Perfect Competition

Market Power

Factor Markets

Measuring an Economys Performance

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money and Banking

Monetary Policy

Economic Growth and Development

International Trade and Finance

Filters

If the marginal social cost of producing a good is $8 and the marginal external cost of producing it is $2, then the marginal private cost of producing the good is _, and the production of the good creates a _ externality.