Question 1

Which of the following is a measure taken by the government to internalize the externalities?

Accepted Answer

A) Value Added Tax 
B) Income Tax 
C) Cap and Trade 
D) Tariffs 
E) Deficit financing 
A) Value Added Tax 
B) Income Tax 
C) Cap and Trade 
D) Tariffs 
E) Deficit financing

Question 2

When legislators support one another's project in order to ensure support for their own,it is referred to as:

Accepted Answer

A) rent seeking. 
B) moral hazard. 
C) political hazard. 
D) logrolling. 
E) bribery. 
A) rent seeking. 
B) moral hazard. 
C) political hazard. 
D) logrolling. 
E) bribery.

Question 3

A market failure occurs when the market outcome is not the socially efficient outcome.

Accepted Answer

A) True 
 B)False

Question 4

A market in which adverse selection may not occur is:

Accepted Answer

A) the market for pre-owned residential apartments. 
B) the lemons market. 
C) the market for new sports utility vehicles. 
D) the capital market. 
E) the market for health insurance. 
A) the market for pre-owned residential apartments. 
B) the lemons market. 
C) the market for new sports utility vehicles. 
D) the capital market. 
E) the market for health insurance.

Question 5

The figure given below shows the demand and supply curves of steel.SS1U1B1pS1U1B0 is the private supply curve,and SS1U1B1sS1U1B0 is the social supply curve that includes both private costs and external costs. Figure 13.2   
-According to Figure 13.2:

Accepted Answer

A) both points a and b are socially efficient. 
B) both points a and b are inefficient. 
C) point a represents the social equilibrium,whereas point b represents the private equilibrium. 
D) point a represents the private equilibrium,whereas point b represents the social equilibrium. 
E) when external costs are zero,the socially efficient output level is equal to 0Qs units. 
A) both points a and b are socially efficient. 
B) both points a and b are inefficient. 
C) point a represents the social equilibrium,whereas point b represents the private equilibrium. 
D) point a represents the private equilibrium,whereas point b represents the social equilibrium. 
E) when external costs are zero,the socially efficient output level is equal to 0Qs units.

Question 6

The figure below shows the demand and supply curves in the market for elementary education. Figure 13.1
  In the figure,
D: Private demand curve for elementary education
D + s: Demand curve which includes public benefits
S: Supply curve of education
Price and Quantity have been taken on vertical and horizontal axes respectively.
-In Figure 13.1,D represents the private demand for education,and D+s represents the demand including the public benefits of education.According to the figure,the optimal subsidy is equal to:

Accepted Answer

A) 0Qs -0Qp. 
B) 0Ps - 0Pp. 
C) Qpa - Qpc. 
D) Qsb - Qsd. 
E) the distance bc. 
A) 0Qs -0Qp. 
B) 0Ps - 0Pp. 
C) Qpa - Qpc. 
D) Qsb - Qsd. 
E) the distance bc.

Question 7

Social cost is _____.

Accepted Answer

A) the sum of fixed and variable costs 
B) the difference between the total cost and opportunity cost 
C) the sum of private and external costs 
D) the difference between the private and external cost 
E) sum of fixed costs and opportunity costs 
A) the sum of fixed and variable costs 
B) the difference between the total cost and opportunity cost 
C) the sum of private and external costs 
D) the difference between the private and external cost 
E) sum of fixed costs and opportunity costs

Question 8

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing.The fisherman were charged $50 on each boat they sent out for fishing.The following table shows the total pounds of fish caught per hour and the number of boats used for fishing. Table 13.2
 
- Refer to Table 13.2.Suppose fish sells for $1 per pound.If each fisherman decides whether or not to fish based on the average catch,how many boats per hour will go out to fish?

Accepted Answer

A) 6 
B) 5 
C) 4 
D) 3 
E) 2 
A) 6 
B) 5 
C) 4 
D) 3 
E) 2

Question 9

Which of the following wouldhelp to minimize adverse selection?

Accepted Answer

A) Having a middleman or specialist to sell used products to consumers 
B) Doing away with the down payment on a loan 
C) Raising the price on a good or service,such as the interest rate on a loan 
D) Eliminating the system of providing a collateral while taking a loan. 
E) Eliminating the system of deductibles in health insurance. 
A) Having a middleman or specialist to sell used products to consumers 
B) Doing away with the down payment on a loan 
C) Raising the price on a good or service,such as the interest rate on a loan 
D) Eliminating the system of providing a collateral while taking a loan. 
E) Eliminating the system of deductibles in health insurance.

Question 10

Why do externalities arise?

Accepted Answer

A) The costs of production are not borne by the producer 
B) An economic activity imposes a burden on them who are not directly involved in it 
C) An economic activity imposes a cost on them who are directly involved in it 
D) The government produces such goods and services which are consumed by only a particular class of people 
E) Goods of mass consumption are not produced as they do not yield profit for the producers 
A) The costs of production are not borne by the producer 
B) An economic activity imposes a burden on them who are not directly involved in it 
C) An economic activity imposes a cost on them who are directly involved in it 
D) The government produces such goods and services which are consumed by only a particular class of people 
E) Goods of mass consumption are not produced as they do not yield profit for the producers

Question 11

The figure given below shows the demand for permits and the maximum permissible level of pollution. Figure 13.4   In the figure,
The downward sloping line is the demand curve of permits;
The vertical line denotes the maximum permissible limit of pollution.
-In Figure 13.4,if the government sells Qb permits to pollute at a price of Pb each,then:

Accepted Answer

A) the allocation of pollution reduction is inefficient. 
B) firms in the market will be forced to shut down due to excessive government regulation. 
C) the allocation of pollution reduction is efficient,because only those firms with a marginal cost of pollution reduction greater than Pb will buy the permits. 
D) the allocation of pollution reduction is efficient,because only those firms with a marginal cost of pollution reduction less than Pb will buy the permits. 
E) the allocation of pollution reduction is inefficient,because only those firms with the lowest costs of pollution reduction will purchase the permits. 
A) the allocation of pollution reduction is inefficient. 
B) firms in the market will be forced to shut down due to excessive government regulation. 
C) the allocation of pollution reduction is efficient,because only those firms with a marginal cost of pollution reduction greater than Pb will buy the permits. 
D) the allocation of pollution reduction is efficient,because only those firms with a marginal cost of pollution reduction less than Pb will buy the permits. 
E) the allocation of pollution reduction is inefficient,because only those firms with the lowest costs of pollution reduction will purchase the permits.

Question 12

Tragedy of commons refers to:

Accepted Answer

A) a problem that is created when everything is privately owned. 
B) a situation when the resources are owned by the government and the common people have limited access to them. 
C) a problem that arises when government takes incorrect measures which adversely affect common people. 
D) a problem that is created when everyone has an access to a particular resource. 
E) the adverse situation that arises when the government fails to take adequate measures to solve common problems. 
A) a problem that is created when everything is privately owned. 
B) a situation when the resources are owned by the government and the common people have limited access to them. 
C) a problem that arises when government takes incorrect measures which adversely affect common people. 
D) a problem that is created when everyone has an access to a particular resource. 
E) the adverse situation that arises when the government fails to take adequate measures to solve common problems.

Question 13

When consumers or producers do not bear the full cost of their economic decisions,they tend to produce or consume more than they otherwise would.

Accepted Answer

A) True 
 B)False

Question 14

The Clean Air Act of 1972 required some companies to install the "best available" pollution control technologies.This was an example of:

Accepted Answer

A) the government using a subsidy to encourage a negative externality. 
B) the government using the command approach to discourage a negative externality. 
C) the government using the command approach to encourage a positive externality. 
D) a marketable pollution permit. 
E) a pollution tax. 
A) the government using a subsidy to encourage a negative externality. 
B) the government using the command approach to discourage a negative externality. 
C) the government using the command approach to encourage a positive externality. 
D) a marketable pollution permit. 
E) a pollution tax.

Question 15

Social cost is negative in case of a negative externality.

Accepted Answer

A) True 
 B)False

Question 16

The figure given below shows the demand and supply curves of automobiles. Figure 13.3   In the figure,
D: Demand curve of automobiles
S: Supply of automobiles prior to the tax
S+t: Supply of automobiles after the tax
-Figure 13.3 represents a situation of:

Accepted Answer

A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) tragedy of commons. 
E) free rider problem. 
A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) tragedy of commons. 
E) free rider problem.

Question 17

After John discovered he had a serious illness,he immediately purchased health insurance without disclosing his illness to the insurance company.This is an example of adverse selection.

Accepted Answer

A) True 
 B)False

Question 18

When negative externalities exist in a market,that market will produce too little output compared to the socially efficient level of output.

Accepted Answer

A) True 
 B)False

Question 19

In the case of automobile and medical insurance,adverse selection might mean that,as the cost of insurance rises,the good drivers and healthy people reduce their coverage while the poor drivers and unhealthy people maintain their coverage.

Accepted Answer

A) True 
 B)False

Question 20

The free-rider problem occurs because:

Accepted Answer

A) it is easy to exclude others from consuming the good. 
B) consumption is rivalrous,so that the consumption of a product by one individual diminishes that available for others. 
C) exclusion is costly or impossible,so that a consumer or producer can use the good without having to pay for it. 
D) costs are imposed on others not directly involved in the transaction. 
E) individuals are not required to pay for those goods which do not yield any utility to them. 
A) it is easy to exclude others from consuming the good. 
B) consumption is rivalrous,so that the consumption of a product by one individual diminishes that available for others. 
C) exclusion is costly or impossible,so that a consumer or producer can use the good without having to pay for it. 
D) costs are imposed on others not directly involved in the transaction. 
E) individuals are not required to pay for those goods which do not yield any utility to them.

Which of the following is a measure taken by the government to internalize the externalities?

When legislators support one another's project in order to ensure support for their own,it is referred to as:

A market failure occurs when the market outcome is not the socially efficient outcome.

A market in which adverse selection may not occur is:

The figure given below shows the demand and supply curves of steel.S_p is the private supply curve,and S_s is the social supply curve that includes both private costs and external costs. Figure 13.2 -According to Figure 13.2:

Social cost is _____.

Which of the following wouldhelp to minimize adverse selection?

Why do externalities arise?

Tragedy of commons refers to:

When consumers or producers do not bear the full cost of their economic decisions,they tend to produce or consume more than they otherwise would.

The Clean Air Act of 1972 required some companies to install the "best available" pollution control technologies.This was an example of:

Social cost is negative in case of a negative externality.

The figure given below shows the demand and supply curves of automobiles. Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax -Figure 13.3 represents a situation of:

After John discovered he had a serious illness,he immediately purchased health insurance without disclosing his illness to the insurance company.This is an example of adverse selection.

When negative externalities exist in a market,that market will produce too little output compared to the socially efficient level of output.

In the case of automobile and medical insurance,adverse selection might mean that,as the cost of insurance rises,the good drivers and healthy people reduce their coverage while the poor drivers and unhealthy people maintain their coverage.

The free-rider problem occurs because:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Exam 13: Market Failures, Government Failures, and Rent Seeking

Which of the following is a measure taken by the government to internalize the externalities?

When legislators support one another's project in order to ensure support for their own,it is referred to as:

A market failure occurs when the market outcome is not the socially efficient outcome.

A market in which adverse selection may not occur is:

The figure given below shows the demand and supply curves of steel.Sp is the private supply curve,and Ss is the social supply curve that includes both private costs and external costs. Figure 13.2 -According to Figure 13.2:

Social cost is _____.

Which of the following wouldhelp to minimize adverse selection?

Why do externalities arise?

Tragedy of commons refers to:

When consumers or producers do not bear the full cost of their economic decisions,they tend to produce or consume more than they otherwise would.

The Clean Air Act of 1972 required some companies to install the "best available" pollution control technologies.This was an example of:

Social cost is negative in case of a negative externality.

The figure given below shows the demand and supply curves of automobiles. Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax -Figure 13.3 represents a situation of:

After John discovered he had a serious illness,he immediately purchased health insurance without disclosing his illness to the insurance company.This is an example of adverse selection.

When negative externalities exist in a market,that market will produce too little output compared to the socially efficient level of output.

In the case of automobile and medical insurance,adverse selection might mean that,as the cost of insurance rises,the good drivers and healthy people reduce their coverage while the poor drivers and unhealthy people maintain their coverage.

The free-rider problem occurs because:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The figure given below shows the demand and supply curves of steel.S_p is the private supply curve,and S_s is the social supply curve that includes both private costs and external costs. Figure 13.2 -According to Figure 13.2: