Question 1

Due to adverse selection, very few lemons will be sold in the market for used cars.

Accepted Answer

A) True 
 B)False

Question 2

Figure 14.1  
-Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3, what changes in the market would result in an economically efficient output?

Accepted Answer

A) The price would increase, the quantity supplied would decrease, and the quantity demanded would increase. 
B) The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would increase. 
C) The price would increase, the demand would decrease and the supply would increase. 
D) The price would increase, the quantity demanded would decrease and the quantity supplied would increase. 
A) The price would increase, the quantity supplied would decrease, and the quantity demanded would increase. 
B) The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would increase. 
C) The price would increase, the demand would decrease and the supply would increase. 
D) The price would increase, the quantity demanded would decrease and the quantity supplied would increase.

Question 3

Which of the following individuals is most likely to purchase a life insurance policy that pays out an annual income beginning at a certain age until the individual's death?

Accepted Answer

A) Ian, who expects to have a short life expectancy because of an illness 
B) Bradley who has six young children 
C) Avril, a tax attorney who wants to avoid adverse selection 
D) Alma, who expects to live a long life, based on her family history 
A) Ian, who expects to have a short life expectancy because of an illness 
B) Bradley who has six young children 
C) Avril, a tax attorney who wants to avoid adverse selection 
D) Alma, who expects to live a long life, based on her family history

Question 4

Figure 14.1  
-Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $9,

Accepted Answer

A) the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low. 
B) producers should lower the price to $3 in order to sell the quantity demanded of 4000. 
C) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high. 
D) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low. 
A) the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low. 
B) producers should lower the price to $3 in order to sell the quantity demanded of 4000. 
C) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high. 
D) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low.

Question 5

Adverse selection

Accepted Answer

A) refers to the private, self-interested actions that people pursue, which, when taken collectively, lead to a loss in economic surplus. 
B) refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. 
C) refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. 
D) refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction. 
A) refers to the private, self-interested actions that people pursue, which, when taken collectively, lead to a loss in economic surplus. 
B) refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. 
C) refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. 
D) refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.

Question 6

A disadvantage of trademarking a firm's product is

Accepted Answer

A) a trademark differentiates a firm's product. 
B) a trademark conveys information about the product to the public. 
C) a trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name. 
D) a trademark does not affect demand for the firm's product. 
A) a trademark differentiates a firm's product. 
B) a trademark conveys information about the product to the public. 
C) a trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name. 
D) a trademark does not affect demand for the firm's product.

Question 7

Figure 14.2   Amit and Bree are the only two homeowners on an isolated private road.Both agree that installing street lights along the road would be beneficial and want to do so.Figure 14.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 14.2.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Accepted Answer

A) The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. 
B) Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. 
C) The optimal quantity will be installed only if the two parties split the cost of installation equally. 
D) The optimal quantity will be installed only if Bree pays for the entire installation cost. 
A) The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. 
B) Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. 
C) The optimal quantity will be installed only if the two parties split the cost of installation equally. 
D) The optimal quantity will be installed only if Bree pays for the entire installation cost.

Question 8

What is rent seeking and how is it related to regulatory capture?

Accepted Answer

Rent seeking is the attempt by individua

Question 9

Why might a young, healthy person choose not to buy health insurance?

Accepted Answer

If you are healthy and rarely

Question 10

What is one result of the public choice model that is believed by most economists?

Accepted Answer

A) When market failure occurs, government intervention will always lead to a more efficient outcome. 
B) Government intervention will always result in a reduction in economic efficiency in regulated markets. 
C) Policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency. 
D) The voting paradox will prevent voters from selecting the best person for public office. 
A) When market failure occurs, government intervention will always lead to a more efficient outcome. 
B) Government intervention will always result in a reduction in economic efficiency in regulated markets. 
C) Policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency. 
D) The voting paradox will prevent voters from selecting the best person for public office.

Question 11

If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce

Accepted Answer

A) the problem of adverse selection. 
B) the moral hazard problem. 
C) sunk costs. 
D) asymmetric information. 
A) the problem of adverse selection. 
B) the moral hazard problem. 
C) sunk costs. 
D) asymmetric information.

Question 12

Where does the efficient output level of a public good occur?

Accepted Answer

A) Where greatest number of free riders occurs. 
B) Where marginal cost of producing the last unit is equal to the marginal benefit realised by consumers. 
C) Where total cost of production is affordable. 
D) Where marginal cost of production is at its lowest. 
A) Where greatest number of free riders occurs. 
B) Where marginal cost of producing the last unit is equal to the marginal benefit realised by consumers. 
C) Where total cost of production is affordable. 
D) Where marginal cost of production is at its lowest.

Question 13

Figure 14.1  
-Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9, what changes in the market would result in an economically efficient output?

Accepted Answer

A) The price would decrease, the quantity supplied would decrease, and the quantity demanded would increase. 
B) The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would decrease. 
C) The price would decrease, the demand would increase and the supply would decrease. 
D) The price would increase, the quantity demanded would decrease and the quantity supplied would increase. 
A) The price would decrease, the quantity supplied would decrease, and the quantity demanded would increase. 
B) The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would decrease. 
C) The price would decrease, the demand would increase and the supply would decrease. 
D) The price would increase, the quantity demanded would decrease and the quantity supplied would increase.

Question 14

What is the relationship between market failure and government failure?

Accepted Answer

Market failure is a case where the marke

Question 15

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

Accepted Answer

A) True 
 B)False

Question 16

Figure 14.2   Amit and Bree are the only two homeowners on an isolated private road.Both agree that installing street lights along the road would be beneficial and want to do so.Figure 14.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 14.2.How much is Amit willing to pay to have 4 street lights installed?

Accepted Answer

A) $3600 
B) $2700 
C) $1800 
D) $900 
A) $3600 
B) $2700 
C) $1800 
D) $900

Question 17

What does the supply curve of a public goods show?

Accepted Answer

A) The total quantities that all producers are willing and able to supply at each price. 
B) The maximum amount suppliers require to produce each quantity of the good. 
C) The total cost of producing each unit of the good. 
D) The marginal cost of producing each unit of the good. 
A) The total quantities that all producers are willing and able to supply at each price. 
B) The maximum amount suppliers require to produce each quantity of the good. 
C) The total cost of producing each unit of the good. 
D) The marginal cost of producing each unit of the good.

Question 18

State whether each of the following goods and services is non-rival, non-excludable or both:
a.A toll road
b.A public park
c.A lighthouse
d.An art museum
e.A radio broadcast of 'A Prairie Home Companion'

Accepted Answer

a.Non-rival, although rivalry could exis

Question 19

How can the market demand for a public good be determined?

Accepted Answer

A) By adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B) By adding up how much each citizen expects to consume at each possible price. 
C) By adding up how much each consumer is willing to pay for each unit of the public good. 
D) By estimating the value of the benefit that each unit provides and multiplying that by the number of consumers. 
A) By adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B) By adding up how much each citizen expects to consume at each possible price. 
C) By adding up how much each consumer is willing to pay for each unit of the public good. 
D) By estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.

Question 20

Why is it difficult for a private market to provide the economically efficient quantity of a public good?

Accepted Answer

A) By law, governments cannot use cost-benefit analysis to determine this quantity. 
B) Public goods produce positive and negative externalities. 
C) Individual preferences are not revealed in the market for the good. 
D) It is too expensive to produce the necessary amount of the good. 
A) By law, governments cannot use cost-benefit analysis to determine this quantity. 
B) Public goods produce positive and negative externalities. 
C) Individual preferences are not revealed in the market for the good. 
D) It is too expensive to produce the necessary amount of the good.

Due to adverse selection, very few lemons will be sold in the market for used cars.

Figure 14.1 -Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3, what changes in the market would result in an economically efficient output?

Which of the following individuals is most likely to purchase a life insurance policy that pays out an annual income beginning at a certain age until the individual's death?

Figure 14.1 -Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $9,

Adverse selection

A disadvantage of trademarking a firm's product is

What is rent seeking and how is it related to regulatory capture?

Why might a young, healthy person choose not to buy health insurance?

What is one result of the public choice model that is believed by most economists?

If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce

Where does the efficient output level of a public good occur?

Figure 14.1 -Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9, what changes in the market would result in an economically efficient output?

What is the relationship between market failure and government failure?

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

What does the supply curve of a public goods show?

State whether each of the following goods and services is non-rival, non-excludable or both: a.A toll road b.A public park c.A lighthouse d.An art museum e.A radio broadcast of 'A Prairie Home Companion'

How can the market demand for a public good be determined?

Why is it difficult for a private market to provide the economically efficient quantity of a public good?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 14: Government Intervention in the Market

Due to adverse selection, very few lemons will be sold in the market for used cars.

Figure 14.1 -Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3, what changes in the market would result in an economically efficient output?

Which of the following individuals is most likely to purchase a life insurance policy that pays out an annual income beginning at a certain age until the individual's death?

Figure 14.1 -Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $9,

Adverse selection

A disadvantage of trademarking a firm's product is

What is rent seeking and how is it related to regulatory capture?

Why might a young, healthy person choose not to buy health insurance?

What is one result of the public choice model that is believed by most economists?

If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce

Where does the efficient output level of a public good occur?

Figure 14.1 -Refer to Figure 14.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9, what changes in the market would result in an economically efficient output?

What is the relationship between market failure and government failure?

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

What does the supply curve of a public goods show?

State whether each of the following goods and services is non-rival, non-excludable or both: a.A toll road b.A public park c.A lighthouse d.An art museum e.A radio broadcast of 'A Prairie Home Companion'

How can the market demand for a public good be determined?

Why is it difficult for a private market to provide the economically efficient quantity of a public good?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters