Question 1

If the rivers,lakes and air in the United States could all be privately owned,then:

Accepted Answer

A)  there would be less pollution. 
B)  costs of production for many firms would rise. 
C)  externalities would be internalized. 
D)  all of the above are correct. 
A)  there would be less pollution. 
B)  costs of production for many firms would rise. 
C)  externalities would be internalized. 
D)  all of the above are correct. D

Question 2

Moral hazard occurs when an informed party benefits in an exchange by taking advantage of knowing more than the other party.

Accepted Answer

A) True 
 B)False  False

Question 3

Nick owns a dog whose barking annoys his neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Nick,and that Jane bears a cost of $500 from the barking.Assume that the city has no ordinance against barking dogs.A possible private solution that would benefit both parties is for:

Accepted Answer

A)  There is no private solution that would improve this situation for both parties. 
B)  Jane to pay Nick $650 to get rid of the dog. 
C)  Jane to pay Nick $800 to get rid of the dog. 
D)  Nick to pay Jane $600 for her inconvenience. 
A)  There is no private solution that would improve this situation for both parties. 
B)  Jane to pay Nick $650 to get rid of the dog. 
C)  Jane to pay Nick $800 to get rid of the dog. 
D)  Nick to pay Jane $600 for her inconvenience. A

Question 4

Which of the following is not true with regard to pollution control through transferable pollution rights?

Accepted Answer

A)  It does not require the government to obtain information on the pollution abatement techniques being utilized. 
B)  It creates an incentive to develop improved pollution abatement technologies. 
C)  It ultimately requires all firms to reduce pollution in equal amounts. 
D)  It established private property rights that can be sold. 
A)  It does not require the government to obtain information on the pollution abatement techniques being utilized. 
B)  It creates an incentive to develop improved pollution abatement technologies. 
C)  It ultimately requires all firms to reduce pollution in equal amounts. 
D)  It established private property rights that can be sold.

Question 5

If the production of a good created both external costs and external benefits,but the external costs were greater,without government intervention,a market economy will:

Accepted Answer

A)  not produce the product at all. 
B)  overproduce the product. 
C)  underproduce the product. 
D)  produce the optimal amount of the product. 
A)  not produce the product at all. 
B)  overproduce the product. 
C)  underproduce the product. 
D)  produce the optimal amount of the product.

Question 6

Golf course developers who buy the land around the golf course they build are attempting to:

Accepted Answer

A)  impose external costs on non-consenting third parties. 
B)  internalize external benefits. 
C)  turn a private good into a public good. 
D)  internalize external costs. 
A)  impose external costs on non-consenting third parties. 
B)  internalize external benefits. 
C)  turn a private good into a public good. 
D)  internalize external costs.

Question 7

After trading in her Volkswagen Beetle for a much safer Mercedes sedan,Rene began driving less carefully.This is an example of:

Accepted Answer

A)  an adverse selection problem. 
B)  a free-rider problem. 
C)  a moral hazard problem. 
D)  a positive externality problem. 
A)  an adverse selection problem. 
B)  a free-rider problem. 
C)  a moral hazard problem. 
D)  a positive externality problem.

Question 8

Exhibit 8-2   Refer to Exhibit 8-2.The supply curve S social includes the following costs.

Accepted Answer

A)  Private costs only 
B)  Private costs and external costs 
C)  External costs and public costs 
D)  all of the above 
A)  Private costs only 
B)  Private costs and external costs 
C)  External costs and public costs 
D)  all of the above

Question 9

Medical research helps to develop better treatments for neuromuscular disease.Medical researchers are constantly in search of funds.Many in the public,however,are unwilling to contribute money toward neuromuscular disease research until a member of their own family suffers from a neuromuscular ailment.If left strictly to the private market,it is likely that there will be:

Accepted Answer

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

Question 10

Which of the following provides an example of an externality?

Accepted Answer

A)  The air pollution generated when you drive your car. 
B)  The view that passersby and neighbors enjoy when observing your rose garden. 
C)  The free concerts neighbors hear when an accomplished musician practices at home. 
D)  All of the above. 
A)  The air pollution generated when you drive your car. 
B)  The view that passersby and neighbors enjoy when observing your rose garden. 
C)  The free concerts neighbors hear when an accomplished musician practices at home. 
D)  All of the above.

Question 11

An individual firm has little incentive to voluntarily internalize any external costs it was creating because:

Accepted Answer

A)  it would shift its cost curves downward. 
B)  it would put it at a competitive disadvantage compared to its rivals. 
C)  it would have to increase output to make up for the added costs. 
D)  they do not care at all about other people. 
A)  it would shift its cost curves downward. 
B)  it would put it at a competitive disadvantage compared to its rivals. 
C)  it would have to increase output to make up for the added costs. 
D)  they do not care at all about other people.

Question 12

Without government intervention,society is likely to get too little production of:
i.private goods that generate external costs
ii.private goods that generate external benefits
iii.public goods

Accepted Answer

A)  (i) only 
B)  (ii) only 
C)  (iii) only 
D)  both (ii) and (iii) 
A)  (i) only 
B)  (ii) only 
C)  (iii) only 
D)  both (ii) and (iii)

Question 13

Assume your roommate is very untidy.According to campus policy,you have a right to live in an uncluttered apartment.Suppose she/he gets a $200 benefit from being untidy but imposes a $100 cost on you.The Coase Theorem would suggest an efficient solution can be reached where:

Accepted Answer

A)  you continue to live with your messy roommate until you are able to make other living arrangements elsewhere. 
B)  your roommate stops her/his messy habits or you force her/him to move out. 
C)  you pay your roommate at least $100 but no more than $200 to clean up after (her)himself. 
D)  your roommate pays you at least $100 but no more than $200 for the right to be untidy (or to have you clean up after her/him). 
A)  you continue to live with your messy roommate until you are able to make other living arrangements elsewhere. 
B)  your roommate stops her/his messy habits or you force her/him to move out. 
C)  you pay your roommate at least $100 but no more than $200 to clean up after (her)himself. 
D)  your roommate pays you at least $100 but no more than $200 for the right to be untidy (or to have you clean up after her/him).

Question 14

Which of the following is (are)true when one firm's research and production can increase another firm's access to technological advances?

Accepted Answer

A)  It is called a technology spillover. 
B)  Other firms will imitate and improve on the new knowledge. 
C)  If there is no subsidy, the market equilibrium output level is less than the efficient equilibrium output level. 
D)  All of the above. 
A)  It is called a technology spillover. 
B)  Other firms will imitate and improve on the new knowledge. 
C)  If there is no subsidy, the market equilibrium output level is less than the efficient equilibrium output level. 
D)  All of the above.

Question 15

Socially inefficient outcomes may occur in markets where there are:

Accepted Answer

A)  negative externalities present. 
B)  asymmetric information problems. 
C)  positive externalities present. 
D)  any of the above. 
A)  negative externalities present. 
B)  asymmetric information problems. 
C)  positive externalities present. 
D)  any of the above.

Question 16

Suppose that your roommate is very untidy.Suppose she/he gets a $100 benefit from being messy but imposes a $200 cost on you.(Assume that there are no regulations against untidiness in your living quarters.)The Coase Theorem would suggest that an efficient solution can be reached where:

Accepted Answer

A)  you pay your roommate at least $100 but no more than $200 to clean up after her/himself. 
B)  you pay your roommate at least $201 to clean up after her/himself. 
C)  you continue to live with your untidy roommate until you are able to make other living arrangements elsewhere. 
D)  your roommate pays you at least $100 to have you clean up after her/him. 
A)  you pay your roommate at least $100 but no more than $200 to clean up after her/himself. 
B)  you pay your roommate at least $201 to clean up after her/himself. 
C)  you continue to live with your untidy roommate until you are able to make other living arrangements elsewhere. 
D)  your roommate pays you at least $100 to have you clean up after her/him.

Question 17

Exhibit 8-2   Refer to Exhibit 8-2.The supply curve S private includes the following costs.

Accepted Answer

A)  Costs that production imposes on others 
B)  Private costs and external costs 
C)  External costs and spillover costs 
D)  Costs of capital, entrepreneurship, land, and labor 
A)  Costs that production imposes on others 
B)  Private costs and external costs 
C)  External costs and spillover costs 
D)  Costs of capital, entrepreneurship, land, and labor

Question 18

The presence of negative externalities leads to a misallocation of societal resources because:

Accepted Answer

A)  whenever external costs are imposed on outside parties, the good should not be produced at all. 
B)  less of the good than is ideal for society is produced. 
C)  there are some costs associated with production that the producer fails to take into consideration. 
D)  the government always intervenes in markets when negative externalities are present, and the government is inherently inefficient. 
A)  whenever external costs are imposed on outside parties, the good should not be produced at all. 
B)  less of the good than is ideal for society is produced. 
C)  there are some costs associated with production that the producer fails to take into consideration. 
D)  the government always intervenes in markets when negative externalities are present, and the government is inherently inefficient.

Question 19

If the government required car makers to install more costly and effective emission control devices on cars,it will lead to:

Accepted Answer

A)  a higher price of cars and a larger quantity of cars sold. 
B)  a higher price of cars and a smaller quantity of cars sold. 
C)  a lower price of cars and a larger quantity of cars sold. 
D)  a lower price of cars and a smaller quantity of cars sold. 
A)  a higher price of cars and a larger quantity of cars sold. 
B)  a higher price of cars and a smaller quantity of cars sold. 
C)  a lower price of cars and a larger quantity of cars sold. 
D)  a lower price of cars and a smaller quantity of cars sold.

Question 20

An example of a positive externality is:

Accepted Answer

A)  freeway congestion. 
B)  pollution in a resort lake. 
C)  airport noise. 
D)  beautiful trees on property along a parkway. 
A)  freeway congestion. 
B)  pollution in a resort lake. 
C)  airport noise. 
D)  beautiful trees on property along a parkway.

Exam 8: Market Failure

If the rivers,lakes and air in the United States could all be privately owned,then:

Moral hazard occurs when an informed party benefits in an exchange by taking advantage of knowing more than the other party.

Nick owns a dog whose barking annoys his neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Nick,and that Jane bears a cost of $500 from the barking.Assume that the city has no ordinance against barking dogs.A possible private solution that would benefit both parties is for:

Which of the following is not true with regard to pollution control through transferable pollution rights?

If the production of a good created both external costs and external benefits,but the external costs were greater,without government intervention,a market economy will:

Golf course developers who buy the land around the golf course they build are attempting to:

After trading in her Volkswagen Beetle for a much safer Mercedes sedan,Rene began driving less carefully.This is an example of:

Exhibit 8-2 Refer to Exhibit 8-2.The supply curve S social includes the following costs.

Which of the following provides an example of an externality?

An individual firm has little incentive to voluntarily internalize any external costs it was creating because:

Without government intervention,society is likely to get too little production of: i.private goods that generate external costs ii.private goods that generate external benefits iii.public goods

Assume your roommate is very untidy.According to campus policy,you have a right to live in an uncluttered apartment.Suppose she/he gets a $200 benefit from being untidy but imposes a $100 cost on you.The Coase Theorem would suggest an efficient solution can be reached where:

Which of the following is (are)true when one firm's research and production can increase another firm's access to technological advances?

Socially inefficient outcomes may occur in markets where there are:

Suppose that your roommate is very untidy.Suppose she/he gets a $100 benefit from being messy but imposes a $200 cost on you.(Assume that there are no regulations against untidiness in your living quarters.)The Coase Theorem would suggest that an efficient solution can be reached where:

Exhibit 8-2 Refer to Exhibit 8-2.The supply curve S private includes the following costs.

The presence of negative externalities leads to a misallocation of societal resources because:

If the government required car makers to install more costly and effective emission control devices on cars,it will lead to:

An example of a positive externality is:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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