Question 1

Costs that accrue to the total population are called ____ costs.Costs incurred by the producer or consumer who makes the decision are called ____ costs.

Accepted Answer

A)  negative; positive 
B)  social; private 
C)  private; social 
D)  positive; negative 
A)  negative; positive 
B)  social; private 
C)  private; social 
D)  positive; negative

Question 2

Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following activities,if any,represents an external cost?

Accepted Answer

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

Question 4

The U.S.government establishing a policy that it will bail out troubled financial institutions and a resulting increase in the number of bank failures is an example of:

Accepted Answer

A)  the moral hazard problem. 
B)  the free rider problem. 
C)  the adverse selection problem. 
D)  the "lemon" problem. 
A)  the moral hazard problem. 
B)  the free rider problem. 
C)  the adverse selection problem. 
D)  the "lemon" problem.

Question 5

If a positive externality results from the consumption of higher education,then the marginal benefit students receive from education:

Accepted Answer

A)  equals the marginal social benefit. 
B)  is less than the marginal social benefit. 
C)  includes the marginal external benefit. 
D)  exceeds the marginal social benefit. 
A)  equals the marginal social benefit. 
B)  is less than the marginal social benefit. 
C)  includes the marginal external benefit. 
D)  exceeds the marginal social benefit.

Question 6

The market system fails to provide the efficient output of public goods because:

Accepted Answer

A)  people place no value on public goods. 
B)  private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them. 
C)  public enterprises can produce those goods at lower cost than private firms. 
D)  public goods create widespread spillover costs. 
A)  people place no value on public goods. 
B)  private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them. 
C)  public enterprises can produce those goods at lower cost than private firms. 
D)  public goods create widespread spillover costs.

Question 7

The failure of private incentives to provide adequate maintenance of public resources leads to the tragedy of the commons.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is true?

Accepted Answer

A)  Economic reasoning implies that individuals will acquire all possible information about a choice before making it. 
B)  It is not rational for people to make decisions that could turn out to be mistaken. 
C)  Reducing information costs to consumers and suppliers could permit more intelligent market decisions and lead to greater satisfaction. 
D)  Occupational licensing laws generally act to protect misinformed consumers from getting shoddy services and enhances competition, leading to lower prices. 
A)  Economic reasoning implies that individuals will acquire all possible information about a choice before making it. 
B)  It is not rational for people to make decisions that could turn out to be mistaken. 
C)  Reducing information costs to consumers and suppliers could permit more intelligent market decisions and lead to greater satisfaction. 
D)  Occupational licensing laws generally act to protect misinformed consumers from getting shoddy services and enhances competition, leading to lower prices.

Question 9

An example of a negative externality is:

Accepted Answer

A)  the benefit you receive when your neighbor 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 sleep you lose when your neighbor throws a loud party next door that keeps you awake. 
D)  the change in the property values of your neighbors' homes when you paint your house and landscape your front yard 
A)  the benefit you receive when your neighbor 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 sleep you lose when your neighbor throws a loud party next door that keeps you awake. 
D)  the change in the property values of your neighbors' homes when you paint your house and landscape your front yard

Question 10

If positive externalities are present in the production of a good,then society will:

Accepted Answer

A)  produce too much of the good since the marginal private benefit to consumers is less than the marginal social benefit. 
B)  produce too little of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
C)  produce too much of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
D)  produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit. 
A)  produce too much of the good since the marginal private benefit to consumers is less than the marginal social benefit. 
B)  produce too little of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
C)  produce too much of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
D)  produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit.

Question 11

A cap and trade program is efficient because the cap protects the environment while:

Accepted Answer

A)  generating substantial revenues for the government. 
B)  keeping compliance and administration costs relatively low. 
C)  while requiring the same response by each polluter. 
D)  none of above 
A)  generating substantial revenues for the government. 
B)  keeping compliance and administration costs relatively low. 
C)  while requiring the same response by each polluter. 
D)  none of above

Question 12

The free rider problem suggests that a producer will tend to:

Accepted Answer

A)  produce more than the optimal quantity of a public good. 
B)  produce less than the optimal quantity of a public good. 
C)  produce the optimal quantity of a public good if it is funded out of tax revenue. 
D)  do none of the above. 
A)  produce more than the optimal quantity of a public good. 
B)  produce less than the optimal quantity of a public good. 
C)  produce the optimal quantity of a public good if it is funded out of tax revenue. 
D)  do none of the above.

Question 13

How could transferable pollution rights lead to pollution being reduced at the lowest possible opportunity cost?

Accepted Answer

A policy allowing tradable pollution rig

Question 14

Which of the following activities,if any,represents an external benefit?

Accepted Answer

A)  The benefit to a consumer from watching a film on DVD. 
B)  The reduction in air quality resulting from industrial development in an urban area. 
C)  The increase in the value of property belonging to your neighbors when you hire a landscaper to beautify your front yard. 
D)  The reduction in property values when a new airport is built in a neighborhood. 
A)  The benefit to a consumer from watching a film on DVD. 
B)  The reduction in air quality resulting from industrial development in an urban area. 
C)  The increase in the value of property belonging to your neighbors when you hire a landscaper to beautify your front yard. 
D)  The reduction in property values when a new airport is built in a neighborhood.

Question 15

The over hunting of U.S.buffalo that nearly caused their extinction would be an example of the tragedy of the commons.

Accepted Answer

A) True 
 B)False

Question 16

If a developer plans to build a skyscraper in a major city overshadowing an historic church,could an efficient solution be reached if the church had the legal right to prevent the developer from building in that location? Why or why not?

Accepted Answer

Yes,an efficient solution could be reach

Question 17

Public goods,like national defense,are usually funded through government because:

Accepted Answer

A)  no one cares about them, because they are public. 
B)  it is prohibitively difficult to withhold national defense from someone unwilling to pay for it. 
C)  they cost too much for private firms to produce them. 
D)  they provide benefits only to individuals, and not firms. 
A)  no one cares about them, because they are public. 
B)  it is prohibitively difficult to withhold national defense from someone unwilling to pay for it. 
C)  they cost too much for private firms to produce them. 
D)  they provide benefits only to individuals, and not firms.

Question 18

If firms were required to pay the full social costs of the production of goods,including both private and external costs,other things being equal,there would probably be:

Accepted Answer

A)  an increase in production. 
B)  a decrease in production. 
C)  a greater misallocation of resources. 
D)  a decrease in the market price of the product. 
A)  an increase in production. 
B)  a decrease in production. 
C)  a greater misallocation of resources. 
D)  a decrease in the market price of the product.

Question 19

Pollution reduction policies are likely to lead to:

Accepted Answer

A)  higher product prices. 
B)  lower product prices. 
C)  unchanged product prices. 
D)  indeterminate changes in product prices. 
A)  higher product prices. 
B)  lower product prices. 
C)  unchanged product prices. 
D)  indeterminate changes in product prices.

Question 20

An negative externality is present whenever:

Accepted Answer

A)  the private marginal cost of an activity exceeds the private marginal benefit. 
B)  the private marginal benefit of an activity exceeds the private marginal cost. 
C)  the social marginal cost of an activity exceeds the private marginal cost. 
D)  none of the above 
A)  the private marginal cost of an activity exceeds the private marginal benefit. 
B)  the private marginal benefit of an activity exceeds the private marginal cost. 
C)  the social marginal cost of an activity exceeds the private marginal cost. 
D)  none of the above

Exam 8: Market Failure

Costs that accrue to the total population are called ____ costs.Costs incurred by the producer or consumer who makes the decision are called ____ costs.

Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.

Which of the following activities,if any,represents an external cost?

The U.S.government establishing a policy that it will bail out troubled financial institutions and a resulting increase in the number of bank failures is an example of:

If a positive externality results from the consumption of higher education,then the marginal benefit students receive from education:

The market system fails to provide the efficient output of public goods because:

The failure of private incentives to provide adequate maintenance of public resources leads to the tragedy of the commons.

Which of the following is true?

An example of a negative externality is:

If positive externalities are present in the production of a good,then society will:

A cap and trade program is efficient because the cap protects the environment while:

The free rider problem suggests that a producer will tend to:

How could transferable pollution rights lead to pollution being reduced at the lowest possible opportunity cost?

Which of the following activities,if any,represents an external benefit?

The over hunting of U.S.buffalo that nearly caused their extinction would be an example of the tragedy of the commons.

If a developer plans to build a skyscraper in a major city overshadowing an historic church,could an efficient solution be reached if the church had the legal right to prevent the developer from building in that location? Why or why not?

Public goods,like national defense,are usually funded through government because:

If firms were required to pay the full social costs of the production of goods,including both private and external costs,other things being equal,there would probably be:

Pollution reduction policies are likely to lead to:

An negative externality is present whenever:

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

Filters

Costs that accrue to the total population are called costs.Costs incurred by the producer or consumer who makes the decision are called costs.