Question 1

What is the difference between private and social costs?

Accepted Answer

Social costs are those that ac

Question 2

Exhibit 8-2   Refer to Exhibit 8-2.Market equilibrium and efficient equilibrium are denoted by points ____ respectively.

Accepted Answer

A)  a and b 
B)  c and a 
C)  a and c 
D)  c and b 
A)  a and b 
B)  c and a 
C)  a and c 
D)  c and b

Question 3

The total social costs of production are:

Accepted Answer

A)  private costs plus private benefits. 
B)  private benefits minus private costs. 
C)  private costs plus external costs. 
D)  private costs minus external costs. 
A)  private costs plus private benefits. 
B)  private benefits minus private costs. 
C)  private costs plus external costs. 
D)  private costs minus external costs.

Question 4

Which of the following is a valid reason for the government rather than the market to finance the provision of certain economic goods and services?

Accepted Answer

A)  When the government provides economic goods, they are free; costs are incurred when such goods are provided by private firms. 
B)  Voters tend to be better informed than market consumers are. 
C)  Decision makers in the market sector are motivated by self-interest, whereas political decision makers are primarily motivated by altruism (the desire to help others). 
D)  Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers; the government can use taxes to overcome this problem of nonpayment. 
A)  When the government provides economic goods, they are free; costs are incurred when such goods are provided by private firms. 
B)  Voters tend to be better informed than market consumers are. 
C)  Decision makers in the market sector are motivated by self-interest, whereas political decision makers are primarily motivated by altruism (the desire to help others). 
D)  Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers; the government can use taxes to overcome this problem of nonpayment.

Question 5

Under a system of transferable pollution rights,which of the following firms is most likely to purchase a $500 permit to emit a ton of pollutants in to the atmosphere?

Accepted Answer

A)  a non-polluting firm 
B)  a polluting firm that can reduce emissions at a cost of $500 per ton 
C)  a polluting firm that can reduce emissions at a cost of $200 per ton 
D)  a polluting firm that can reduce emissions at a cost of $600 per ton 
A)  a non-polluting firm 
B)  a polluting firm that can reduce emissions at a cost of $500 per ton 
C)  a polluting firm that can reduce emissions at a cost of $200 per ton 
D)  a polluting firm that can reduce emissions at a cost of $600 per ton

Question 6

For society as a whole,the optimal amount of pollution control exists when:

Accepted Answer

A)  the marginal cost of pollution reduction is equal to the marginal benefit of the pollution reduction. 
B)  firms are allowed to produce as much pollution as necessary to make the goods people want. 
C)  the marginal costs of pollution clean up exceed the benefits. 
D)  no pollution is permitted at all. 
A)  the marginal cost of pollution reduction is equal to the marginal benefit of the pollution reduction. 
B)  firms are allowed to produce as much pollution as necessary to make the goods people want. 
C)  the marginal costs of pollution clean up exceed the benefits. 
D)  no pollution is permitted at all.

Question 7

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities,other things being equal,there would probably be:

Accepted Answer

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

Question 8

Transferable pollution rights allow a given level of pollution reduction to be achieved:

Accepted Answer

A)  at zero cost. 
B)  at higher cost than compliance standards. 
C)  at lower cost than compliance standards. 
D)  at higher cost than a system of pollution taxes. 
A)  at zero cost. 
B)  at higher cost than compliance standards. 
C)  at lower cost than compliance standards. 
D)  at higher cost than a system of pollution taxes.

Question 9

Positive externalities exist any time the social costs of producing a good or service exceed the private costs.

Accepted Answer

A) True 
 B)False

Question 10

If education produces positive externalities and the government does not intervene in the market,we would expect

Accepted Answer

A)  the market equilibrium price to be higher than the efficient equilibrium price. 
B)  the market equilibrium quantity to be lower than the efficient equilibrium output level. 
C)  the market equilibrium quantity to be higher than the efficient equilibrium output level. 
D)  none of the above 
A)  the market equilibrium price to be higher than the efficient equilibrium price. 
B)  the market equilibrium quantity to be lower than the efficient equilibrium output level. 
C)  the market equilibrium quantity to be higher than the efficient equilibrium output level. 
D)  none of the above

Question 11

The presence of a negative externality is likely to give rise to significant market failures when:

Accepted Answer

A)  property rights are not well-defined. 
B)  property rights are well-defined. 
C)  there are few victims of pollution and few polluters. 
D)  transaction costs are relatively low. 
A)  property rights are not well-defined. 
B)  property rights are well-defined. 
C)  there are few victims of pollution and few polluters. 
D)  transaction costs are relatively low.

Question 12

A pollution tax:

Accepted Answer

A)  increases the price of the good taxed. 
B)  decreases the price of the good taxed. 
C)  increases the production of the good taxed. 
D)  increases the quantity of the taxed good demanded. 
A)  increases the price of the good taxed. 
B)  decreases the price of the good taxed. 
C)  increases the production of the good taxed. 
D)  increases the quantity of the taxed good demanded.

Question 13

A situation in which the winner of an auction is worse off than the loser because of inaccurate valuation is known as:

Accepted Answer

A)  adverse selection. 
B)  winner's curse. 
C)  free rider problem. 
D)  negative externality. 
A)  adverse selection. 
B)  winner's curse. 
C)  free rider problem. 
D)  negative externality.

Question 14

Which of the following is true?

Accepted Answer

A)  The nature of public goods is such that the government cannot accurately assess the benefits and costs of those affected. 
B)  National defense and flood control are illustrations of public goods. 
C)  Just as in the case of external benefits, public goods tend to be underprovided by the private sector. 
D)  All of the above are true. 
A)  The nature of public goods is such that the government cannot accurately assess the benefits and costs of those affected. 
B)  National defense and flood control are illustrations of public goods. 
C)  Just as in the case of external benefits, public goods tend to be underprovided by the private sector. 
D)  All of the above are true.

Question 15

An economist would be most likely to argue that U.S.national defense should be funded through tax revenues because:

Accepted Answer

A)  U.S. citizens are not very patriotic. 
B)  the government is always a more efficient provider of goods than the private market. 
C)  the government always seeks to act benevolently on behalf of its citizens. 
D)  individuals who refuse to contribute to a national defense fund cannot be excluded from benefiting from national defense. 
A)  U.S. citizens are not very patriotic. 
B)  the government is always a more efficient provider of goods than the private market. 
C)  the government always seeks to act benevolently on behalf of its citizens. 
D)  individuals who refuse to contribute to a national defense fund cannot be excluded from benefiting from national defense.

Question 16

In the market for insurance,the moral hazard problem leads:

Accepted Answer

A)  those most likely to collect on insurance to buy it. 
B)  those who buy insurance to take fewer precautions to avoid the insured risk. 
C)  those with less insurance to take on more risk. 
D)  to none of the above. 
A)  those most likely to collect on insurance to buy it. 
B)  those who buy insurance to take fewer precautions to avoid the insured risk. 
C)  those with less insurance to take on more risk. 
D)  to none of the above.

Question 17

Under the pollution rights approach,polluters have little or no incentive to develop improved pollution abatement technologies.

Accepted Answer

A) True 
 B)False

Question 18

What is the Coase Theorem? What are transaction costs?

Accepted Answer

The Coase Theorem asserts that if the be

Question 19

Private costs are those borne by:

Accepted Answer

A)  the government. 
B)  the producer of an item. 
C)  both an item's producer and outside parties affected by a negative externality. 
D)  outside parties affected by a negative externality. 
A)  the government. 
B)  the producer of an item. 
C)  both an item's producer and outside parties affected by a negative externality. 
D)  outside parties affected by a negative externality.

Question 20

If there are significant external costs associated with the production of a product,it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.

Accepted Answer

A)  overstates; increase 
B)  understates; increase 
C)  overstates; decrease 
D)  understates; decrease 
A)  overstates; increase 
B)  understates; increase 
C)  overstates; decrease 
D)  understates; decrease

Exam 8: Market Failure

What is the difference between private and social costs?

Exhibit 8-2 Refer to Exhibit 8-2.Market equilibrium and efficient equilibrium are denoted by points ____ respectively.

The total social costs of production are:

Which of the following is a valid reason for the government rather than the market to finance the provision of certain economic goods and services?

Under a system of transferable pollution rights,which of the following firms is most likely to purchase a $500 permit to emit a ton of pollutants in to the atmosphere?

For society as a whole,the optimal amount of pollution control exists when:

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities,other things being equal,there would probably be:

Transferable pollution rights allow a given level of pollution reduction to be achieved:

Positive externalities exist any time the social costs of producing a good or service exceed the private costs.

If education produces positive externalities and the government does not intervene in the market,we would expect

The presence of a negative externality is likely to give rise to significant market failures when:

A pollution tax:

A situation in which the winner of an auction is worse off than the loser because of inaccurate valuation is known as:

Which of the following is true?

An economist would be most likely to argue that U.S.national defense should be funded through tax revenues because:

In the market for insurance,the moral hazard problem leads:

Under the pollution rights approach,polluters have little or no incentive to develop improved pollution abatement technologies.

What is the Coase Theorem? What are transaction costs?

Private costs are those borne by:

If there are significant external costs associated with the production of a product,it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.

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

If there are significant external costs associated with the production of a product,it can be said that the private cost of production to the firm the cost to society associated with this product and output should to move toward the efficient situation.