Question 1

It is possible to increase our consumption of a clean environment without giving up anything.

Accepted Answer

A) True 
 B)False

Question 2

When negative externalities are present,it leads to an underallocation of resources in that area relative to that which is socially desirable.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following best illustrates the free-rider problem?

Accepted Answer

A)  A tollbooth is constructed at the entrance of a privately funded highway. 
B)  Individuals contribute toward a national defense program by paying taxes to the government. 
C)  Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road. 
D)  You erect a locked gate around your swimming pool to keep out unsupervised children. 
A)  A tollbooth is constructed at the entrance of a privately funded highway. 
B)  Individuals contribute toward a national defense program by paying taxes to the government. 
C)  Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road. 
D)  You erect a locked gate around your swimming pool to keep out unsupervised children.

Question 4

The optimal quantity of pollution is:

Accepted Answer

A)  zero. 
B)  the level that allows for maximum economic growth. 
C)  the level where the marginal cost of pollution abatement exceeds the marginal benefit of pollution abatement by the greatest amount. 
D)  the level where the marginal benefit of pollution abatement exceeds the marginal cost of pollution abatement by the greatest amount. 
E)  none of the above. 
A)  zero. 
B)  the level that allows for maximum economic growth. 
C)  the level where the marginal cost of pollution abatement exceeds the marginal benefit of pollution abatement by the greatest amount. 
D)  the level where the marginal benefit of pollution abatement exceeds the marginal cost of pollution abatement by the greatest amount. 
E)  none of the above.

Question 5

Exhibit 8-3   Refer to Exhibit 8-3.What would be the total cost if the government issued transferable pollution rights allowing a total of 9 tons of pollution in the industry in order to decrease pollution by a total of 6 tons?

Accepted Answer

A)  $1,400 
B)  $1,700 
C)  $1,840 
D)  $3,600 
A)  $1,400 
B)  $1,700 
C)  $1,840 
D)  $3,600

Question 6

Which of the following is a rival good that is nonexcludable?

Accepted Answer

A)  public good 
B)  private good 
C)  common resource 
D)  none of the above 
A)  public good 
B)  private good 
C)  common resource 
D)  none of the above

Question 7

Admission to Disney World is an example of a private good from which nonpaying individuals can be excluded.

Accepted Answer

The answer of Admission to Disney World is an example...

Question 8

Pollution abatement is likely to be most costly under:

Accepted Answer

A)  a compliance standard. 
B)  a per-unit pollution tax system. 
C)  a system of transferable pollution rights. 
D)  Costs are the same under all three pollution control policies. 
A)  a compliance standard. 
B)  a per-unit pollution tax system. 
C)  a system of transferable pollution rights. 
D)  Costs are the same under all three pollution control policies.

Question 9

Which objective of an ideal pollution control policy would involve continuing to reduce pollution by one more unit only as long as the value of the improved environmental quality is greater than the value of ordinary goods that are sacrificed?

Accepted Answer

A)  achieving pollution reduction at least cost 
B)  motivating advances in abatement technology 
C)  achieving the efficient level of pollution 
D)  achieving a zero level of pollution 
A)  achieving pollution reduction at least cost 
B)  motivating advances in abatement technology 
C)  achieving the efficient level of pollution 
D)  achieving a zero level of pollution

Question 10

An example of a public good is a flood control project that protects all the homes and properties near a river.

Accepted Answer

A) True 
 B)False

Question 11

Consumers will willingly make less-informed decisions:

Accepted Answer

A)  if information costs are less than the perceived benefits of gathering information. 
B)  if information costs are greater than the perceived benefits of gathering information. 
C)  since ignorance always leads to bliss. 
D)  whenever acquiring more information requires sacrifice. 
A)  if information costs are less than the perceived benefits of gathering information. 
B)  if information costs are greater than the perceived benefits of gathering information. 
C)  since ignorance always leads to bliss. 
D)  whenever acquiring more information requires sacrifice.

Question 12

Exhibit 8-1   Refer to Exhibit 8-1.The area bounded by what letters represents the associated efficiency loss resulting when there are external benefits associated with education?

Accepted Answer

A)  Q0, c, b, Q1 
B)  O, P1, b, Q1 
C)  O, P0, a, Q0 
D)  a, b, c 
A)  Q0, c, b, Q1 
B)  O, P1, b, Q1 
C)  O, P0, a, Q0 
D)  a, b, c

Question 13

Suppose that flu shots create a positive externality equal to $20 per shot.What is the relationship between the market equilibrium output level and the efficient equilibrium output produced?

Accepted Answer

A)  They are equal. 
B)  The market equilibrium output level is greater than the efficient equilibrium output level. 
C)  The market equilibrium output level is less than the efficient equilibrium output level. 
D)  None of the above. 
A)  They are equal. 
B)  The market equilibrium output level is greater than the efficient equilibrium output level. 
C)  The market equilibrium output level is less than the efficient equilibrium output level. 
D)  None of the above.

Question 14

Which of the following goods is least likely to be provided by the private sector?

Accepted Answer

A)  a good characterized by nonrivalry in consumption from which nonpaying customers can be excluded 
B)  a good characterized by nonrivalry in consumption from which paying customers cannot be excluded 
C)  a good characterized by rivalry in consumption from which nonpaying customers can be excluded 
D)  a good for which the marginal private benefit to an individual exceeds the marginal cost of producing the good 
A)  a good characterized by nonrivalry in consumption from which nonpaying customers can be excluded 
B)  a good characterized by nonrivalry in consumption from which paying customers cannot be excluded 
C)  a good characterized by rivalry in consumption from which nonpaying customers can be excluded 
D)  a good for which the marginal private benefit to an individual exceeds the marginal cost of producing the good

Question 15

The main duty of the Environmental Protection Agency is to monitor a government-enforced system of property rights.

Accepted Answer

A) True 
 B)False

Question 16

Increase in the number of transactors makes it difficult to negotiate private agreements.

Accepted Answer

A) True 
 B)False

Question 17

The main duty of the Environmental Protection Agency (EPA)is to:

Accepted Answer

A)  assure safe work places. 
B)  prevent crime. 
C)  enforce environmental standards. 
D)  regulate air transport. 
E)  regulate rates charged by generators of nuclear energy. 
A)  assure safe work places. 
B)  prevent crime. 
C)  enforce environmental standards. 
D)  regulate air transport. 
E)  regulate rates charged by generators of nuclear energy.

Question 18

When positive externalities are present,it leads to an underallocation of resources in that area relative to that which is socially desirable.

Accepted Answer

A) True 
 B)False

Question 19

Inoculation against communicable diseases is an example of an activity that generates positive externalities.

Accepted Answer

A) True 
 B)False

Question 20

A chemical manufacturer dumps waste into a river,which harms owners of resorts downstream from the chemical factory.Which of the following best describes the situation?

Accepted Answer

A)  The socially efficient level of output exceeds the chemical firm's privately optimal output level. 
B)  River pollution should be reduced until it is technologically impossible to reduce it further. 
C)  The firm's privately optimal output level exceeds the socially efficient level of output. 
D)  If the firm were forced to bear the external costs of dumping chemicals into the river, it would increase its production of output. 
A)  The socially efficient level of output exceeds the chemical firm's privately optimal output level. 
B)  River pollution should be reduced until it is technologically impossible to reduce it further. 
C)  The firm's privately optimal output level exceeds the socially efficient level of output. 
D)  If the firm were forced to bear the external costs of dumping chemicals into the river, it would increase its production of output.

Exam 8: Market Failure

It is possible to increase our consumption of a clean environment without giving up anything.

When negative externalities are present,it leads to an underallocation of resources in that area relative to that which is socially desirable.

Which of the following best illustrates the free-rider problem?

The optimal quantity of pollution is:

Exhibit 8-3 Refer to Exhibit 8-3.What would be the total cost if the government issued transferable pollution rights allowing a total of 9 tons of pollution in the industry in order to decrease pollution by a total of 6 tons?

Which of the following is a rival good that is nonexcludable?

Admission to Disney World is an example of a private good from which nonpaying individuals can be excluded.

Pollution abatement is likely to be most costly under:

Which objective of an ideal pollution control policy would involve continuing to reduce pollution by one more unit only as long as the value of the improved environmental quality is greater than the value of ordinary goods that are sacrificed?

An example of a public good is a flood control project that protects all the homes and properties near a river.

Consumers will willingly make less-informed decisions:

Exhibit 8-1 Refer to Exhibit 8-1.The area bounded by what letters represents the associated efficiency loss resulting when there are external benefits associated with education?

Suppose that flu shots create a positive externality equal to $20 per shot.What is the relationship between the market equilibrium output level and the efficient equilibrium output produced?

Which of the following goods is least likely to be provided by the private sector?

The main duty of the Environmental Protection Agency is to monitor a government-enforced system of property rights.

Increase in the number of transactors makes it difficult to negotiate private agreements.

The main duty of the Environmental Protection Agency (EPA)is to:

When positive externalities are present,it leads to an underallocation of resources in that area relative to that which is socially desirable.

Inoculation against communicable diseases is an example of an activity that generates positive externalities.

A chemical manufacturer dumps waste into a river,which harms owners of resorts downstream from the chemical factory.Which of the following best describes the 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

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