Question 1

Which of the following is an example of a public good?

Accepted Answer

A)  a weather warning system 
B)  a television set 
C)  a sofa 
D)  a bottle of soda 
A)  a weather warning system 
B)  a television set 
C)  a sofa 
D)  a bottle of soda

Question 2

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the

Accepted Answer

A)  principal-agent problem. 
B)  adverse selection problem. 
C)  moral hazard problem. 
D)  free-rider problem. 
A)  principal-agent problem. 
B)  adverse selection problem. 
C)  moral hazard problem. 
D)  free-rider problem.

Question 3

Toll-free roads sometimes get congested, such as during rush-hour traffic. During those times, we would say that these roads are

Accepted Answer

A)  excludable and rival. 
B)  excludable and nonrival. 
C)  nonexcludable and nonrival. 
D)  nonexcludable and rival. 
A)  excludable and rival. 
B)  excludable and nonrival. 
C)  nonexcludable and nonrival. 
D)  nonexcludable and rival.

Question 4

When economic efficiency is attained, it implies all of the following, except

Accepted Answer

A)  per-unit cost of output produced is at minimum. 
B)  allocative efficiency is achieved. 
C)  total consumer and producer surplus is at a maximum. 
D)  the gap between marginal benefits and marginal costs of production is at maximum. 
A)  per-unit cost of output produced is at minimum. 
B)  allocative efficiency is achieved. 
C)  total consumer and producer surplus is at a maximum. 
D)  the gap between marginal benefits and marginal costs of production is at maximum.

Question 5

Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction.

Accepted Answer

A) True 
 B)False

Question 6

A demand curve for a public good is determined by

Accepted Answer

A)  summing vertically the individual demand curves for the public good. 
B)  summing horizontally the individual demand curves for the public good. 
C)  combining the amounts of the public good that the individual members of society demand at each price. 
D)  multiplying the per-unit cost of the public good by the quantity made available. 
A)  summing vertically the individual demand curves for the public good. 
B)  summing horizontally the individual demand curves for the public good. 
C)  combining the amounts of the public good that the individual members of society demand at each price. 
D)  multiplying the per-unit cost of the public good by the quantity made available.

Question 7

The optimal quantity of a public good is where the total benefits from it are equal to the total costs of producing it.

Accepted Answer

A) True 
 B)False

Question 8

When producers do not have to pay the full cost of producing a product, they tend to

Accepted Answer

A)  overproduce the product because of a demand-side market failure. 
B)  underproduce the product because of a demand-side market failure. 
C)  underproduce the product because of a supply-side market failure. 
D)  overproduce the product because of a supply-side market failure. 
A)  overproduce the product because of a demand-side market failure. 
B)  underproduce the product because of a demand-side market failure. 
C)  underproduce the product because of a supply-side market failure. 
D)  overproduce the product because of a supply-side market failure.

Question 9

The free-rider problem makes a good highly profitable for a private firm to provide.

Accepted Answer

A) True 
 B)False

Question 10

Unlike a private good, a public good

Accepted Answer

A)  has no opportunity costs. 
B)  has benefits available to all, including nonpayers. 
C)  produces no positive or negative externalities. 
D)  is characterized by rivalry and excludability. 
A)  has no opportunity costs. 
B)  has benefits available to all, including nonpayers. 
C)  produces no positive or negative externalities. 
D)  is characterized by rivalry and excludability.

Question 11

The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer

Accepted Answer

A)  revenues. 
B)  surplus. 
C)  costs. 
D)  utility. 
A)  revenues. 
B)  surplus. 
C)  costs. 
D)  utility.

Question 12

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society.  Suppose government has already produced 4 units of this public good. The amount individual B is willing voluntarily to pay for the fourth unit is

Accepted Answer

A)  $14. 
B)  $5. 
C)  $2. 
D)  $0. 
A)  $14. 
B)  $5. 
C)  $2. 
D)  $0.

Question 13

A negative externality or spillover cost occurs when

Accepted Answer

A)  firms fail to achieve allocative efficiency. 
B)  firms fail to achieve productive efficiency. 
C)  the price of a good exceeds the marginal cost of producing it. 
D)  the total cost of producing a good exceeds the costs borne by the producer. 
A)  firms fail to achieve allocative efficiency. 
B)  firms fail to achieve productive efficiency. 
C)  the price of a good exceeds the marginal cost of producing it. 
D)  the total cost of producing a good exceeds the costs borne by the producer.

Question 14

Government can reallocate resources away from private goods toward public goods, usually through

Accepted Answer

A)  import tariffs and quotas. 
B)  the laws of supply and demand. 
C)  taxes and government spending. 
D)  positive and negative externalities. 
A)  import tariffs and quotas. 
B)  the laws of supply and demand. 
C)  taxes and government spending. 
D)  positive and negative externalities.

Question 15

Market failures refer to those situations where the sellers are not producing as much as the buyers are wanting to buy.

Accepted Answer

A) True 
 B)False

Question 16

An emission fee levied against polluting firms will tend to shift the

Accepted Answer

A)  supply curve of the firms to the left. 
B)  supply curve of the firms to the right. 
C)  demand curve for the product to the left. 
D)  demand curve for the product to the right. 
A)  supply curve of the firms to the left. 
B)  supply curve of the firms to the right. 
C)  demand curve for the product to the left. 
D)  demand curve for the product to the right.

Question 17

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

Accepted Answer

A)  Consumers' maximum willingness to pay equals producers' minimum acceptable price for the last unit of output. 
B)  The sum of producer and consumer surplus is maximized. 
C)  The total revenue received by producers equals the total cost of production. 
D)  The marginal benefit of the last unit produced equals the marginal cost of producing that unit. 
A)  Consumers' maximum willingness to pay equals producers' minimum acceptable price for the last unit of output. 
B)  The sum of producer and consumer surplus is maximized. 
C)  The total revenue received by producers equals the total cost of production. 
D)  The marginal benefit of the last unit produced equals the marginal cost of producing that unit.

Question 18

Answer this question on the basis of the following information for a public good. Pa and Pb represent the prices that citizens (a) and (b), the only two people in this nation, are willing to pay for additional units of a quantity (Qc) of the public good. Qs represents the quantity of the public good supplied by government at each of the collective prices.   If only 1 unit of this public good is produced, then the marginal benefit is

Accepted Answer

A)  $3, and the marginal cost is $9. 
B)  $4, and the marginal cost is $7. 
C)  $6, and the marginal cost is $3. 
D)  $9, and the marginal cost is $3. 
A)  $3, and the marginal cost is $9. 
B)  $4, and the marginal cost is $7. 
C)  $6, and the marginal cost is $3. 
D)  $9, and the marginal cost is $3.

Question 19

When producers (say, of roads) are not able to make all consumers pay for enjoying their product (i.e., the roads), they tend to see a

Accepted Answer

A)  marginal cost of production that is too low, and there is a supply-side market failure. 
B)  marginal benefit of production that is too high, and there is a demand-side market failure. 
C)  marginal cost of production that is too high, and there is a supply-side market failure. 
D)  marginal benefit of production that is too low, and there is a demand-side market failure. 
A)  marginal cost of production that is too low, and there is a supply-side market failure. 
B)  marginal benefit of production that is too high, and there is a demand-side market failure. 
C)  marginal cost of production that is too high, and there is a supply-side market failure. 
D)  marginal benefit of production that is too low, and there is a demand-side market failure.

Question 20

If a good that generates negative externalities were priced to take these negative externalities into account, then its

Accepted Answer

A)  price would decrease and its quantity would increase. 
B)  quantity would increase, but its price would remain constant. 
C)  price would increase and its quantity would decrease. 
D)  price would increase, but its quantity would remain constant. 
A)  price would decrease and its quantity would increase. 
B)  quantity would increase, but its price would remain constant. 
C)  price would increase and its quantity would decrease. 
D)  price would increase, but its quantity would remain constant.

Exam 4: Market Failures: Public Goods and Externalities

Which of the following is an example of a public good?

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the

Toll-free roads sometimes get congested, such as during rush-hour traffic. During those times, we would say that these roads are

When economic efficiency is attained, it implies all of the following, except

Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction.

A demand curve for a public good is determined by

The optimal quantity of a public good is where the total benefits from it are equal to the total costs of producing it.

When producers do not have to pay the full cost of producing a product, they tend to

The free-rider problem makes a good highly profitable for a private firm to provide.

Unlike a private good, a public good

The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer

A negative externality or spillover cost occurs when

Government can reallocate resources away from private goods toward public goods, usually through

Market failures refer to those situations where the sellers are not producing as much as the buyers are wanting to buy.

An emission fee levied against polluting firms will tend to shift the

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

When producers (say, of roads) are not able to make all consumers pay for enjoying their product (i.e., the roads), they tend to see a

If a good that generates negative externalities were priced to take these negative externalities into account, then its

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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