Question 1

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

Accepted Answer

A) True 
 B)False

Question 2

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve

Accepted Answer

A)  a much greater marginal benefit than marginal cost. 
B)  a much greater marginal cost than marginal benefit. 
C)  having shortages in the market. 
D)  having surpluses in the market. 
A)  a much greater marginal benefit than marginal cost. 
B)  a much greater marginal cost than marginal benefit. 
C)  having shortages in the market. 
D)  having surpluses in the market.

Question 3

Among the following examples, the one that best illustrates a public good is

Accepted Answer

A)  the laptops used by students in a college or university. 
B)  the movies produced by Hollywood companies. 
C)  the bike paths around a city or town. 
D)  the airline tickets bought by vacationers. 
A)  the laptops used by students in a college or university. 
B)  the movies produced by Hollywood companies. 
C)  the bike paths around a city or town. 
D)  the airline tickets bought by vacationers.

Question 4

(Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes

Accepted Answer

A)  the Coase theorem. 
B)  the optimal allocation of a public good. 
C)  nonrivalry and nonexcludability. 
D)  a market for externality rights. 
A)  the Coase theorem. 
B)  the optimal allocation of a public good. 
C)  nonrivalry and nonexcludability. 
D)  a market for externality rights.

Question 5

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  externalities. 
D)  diminishing utility. 
A)  moral hazard. 
B)  adverse selection. 
C)  externalities. 
D)  diminishing utility.

Question 6

A public good

Accepted Answer

A)  generally results in substantial negative externalities. 
B)  can never be provided by a nongovernmental organization. 
C)  costs essentially nothing to produce and is thus provided by the government at a zero price. 
D)  can't be provided to one person without making it available to others as well. 
A)  generally results in substantial negative externalities. 
B)  can never be provided by a nongovernmental organization. 
C)  costs essentially nothing to produce and is thus provided by the government at a zero price. 
D)  can't be provided to one person without making it available to others as well.

Question 7

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero.

Accepted Answer

A) True 
 B)False

Question 8

If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its

Accepted Answer

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

Question 9

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.   On the basis of the data, we can say that

Accepted Answer

A)  Program D is the most efficient on economic grounds. 
B)  Program C is the most efficient on economic grounds. 
C)  Program B is the most efficient on economic grounds. 
D)  Program A is the most efficient on economic grounds. 
A)  Program D is the most efficient on economic grounds. 
B)  Program C is the most efficient on economic grounds. 
C)  Program B is the most efficient on economic grounds. 
D)  Program A is the most efficient on economic grounds.

Question 10

For the music industry, the rise of Internet file-sharing of music has

Accepted Answer

A)  worsened the free-rider problem. 
B)  diminished or alleviated the free-rider problem. 
C)  reduced the options for musicians to have their music heard. 
D)  eliminated the problem of digital piracy. 
A)  worsened the free-rider problem. 
B)  diminished or alleviated the free-rider problem. 
C)  reduced the options for musicians to have their music heard. 
D)  eliminated the problem of digital piracy.

Question 11

When there is overproduction of a good,

Accepted Answer

A)  the marginal benefit of the good exceeds its marginal cost. 
B)  the marginal cost of the good exceeds its marginal benefit. 
C)  the net benefit of producing extra units if the good is positive. 
D)  the allocative efficiency is enhanced. 
A)  the marginal benefit of the good exceeds its marginal cost. 
B)  the marginal cost of the good exceeds its marginal benefit. 
C)  the net benefit of producing extra units if the good is positive. 
D)  the allocative efficiency is enhanced.

Question 12

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)

Accepted Answer

A)  reverse wealth problem. 
B)  negative externality problem. 
C)  adverse selection problem. 
D)  moral hazard problem. 
A)  reverse wealth problem. 
B)  negative externality problem. 
C)  adverse selection problem. 
D)  moral hazard problem.

Question 13

Buyers will opt out of markets in which

Accepted Answer

A)  there are significant negative externalities. 
B)  standardized products are being produced. 
C)  there is inadequate information about sellers and their products. 
D)  there are only foreign sellers. 
A)  there are significant negative externalities. 
B)  standardized products are being produced. 
C)  there is inadequate information about sellers and their products. 
D)  there are only foreign sellers.

Question 14

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Accepted Answer

A) True 
 B)False

Question 15

Insurance policies typically stipulate a deductible amount which the insured must shoulder; this is to address the problem of

Accepted Answer

A)  adverse selection. 
B)  externalities. 
C)  moral hazard. 
D)  public goods. 
A)  adverse selection. 
B)  externalities. 
C)  moral hazard. 
D)  public goods.

Exam 4: Market Failures: Public Goods and Externalities

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve

Among the following examples, the one that best illustrates a public good is

(Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of

A public good

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero.

If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars. On the basis of the data, we can say that

For the music industry, the rise of Internet file-sharing of music has

When there is overproduction of a good,

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)

Buyers will opt out of markets in which

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Insurance policies typically stipulate a deductible amount which the insured must shoulder; this is to address the problem of

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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