Question 1

The two main characteristics of a public good are

Accepted Answer

A)  production at constant marginal cost and rising demand. 
B)  nonexcludability and production at rising marginal cost. 
C)  nonrivalry and nonexcludability. 
D)  nonrivalry and large negative externalities. 
A)  production at constant marginal cost and rising demand. 
B)  nonexcludability and production at rising marginal cost. 
C)  nonrivalry and nonexcludability. 
D)  nonrivalry and large negative externalities.

Question 2

Which of the following statements about market failure is not true?

Accepted Answer

A)  Market failure causes an inefficient allocation of resources, even in a competitive market. 
B)  Market failure can come from causes on the demand side or the supply side of a market. 
C)  Market failure always results from some government action or policy in a market. 
D)  Market failure can result from the number of sellers in a market being too few to ensure competition. 
A)  Market failure causes an inefficient allocation of resources, even in a competitive market. 
B)  Market failure can come from causes on the demand side or the supply side of a market. 
C)  Market failure always results from some government action or policy in a market. 
D)  Market failure can result from the number of sellers in a market being too few to ensure competition.

Question 3

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Accepted Answer

A) True 
 B)False

Question 4

(Last Word) Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists

Accepted Answer

A)  prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions. 
B)  prefer cap-and-trade to a carbon tax for reducing carbon dioxide emissions. 
C)  believe that cap-and-trade and a carbon tax are both costly but should be implemented to reduce carbon dioxide emissions. 
D)  believe that neither cap-and-trade nor carbon taxes can effectively reduce carbon dioxide emissions. 
A)  prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions. 
B)  prefer cap-and-trade to a carbon tax for reducing carbon dioxide emissions. 
C)  believe that cap-and-trade and a carbon tax are both costly but should be implemented to reduce carbon dioxide emissions. 
D)  believe that neither cap-and-trade nor carbon taxes can effectively reduce carbon dioxide emissions.

Question 5

A public good

Accepted Answer

A)  can be profitably produced by private firms. 
B)  is characterized by rivalry and excludability. 
C)  produces no positive or negative externalities. 
D)  is available to all and cannot be denied to anyone. 
A)  can be profitably produced by private firms. 
B)  is characterized by rivalry and excludability. 
C)  produces no positive or negative externalities. 
D)  is available to all and cannot be denied to anyone.

Question 6

The socially optimal amount of pollution abatement occurs where society's marginal

Accepted Answer

A)  benefit of abatement exceeds its marginal cost of abatement by the greatest amount. 
B)  benefit of abatement equals its marginal cost of abatement. 
C)  benefit of abatement is zero. 
D)  cost of abatement is at its maximum. 
A)  benefit of abatement exceeds its marginal cost of abatement by the greatest amount. 
B)  benefit of abatement equals its marginal cost of abatement. 
C)  benefit of abatement is zero. 
D)  cost of abatement is at its maximum.

Question 7

A government is considering undertaking a construction project of an increasing scale (ranging from 1, 2, 3, to 4). The estimated marginal costs and marginal benefits of each successive scale of the project are given in the table below.  What is the total amount that the government should spend on the construction project to attain maximum net benefits for the society?

Accepted Answer

A)  $8 million 
B)  $14 million 
C)  $19 million 
D)  $37 million 
A)  $8 million 
B)  $14 million 
C)  $19 million 
D)  $37 million

Question 8

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.   The data indicate that

Accepted Answer

A)  there is no highway program that is economically justifiable on the basis of cost-benefit analysis. 
B)  the marginal cost and marginal benefit of Program A are $2 and $9, respectively. 
C)  the marginal cost and marginal benefit of Program C are $12 and $21, respectively. 
D)  program D is optimal because it maximizes the total benefit. 
A)  there is no highway program that is economically justifiable on the basis of cost-benefit analysis. 
B)  the marginal cost and marginal benefit of Program A are $2 and $9, respectively. 
C)  the marginal cost and marginal benefit of Program C are $12 and $21, respectively. 
D)  program D is optimal because it maximizes the total benefit.

Question 9

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings

Accepted Answer

A)  can be resolved by the owners themselves through private bargaining. 
B)  has to be resolved by city government officials. 
C)  can only be resolved by a zoning ordinance restricting high-rise buildings. 
D)  should be resolved by a government fine for the builder of the high-rise. 
A)  can be resolved by the owners themselves through private bargaining. 
B)  has to be resolved by city government officials. 
C)  can only be resolved by a zoning ordinance restricting high-rise buildings. 
D)  should be resolved by a government fine for the builder of the high-rise.

Question 10

It has been proposed that a government agency be charged with the task of determining the amount of pollution that the atmosphere (or a body of water) can safely absorb, establish "rights" to this limited amount of pollution, and sell those limited amount of rights to firms. The firms can then buy and sell these rights among themselves later. This approach is known as the

Accepted Answer

A)  taxes and subsidies system. 
B)  cap-and-trade system. 
C)  property rights system. 
D)  market and command system. 
A)  taxes and subsidies system. 
B)  cap-and-trade system. 
C)  property rights system. 
D)  market and command system.

Question 11

Production subsidies are a way of internalizing external costs among polluting firms.

Accepted Answer

A) True 
 B)False

Question 12

If one person's consumption of a good does not preclude another's consumption, the good is said to be

Accepted Answer

A)  nonrival in consumption. 
B)  rival in consumption. 
C)  nonexcludable. 
D)  excludable. 
A)  nonrival in consumption. 
B)  rival in consumption. 
C)  nonexcludable. 
D)  excludable.

Question 13

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

Accepted Answer

A)  the third unit should not be produced. 
B)  the third unit should be produced. 
C)  zero units should be produced. 
D)  4 units should be produced. 
A)  the third unit should not be produced. 
B)  the third unit should be produced. 
C)  zero units should be produced. 
D)  4 units should be produced.

Question 14

Producer surplus is the difference between

Accepted Answer

A)  the maximum prices consumers are willing to pay for a product and the lower equilibrium price. 
B)  the quantity supplied and quantity demanded at an above equilibrium price. 
C)  the minimum prices producers are willing to accept for a product and the higher equilibrium price. 
D)  the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept. 
A)  the maximum prices consumers are willing to pay for a product and the lower equilibrium price. 
B)  the quantity supplied and quantity demanded at an above equilibrium price. 
C)  the minimum prices producers are willing to accept for a product and the higher equilibrium price. 
D)  the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

Question 15

Market failure is said to occur whenever

Accepted Answer

A)  private markets do not allocate resources in the most economically desirable way. 
B)  prices rise. 
C)  some consumers who want a good do not obtain it because the price is higher than they are willing to pay. 
D)  government intervenes in the functioning of private markets. 
A)  private markets do not allocate resources in the most economically desirable way. 
B)  prices rise. 
C)  some consumers who want a good do not obtain it because the price is higher than they are willing to pay. 
D)  government intervenes in the functioning of private markets.

Question 16

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25. If the marginal cost of producing the third unit is $100, what is the minimum amount that Susie must be willing to pay for it to be efficient for government to produce the third unit?pay for it to be efficient for government to produce the third unit?

Accepted Answer

A)  $35 
B)  $100 
C)  $65 
D)  The amount cannot be determined with the information provided. 
A)  $35 
B)  $100 
C)  $65 
D)  The amount cannot be determined with the information provided.

Question 17

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically

Accepted Answer

A)  generates more of a benefit than it costs to produce. 
B)  produces a benefit exactly equal to the cost of producing the last unit. 
C)  maximizes the net benefit to society. 
D)  costs more to produce than it provides in benefits. 
A)  generates more of a benefit than it costs to produce. 
B)  produces a benefit exactly equal to the cost of producing the last unit. 
C)  maximizes the net benefit to society. 
D)  costs more to produce than it provides in benefits.

Question 18

The minimum acceptable price for a product that producer Sam is willing to receive is $15. The price he could get for the product in the market is $18. How much is Sam's producer surplus?

Accepted Answer

A)  $3 
B)  $33 
C)  $45 
D)  $270 
A)  $3 
B)  $33 
C)  $45 
D)  $270

Question 19

The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of

Accepted Answer

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

Question 20

Because of the free-rider problem,

Accepted Answer

A)  the market demand for a public good is overstated. 
B)  the market demand for a public good is nonexistent or understated. 
C)  government has increasingly yielded to the private sector in producing public goods. 
D)  public goods often create serious negative externalities. 
A)  the market demand for a public good is overstated. 
B)  the market demand for a public good is nonexistent or understated. 
C)  government has increasingly yielded to the private sector in producing public goods. 
D)  public goods often create serious negative externalities.

Exam 4: Market Failures: Public Goods and Externalities

The two main characteristics of a public good are

Which of the following statements about market failure is not true?

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

(Last Word) Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists

A public good

The socially optimal amount of pollution abatement occurs where society's marginal

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars. The data indicate that

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings

Production subsidies are a way of internalizing external costs among polluting firms.

If one person's consumption of a good does not preclude another's consumption, the good is said to be

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

Producer surplus is the difference between

Market failure is said to occur whenever

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically

The minimum acceptable price for a product that producer Sam is willing to receive is $15. The price he could get for the product in the market is $18. How much is Sam's producer surplus?

The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of

Because of the free-rider problem,

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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