Question 1

The market supply curve indicates the

Accepted Answer

A)  minimum acceptable prices that sellers are willing to accept for the product. 
B)  maximum prices that buyers are willing and able to pay for the product. 
C)  total revenues that sellers would receive from selling various quantities of the product. 
D)  total amount that buyers will pay in buying a given quantity of the product. 
A)  minimum acceptable prices that sellers are willing to accept for the product. 
B)  maximum prices that buyers are willing and able to pay for the product. 
C)  total revenues that sellers would receive from selling various quantities of the product. 
D)  total amount that buyers will pay in buying a given quantity of the product.

Question 2

Which of the following statements concerning a pure public good is false?

Accepted Answer

A)  It is impossible to exclude nontaxpayers from the enjoyment of the public good. 
B)  All benefits associated with the production and use of a public good are received by the government. 
C)  The availability of a public good to one person simultaneously makes it available to all members of society. 
D)  The private sector does not have an economic incentive to produce a socially optimal amount of a public good. 
A)  It is impossible to exclude nontaxpayers from the enjoyment of the public good. 
B)  All benefits associated with the production and use of a public good are received by the government. 
C)  The availability of a public good to one person simultaneously makes it available to all members of society. 
D)  The private sector does not have an economic incentive to produce a socially optimal amount of a public good.

Question 3

When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.

Accepted Answer

A) True 
 B)False

Question 4

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

Accepted Answer

A) True 
 B)False

Question 5

As it applies to insurance, the adverse selection problem is the tendency for

Accepted Answer

A)  those most likely to collect on insurance to buy it. 
B)  those who buy insurance to take less precaution in avoiding the insured risk. 
C)  sellers to price discriminate. 
D)  sellers to restrict output and charge high prices. 
A)  those most likely to collect on insurance to buy it. 
B)  those who buy insurance to take less precaution in avoiding the insured risk. 
C)  sellers to price discriminate. 
D)  sellers to restrict output and charge high prices.

Question 6

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Accepted Answer

A)  P × Q. 
B)  P + Q. 
C)  P - Q. 
D)  Q - P. 
A)  P × Q. 
B)  P + Q. 
C)  P - Q. 
D)  Q - P.

Question 7

Which of the following does not illustrate the asymmetric information problem?

Accepted Answer

A)  Ordinary financial investors do not know the motivations of financial advisers. 
B)  Ordinary customers do not know how sanitarily the food is prepared in a restaurant. 
C)  Ordinary stock buyers do not know what will happen to the stock's price next week. 
D)  Ordinary car buyers do not know the actual quality of the various cars in the dealer's lot. 
A)  Ordinary financial investors do not know the motivations of financial advisers. 
B)  Ordinary customers do not know how sanitarily the food is prepared in a restaurant. 
C)  Ordinary stock buyers do not know what will happen to the stock's price next week. 
D)  Ordinary car buyers do not know the actual quality of the various cars in the dealer's lot.

Question 8

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Accepted Answer

A) True 
 B)False

Question 9

Street entertainers face the free-rider problem when they perform because of the

Accepted Answer

A)  law of demand. 
B)  diminishing marginal utility. 
C)  nonexcludability characteristic. 
D)  rivalry characteristic. 
A)  law of demand. 
B)  diminishing marginal utility. 
C)  nonexcludability characteristic. 
D)  rivalry characteristic.

Question 10

Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

Accepted Answer

A) True 
 B)False

Question 11

Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program. This illustrates 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.

Question 12

That government that has the smallest budget is the most efficient in the economic sense.

Accepted Answer

A) True 
 B)False

Question 13

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Refer to the above information. Which of the following policies would be most appropriate for dealing with this problem?

Accepted Answer

A)  levy a Pigovian tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources 
B)  levy a Pigovian tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products 
C)  levy a Pigovian tax on the producers of electricity and use the tax revenues to clean up the river 
D)  levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the river 
A)  levy a Pigovian tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources 
B)  levy a Pigovian tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products 
C)  levy a Pigovian tax on the producers of electricity and use the tax revenues to clean up the river 
D)  levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the river

Question 14

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

Accepted Answer

A)  the moral hazard problem. 
B)  a spillover cost. 
C)  a positive externality. 
D)  asymmetric information. 
A)  the moral hazard problem. 
B)  a spillover cost. 
C)  a positive externality. 
D)  asymmetric information.

Question 15

An efficiency loss (or deadweight loss)

Accepted Answer

A)  is measured as the combined loss of consumer surplus and producer surplus from over- or underproducing. 
B)  results from producing a unit of output for which the maximum willingness to pay exceeds the minimum acceptable price. 
C)  can result from underproduction, but not from overproduction. 
D)  can result from overproduction, but not from underproduction. 
A)  is measured as the combined loss of consumer surplus and producer surplus from over- or underproducing. 
B)  results from producing a unit of output for which the maximum willingness to pay exceeds the minimum acceptable price. 
C)  can result from underproduction, but not from overproduction. 
D)  can result from overproduction, but not from underproduction.

Question 16

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

Accepted Answer

A)  utility. 
B)  consumer surplus. 
C)  consumer demand. 
D)  market failure. 
A)  utility. 
B)  consumer surplus. 
C)  consumer demand. 
D)  market failure.

Question 17

The franchising of fast-food restaurants would be an example of how a private business

Accepted Answer

A)  overcomes market information problems. 
B)  solves the moral hazard problem in insurance. 
C)  expands the limits of the Coase theorem. 
D)  corrects the problem of externalities. 
A)  overcomes market information problems. 
B)  solves the moral hazard problem in insurance. 
C)  expands the limits of the Coase theorem. 
D)  corrects the problem of externalities.

Question 18

Public goods are those for which there

Accepted Answer

A)  is no free-rider problem. 
B)  are no externalities. 
C)  are nonrivalry and non excludability. 
D)  are rivalry and excludability. 
A)  is no free-rider problem. 
B)  are no externalities. 
C)  are nonrivalry and non excludability. 
D)  are rivalry and excludability.

Question 19

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Accepted Answer

A) True 
 B)False

Question 20

Sometimes, public goods whose benefits are less than their costs still get produced because

Accepted Answer

A)  the marginal benefit is still larger than the marginal cost. 
B)  of externalities in production. 
C)  the benefits accrue to politically powerful government officials and their constituents. 
D)  of market failures. 
A)  the marginal benefit is still larger than the marginal cost. 
B)  of externalities in production. 
C)  the benefits accrue to politically powerful government officials and their constituents. 
D)  of market failures.

Exam 4: Market Failures: Public Goods and Externalities

The market supply curve indicates the

Which of the following statements concerning a pure public good is false?

When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

As it applies to insurance, the adverse selection problem is the tendency for

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Which of the following does not illustrate the asymmetric information problem?

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Street entertainers face the free-rider problem when they perform because of the

Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program. This illustrates the problem of

That government that has the smallest budget is the most efficient in the economic sense.

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

An efficiency loss (or deadweight loss)

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

The franchising of fast-food restaurants would be an example of how a private business

Public goods are those for which there

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Sometimes, public goods whose benefits are less than their costs still get produced because

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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