Question 1

Professional buyers of antiques often have more information about the value of antique objects than do the sellers.This illustrates:

Accepted Answer

A)  the principal-agent problem. 
B)  the moral hazard problem. 
C)  the free-rider problem. 
D)  asymmetric information. 
A)  the principal-agent problem. 
B)  the moral hazard problem. 
C)  the free-rider problem. 
D)  asymmetric information. D

Question 2

A positive externality or spillover benefit occurs when:

Accepted Answer

A)  product differentiation increases the variety of products available to consumers. 
B)  the benefits associated with a product exceed those accruing to people who consume it. 
C)  a firm does not bear all of the costs of producing a good or service. 
D)  firms earn positive economic profits. 
A)  product differentiation increases the variety of products available to consumers. 
B)  the benefits associated with a product exceed those accruing to people who consume it. 
C)  a firm does not bear all of the costs of producing a good or service. 
D)  firms earn positive economic profits. B

Question 3

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. D

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

Alex,Kara,and Susie are the only three people in a community and Alex is willing to pay $20 for the fifth unit of a public good;Kara,$15;and Susie,$25.Government should produce the fifth unit of the public good if the marginal cost is less than or equal to:

Accepted Answer

A)  $25. 
B)  $15. 
C)  $60. 
D)  $300. 
A)  $25. 
B)  $15. 
C)  $60. 
D)  $300.

Question 9

Economists consider governments to be "wasteful":

Accepted Answer

A)  whenever they over- or underallocate resources to a project. 
B)  only when they overallocate resources to a project. 
C)  only when they underallocate resources to a project. 
D)  whenever they attempt to correct a market failure. 
A)  whenever they over- or underallocate resources to a project. 
B)  only when they overallocate resources to a project. 
C)  only when they underallocate resources to a project. 
D)  whenever they attempt to correct a market failure.

Question 10

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 11

In a television advertisement for AFLAC supplemental health insurance,an ice skater says to his skating partner,"Do you want to try a triple jump?" She responds,"Why not,I have AFLAC." This response illustrates 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 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. $\begin{array}{c}
\begin{array}{c}
\underline{\text {Q }}\
1 \
2 \
3 \
4 \
5
\end{array}
\begin{array}{c}
\underline{\mathrm{Pa}_{\mathrm{a}} }\
\$  \
2\
1\
0\
0
\end{array}
\begin{array}{c}
\underline{\mathrm{Pa}_{\mathrm{b}} }\
\$ 5 \
4 \
3 \
2 \
1
\end{array}
\end{array}$
 Refer to the data.Suppose government has already produced 4 units of this public good.The amount individual B is willing voluntarily to pay for the 4th unit is:

Accepted Answer

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

Question 13

A producer's minimum acceptable price for a particular unit of a good:

Accepted Answer

A)  is the same for all units of the good. 
B)  will,for most units produced,equal the maximum that consumers are willing to pay for the good. 
C)  equals the marginal cost of producing that particular unit. 
D)  must cover the wages,rent,and interest payments necessary to produce the good but need not include profit. 
A)  is the same for all units of the good. 
B)  will,for most units produced,equal the maximum that consumers are willing to pay for the good. 
C)  equals the marginal cost of producing that particular unit. 
D)  must cover the wages,rent,and interest payments necessary to produce the good but need not include profit.

Question 14

Allocative efficiency occurs only at that output where:

Accepted Answer

A)  marginal benefit exceeds marginal cost by the greatest amount. 
B)  consumer surplus exceeds producer surplus by the greatest amount. 
C)  the combined amounts of consumer surplus and producer surplus are maximized. 
D)  the areas of consumer and producer surplus are equal. 
A)  marginal benefit exceeds marginal cost by the greatest amount. 
B)  consumer surplus exceeds producer surplus by the greatest amount. 
C)  the combined amounts of consumer surplus and producer surplus are maximized. 
D)  the areas of consumer and producer surplus are equal.

Question 15

Because the federal government typically provides disaster relief to farmers,many farmers do not buy crop insurance even through it is federally subsidized.This illustrates:

Accepted Answer

A)  the adverse selection problem. 
B)  the moral hazard problem. 
C)  the special interest effect. 
D)  logrolling. 
A)  the adverse selection problem. 
B)  the moral hazard problem. 
C)  the special interest effect. 
D)  logrolling.

Question 16

(Consider This)According to the Coase theorem:

Accepted Answer

A)  government should levy excise taxes on firms that generate spillover or external costs. 
B)  taxes should be levied such that they change private behavior as little as possible. 
C)  private individuals can often negotiate their own resolution of externality problems,without the need for government intervention. 
D)  private firms should not provide public goods. 
A)  government should levy excise taxes on firms that generate spillover or external costs. 
B)  taxes should be levied such that they change private behavior as little as possible. 
C)  private individuals can often negotiate their own resolution of externality problems,without the need for government intervention. 
D)  private firms should not provide public goods.

Question 17

Where there is asymmetric information between buyers and sellers:

Accepted Answer

A)  product shortages will occur at the equilibrium price. 
B)  product surpluses will occur at the equilibrium price. 
C)  markets can produce inefficient outcomes. 
D)  markets will fail due to the "free-rider problem." 
A)  product shortages will occur at the equilibrium price. 
B)  product surpluses will occur at the equilibrium price. 
C)  markets can produce inefficient outcomes. 
D)  markets will fail due to the "free-rider problem."

Question 18

The following data are for a series of increasingly extensive flood control projects: $\begin{array}{c}
\begin{array}{lll}
\
\
\text {Plan  A=  Levees}\
\text {Plan B = Small Reservoir}\
\text {Plan C = Medium Reservoir}\
\text {Plan  D= Large Reservoir}\
\end{array}
\begin{array}{c}
\text {Total Cost}\
\underline{\text {Per Year}}\
\$ 10,000 \
24,000 \
44,000 \
72,000
\end{array}
\begin{array}{c}
\text {Total Benefit}\
\underline{\text {Per Year}}\
 \$ 16,000 \
36,000\
52,000\
64,000\
\end{array}
\end{array}$
 Refer to the data.For Plan D marginal costs and marginal benefits are:

Accepted Answer

A)  $72,000 and $64,000 respectively. 
B)  $28,000 and $12,000 respectively. 
C)  $24,000 and $18,000 respectively. 
D)  $16,000 and $28,000 respectively. 
A)  $72,000 and $64,000 respectively. 
B)  $28,000 and $12,000 respectively. 
C)  $24,000 and $18,000 respectively. 
D)  $16,000 and $28,000 respectively.

Question 19

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 the 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 the good exceeds the marginal cost of producing it. 
D)  the total cost of producing a good exceeds the costs borne by the producer.

Question 20

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. $\begin{array}{c}
\begin{array}{c}
\underline{\text {Q }}\
1 \
2 \
3 \
4 \
5
\end{array}
\begin{array}{c}
\underline{\mathrm{Pa}_{\mathrm{a}} }\
\$  \
2\
1\
0\
0
\end{array}
\begin{array}{c}
\underline{\mathrm{Pa}_{\mathrm{b}} }\
\$ 5 \
4 \
3 \
2 \
1
\end{array}
\end{array}$
 Refer to the data.If the marginal cost of producing this good at the optimal quantity is $4,the optimal quantity must be:

Accepted Answer

A)  1 unit. 
B)  2 units. 
C)  3 units. 
D)  4 units. 
A)  1 unit. 
B)  2 units. 
C)  3 units. 
D)  4 units.

Professional buyers of antiques often have more information about the value of antique objects than do the sellers.This illustrates:

A positive externality or spillover benefit occurs when:

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:

The two main characteristics of a public good are:

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

Unlike a private good,a public good:

A demand curve for a public good is determined by:

Alex,Kara,and Susie are the only three people in a community and Alex is willing to pay $20 for the fifth unit of a public good;Kara,$15;and Susie,$25.Government should produce the fifth unit of the public good if the marginal cost is less than or equal to:

Economists consider governments to be "wasteful":

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

In a television advertisement for AFLAC supplemental health insurance,an ice skater says to his skating partner,"Do you want to try a triple jump?" She responds,"Why not,I have AFLAC." This response illustrates the:

A producer's minimum acceptable price for a particular unit of a good:

Allocative efficiency occurs only at that output where:

Because the federal government typically provides disaster relief to farmers,many farmers do not buy crop insurance even through it is federally subsidized.This illustrates:

(Consider This)According to the Coase theorem:

Where there is asymmetric information between buyers and sellers:

A negative externality or spillover cost occurs when:

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters

Exam 4: Market Failures: Public Goods and Externalities

Professional buyers of antiques often have more information about the value of antique objects than do the sellers.This illustrates:

A positive externality or spillover benefit occurs when:

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:

The two main characteristics of a public good are:

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

Unlike a private good,a public good:

A demand curve for a public good is determined by:

Alex,Kara,and Susie are the only three people in a community and Alex is willing to pay $20 for the fifth unit of a public good;Kara,$15;and Susie,$25.Government should produce the fifth unit of the public good if the marginal cost is less than or equal to:

Economists consider governments to be "wasteful":

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

In a television advertisement for AFLAC supplemental health insurance,an ice skater says to his skating partner,"Do you want to try a triple jump?" She responds,"Why not,I have AFLAC." This response illustrates the:

A producer's minimum acceptable price for a particular unit of a good:

Allocative efficiency occurs only at that output where:

Because the federal government typically provides disaster relief to farmers,many farmers do not buy crop insurance even through it is federally subsidized.This illustrates:

(Consider This)According to the Coase theorem:

Where there is asymmetric information between buyers and sellers:

A negative externality or spillover cost occurs when:

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters