Question 1

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 2

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.

Question 3

Product reviews help to alleviate problems associated with:

Accepted Answer

A)  asymmetric information. 
B)  moral hazard. 
C)  positive externalities. 
D)  negative externalities. 
A)  asymmetric information. 
B)  moral hazard. 
C)  positive externalities. 
D)  negative externalities.

Question 4

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 5

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.The collective willingness of this society to pay for the second unit of this public good is:

Accepted Answer

A)  $2. 
B)  $4. 
C)  $6. 
D)  $8. 
A)  $2. 
B)  $4. 
C)  $6. 
D)  $8.

Question 6

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

Accepted Answer

A)  increasing costs. 
B)  diminishing returns. 
C)  diminishing marginal utility. 
D)  conservation of matter and energy. 
A)  increasing costs. 
B)  diminishing returns. 
C)  diminishing marginal utility. 
D)  conservation of matter and energy.

Question 7

At the optimal quantity of a public good:

Accepted Answer

A)  marginal benefit exceeds marginal cost by the greatest amount. 
B)  total benefit equals total cost. 
C)  marginal benefit equals marginal cost. 
D)  marginal benefit is zero. 
A)  marginal benefit exceeds marginal cost by the greatest amount. 
B)  total benefit equals total cost. 
C)  marginal benefit equals marginal cost. 
D)  marginal benefit is zero.

Question 8

Some sellers of used cars provide warranties to buyers,with the aim of reassuring buyers that the car is of good quality.These warranties help reduce the chance of what occurring?

Accepted Answer

A)  Negative externalities. 
B)  Adverse selection. 
C)  Spillover benefits. 
D)  Moral hazard. 
A)  Negative externalities. 
B)  Adverse selection. 
C)  Spillover benefits. 
D)  Moral hazard.

Question 9

(Consider This)Darcy and Rachel live down the hall from each other in the same dorm.Darcy likes to play her music loudly down the hall,and Rachel finds the music annoying.A Coase theorem solution for this problem would be for:

Accepted Answer

A)  Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music. 
B)  the director of housing to impose a fine on Darcy whenever she plays her music too loud. 
C)  the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume. 
D)  the college to ban the playing of music in dorms. 
A)  Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music. 
B)  the director of housing to impose a fine on Darcy whenever she plays her music too loud. 
C)  the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume. 
D)  the college to ban the playing of music in dorms.

Question 10

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Answer the question on the basis of the following information for four highway programs of increasing scope.All figures are in millions of dollars. $\begin{array}{c}
\begin{array}{c}
\underline{\text {Program}}\
\text {A}\
\text {B}\
\text {C}\
\text {D}
\end{array}
\begin{array}{c}
\underline{\text {Total Cost}}\
\$ 2 \
6\
12\
20 
\end{array}
\begin{array}{c}
\underline{\text {Total Benefit}}\
\$ 9 \
16 \
21 \
23
\end{array}
\end{array}$
 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)  the marginal cost and marginal benefit of Program A cannot be determined. 
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)  the marginal cost and marginal benefit of Program A cannot be determined.

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

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 15

Cost-benefit analysis attempts to:

Accepted Answer

A)  compare the real worth,rather than the market values,of various goods and services. 
B)  compare the relative desirability of alternative distributions of income. 
C)  determine whether it is better to cut government expenditures or reduce taxes. 
D)  compare the benefits and costs associated with any economic project or activity. 
A)  compare the real worth,rather than the market values,of various goods and services. 
B)  compare the relative desirability of alternative distributions of income. 
C)  determine whether it is better to cut government expenditures or reduce taxes. 
D)  compare the benefits and costs associated with any economic project or activity.

Question 16

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

Accepted Answer

A) True 
 B)False

Question 17

Public goods are those for which there:

Accepted Answer

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

Question 18

The adverse selection problem is the tendency for insured drivers to drive recklessly.

Accepted Answer

A) True 
 B)False

Question 19

(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 20

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

Accepted Answer

A) True 
 B)False

Market failure is said to occur whenever:

Because of the free-rider problem:

Product reviews help to alleviate problems associated with:

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

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

At the optimal quantity of a public good:

Some sellers of used cars provide warranties to buyers,with the aim of reassuring buyers that the car is of good quality.These warranties help reduce the chance of what occurring?

(Consider This)Darcy and Rachel live down the hall from each other in the same dorm.Darcy likes to play her music loudly down the hall,and Rachel finds the music annoying.A Coase theorem solution for this problem would be for:

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

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

Answer the question on the basis of the following information for four highway programs of increasing scope.All figures are in millions of dollars. A B C D \ 2 6 12 20 \ 9 16 21 23 The data indicate that:

Buyers will opt out of markets in which:

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

Cost-benefit analysis attempts to:

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

Public goods are those for which there:

The adverse selection problem is the tendency for insured drivers to drive recklessly.

(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:

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

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

Market failure is said to occur whenever:

Because of the free-rider problem:

Product reviews help to alleviate problems associated with:

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

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

At the optimal quantity of a public good:

Some sellers of used cars provide warranties to buyers,with the aim of reassuring buyers that the car is of good quality.These warranties help reduce the chance of what occurring?

(Consider This)Darcy and Rachel live down the hall from each other in the same dorm.Darcy likes to play her music loudly down the hall,and Rachel finds the music annoying.A Coase theorem solution for this problem would be for:

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

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

Answer the question on the basis of the following information for four highway programs of increasing scope.All figures are in millions of dollars. A B C D \ 2 6 12 20 \ 9 16 21 23 The data indicate that:

Buyers will opt out of markets in which:

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

Cost-benefit analysis attempts to:

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

Public goods are those for which there:

The adverse selection problem is the tendency for insured drivers to drive recklessly.

(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:

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

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