Question 1

When a tax on output is imposed to internalise the external costs of pollution,the supply curve shifts down by the amount of the tax.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following displays these two characteristics: rivalry and non-excludability?

Accepted Answer

A)  A public good 
B)  A private good 
C)  A quasi-public good 
D)  A common resource 
A)  A public good 
B)  A private good 
C)  A quasi-public good 
D)  A common resource

Question 3

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production,and in which

Accepted Answer

A)  the sum of consumer surplus and producer surplus is at a maximum. 
B)  economic surplus is minimised. 
C)  the sum of the benefits to firms is equal to the sum of the benefits to consumers. 
D)  the sum of consumer surplus and producer surplus is minimised. 
A)  the sum of consumer surplus and producer surplus is at a maximum. 
B)  economic surplus is minimised. 
C)  the sum of the benefits to firms is equal to the sum of the benefits to consumers. 
D)  the sum of consumer surplus and producer surplus is minimised.

Question 4

A product is considered to be excludable if it is jointly owned by all members of a community.

Accepted Answer

A) True 
 B)False

Question 5

Figure 11.9  
-Refer to Figure 11.9.Which of the following statements is true?

Accepted Answer

A)  At QE, the benefits of reducing pollution outweighs the cost of pollution reduction. 
B)  At QB, society is under allocating resources to pollution reduction. 
C)  The optimal quantity of pollution reduction is QB. 
D)  The optimal quantity of pollution reduction is QE. 
A)  At QE, the benefits of reducing pollution outweighs the cost of pollution reduction. 
B)  At QB, society is under allocating resources to pollution reduction. 
C)  The optimal quantity of pollution reduction is QB. 
D)  The optimal quantity of pollution reduction is QE.

Question 6

The social cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 7

A modern example of the tragedy of the commons is the forests in many poor countries.

Accepted Answer

A) True 
 B)False

Question 8

If a buyer in an economic transaction has more information than the seller,the buyer benefits at the expense of the seller.This phenomenon is due to

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  economically irrational behaviour. 
D)  gains from trade. 
A)  moral hazard. 
B)  adverse selection. 
C)  economically irrational behaviour. 
D)  gains from trade.

Question 9

Figure 11.6   Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 11.6 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 11.6.What is the economically efficient output level?

Accepted Answer

A)  Q1 
B)  Q2 minus Q1 
C)  Q2 
D)  Q1 plus Q2 
A)  Q1 
B)  Q2 minus Q1 
C)  Q2 
D)  Q1 plus Q2

Question 10

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Accepted Answer

A)  The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost. 
B)  A deadweight loss occurs; at equilibrium, the additional social cost of production is greater than the additional benefit to consumers. 
C)  The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced. 
D)  The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus. 
A)  The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost. 
B)  A deadweight loss occurs; at equilibrium, the additional social cost of production is greater than the additional benefit to consumers. 
C)  The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced. 
D)  The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus.

Question 11

How can the market demand for a public good be determined?

Accepted Answer

A)  By adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B)  By adding up how much each citizen expects to consume at each possible price. 
C)  By adding up how much each consumer is willing to pay for each unit of the public good. 
D)  By estimating the value of the benefit that each unit provides and multiplying that by the number of consumers. 
A)  By adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B)  By adding up how much each citizen expects to consume at each possible price. 
C)  By adding up how much each consumer is willing to pay for each unit of the public good. 
D)  By estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.

Question 12

If a doctor knows that an insurance company will pay for most of a patient's bill,the doctor has more of an incentive to require additional medical procedures and tests,even if the patient may not require them.This is an example of

Accepted Answer

A)  moral hazard. 
B)  the principle-agent problem. 
C)  asymmetric information. 
D)  adverse selection. 
A)  moral hazard. 
B)  the principle-agent problem. 
C)  asymmetric information. 
D)  adverse selection.

Question 13

When does a negative externality exist?

Accepted Answer

A)  When there are quantity controls in a market. 
B)  When there are price controls in a market. 
C)  When the marginal social cost of producing a good or service exceeds the private cost. 
D)  When the marginal private cost of producing a good or service exceeds the social cost. 
A)  When there are quantity controls in a market. 
B)  When there are price controls in a market. 
C)  When the marginal social cost of producing a good or service exceeds the private cost. 
D)  When the marginal private cost of producing a good or service exceeds the social cost.

Question 14

Which of the following describes how a negative externality affects a competitive market?

Accepted Answer

A)  The externality causes a difference between the private cost of production and the social cost 
B)  The externality causes a difference between the private cost of production and the private benefit from consumption 
C)  The externality causes consumer surplus to exceed producer surplus 
D)  The externality causes a difference between the private cost of production and the equilibrium price 
A)  The externality causes a difference between the private cost of production and the social cost 
B)  The externality causes a difference between the private cost of production and the private benefit from consumption 
C)  The externality causes consumer surplus to exceed producer surplus 
D)  The externality causes a difference between the private cost of production and the equilibrium price

Question 15

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

Accepted Answer

A)  externalise the externality. 
B)  result in a marginal social benefit greater than the marginal cost of the electricity. 
C)  be an example of supply side economic policy. 
D)  internalise the externality. 
A)  externalise the externality. 
B)  result in a marginal social benefit greater than the marginal cost of the electricity. 
C)  be an example of supply side economic policy. 
D)  internalise the externality.

Question 16

Figure 11.1  
-Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

Accepted Answer

A)  If the price of pecans is $3, the output will be economically efficient but there will be a deadweight loss. 
B)  If the price of pecans is $9, consumers will purchase more than the economically efficient output. 
C)  Both 4000 metrics and 12 000 metrics are economically inefficient rates of output. 
D)  If the price of pecans is $3, producers will sell 12 000 metrics of pecans but this output will be economically inefficient. 
A)  If the price of pecans is $3, the output will be economically efficient but there will be a deadweight loss. 
B)  If the price of pecans is $9, consumers will purchase more than the economically efficient output. 
C)  Both 4000 metrics and 12 000 metrics are economically inefficient rates of output. 
D)  If the price of pecans is $3, producers will sell 12 000 metrics of pecans but this output will be economically inefficient.

Question 17

For the Coase theorem to work,there must be clear assignment of property rights.

Accepted Answer

A) True 
 B)False

Question 18

Figure 11.3   Figure 11.3 shows a market with an externality. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 11.3.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does S2 represent?

Accepted Answer

A)  The market supply curve reflecting private cost 
B)  The market supply curve reflecting social cost 
C)  The market supply curve reflecting external cost 
D)  The market supply curve reflecting implicit cost 
A)  The market supply curve reflecting private cost 
B)  The market supply curve reflecting social cost 
C)  The market supply curve reflecting external cost 
D)  The market supply curve reflecting implicit cost

Question 19

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

Accepted Answer

A)  equal to the marginal external cost at the economically efficient level of pollution. 
B)  equal to the marginal private cost of production at the economically efficient level of pollution. 
C)  equal to the amount of the deadweight loss created in the absence of a pollution tax. 
D)  at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product. 
A)  equal to the marginal external cost at the economically efficient level of pollution. 
B)  equal to the marginal private cost of production at the economically efficient level of pollution. 
C)  equal to the amount of the deadweight loss created in the absence of a pollution tax. 
D)  at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

Question 20

A negative externality is created by

Accepted Answer

A)  cleaning up the sidewalk on your block. 
B)  graduating from university. 
C)  repainting the house you live in to improve its appearance. 
D)  keeping a junked car parked on your front lawn. 
A)  cleaning up the sidewalk on your block. 
B)  graduating from university. 
C)  repainting the house you live in to improve its appearance. 
D)  keeping a junked car parked on your front lawn.

When a tax on output is imposed to internalise the external costs of pollution,the supply curve shifts down by the amount of the tax.

Which of the following displays these two characteristics: rivalry and non-excludability?

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production,and in which

A product is considered to be excludable if it is jointly owned by all members of a community.

Figure 11.9 -Refer to Figure 11.9.Which of the following statements is true?

The social cost of a good or service is the cost borne by the producer.

A modern example of the tragedy of the commons is the forests in many poor countries.

If a buyer in an economic transaction has more information than the seller,the buyer benefits at the expense of the seller.This phenomenon is due to

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

How can the market demand for a public good be determined?

If a doctor knows that an insurance company will pay for most of a patient's bill,the doctor has more of an incentive to require additional medical procedures and tests,even if the patient may not require them.This is an example of

When does a negative externality exist?

Which of the following describes how a negative externality affects a competitive market?

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

For the Coase theorem to work,there must be clear assignment of property rights.

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

A negative externality is created by

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

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Exam 11: Government Intervention in the Market

When a tax on output is imposed to internalise the external costs of pollution,the supply curve shifts down by the amount of the tax.

Which of the following displays these two characteristics: rivalry and non-excludability?

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production,and in which

A product is considered to be excludable if it is jointly owned by all members of a community.

Figure 11.9 -Refer to Figure 11.9.Which of the following statements is true?

The social cost of a good or service is the cost borne by the producer.

A modern example of the tragedy of the commons is the forests in many poor countries.

If a buyer in an economic transaction has more information than the seller,the buyer benefits at the expense of the seller.This phenomenon is due to

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

How can the market demand for a public good be determined?

If a doctor knows that an insurance company will pay for most of a patient's bill,the doctor has more of an incentive to require additional medical procedures and tests,even if the patient may not require them.This is an example of

When does a negative externality exist?

Which of the following describes how a negative externality affects a competitive market?

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

For the Coase theorem to work,there must be clear assignment of property rights.

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

A negative externality is created by

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

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