Question 1

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

Accepted Answer

A) True 
 B)False

Question 2

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 deadweight loss from producing at the market equilibrium?

Accepted Answer

A)  Area C 
B)  Area E 
C)  Area D 
D)  Area F 
A)  Area C 
B)  Area E 
C)  Area D 
D)  Area F

Question 3

An externality is an example of a market failure.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following conditions holds in economically efficient competitive market equilibrium?

Accepted Answer

A)  The deadweight loss is positive but at a minimum 
B)  Producer and consumer surplus are exactly equal in size 
C)  There are no positive and no negative external effects from consumption and production 
D)  The marginal benefit of the last unit produced and consumed is maximised 
A)  The deadweight loss is positive but at a minimum 
B)  Producer and consumer surplus are exactly equal in size 
C)  There are no positive and no negative external effects from consumption and production 
D)  The marginal benefit of the last unit produced and consumed is maximised

Question 5

When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  asymmetric information. 
D)  economic irrationality. 
A)  moral hazard. 
B)  adverse selection. 
C)  asymmetric information. 
D)  economic irrationality.

Question 6

Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem,government action is ________ to achieve an ________ amount of pollution.

Accepted Answer

A)  necessary; equitable 
B)  necessary; efficient 
C)  not necessary; equitable 
D)  not necessary; efficient 
A)  necessary; equitable 
B)  necessary; efficient 
C)  not necessary; equitable 
D)  not necessary; efficient

Question 7

What is moral hazard?
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Accepted Answer

Moral hazard is a tendency for

Question 8

Private producers have no incentive to provide public goods because

Accepted Answer

A)  the government subsidy granted is usually insufficient to enable private producers to make a profit. 
B)  production of huge quantities of public goods entails huge fixed costs. 
C)  they cannot avoid the tragedy of the commons. 
D)  once produced, it will not be possible to exclude those who do not pay for the good. 
A)  the government subsidy granted is usually insufficient to enable private producers to make a profit. 
B)  production of huge quantities of public goods entails huge fixed costs. 
C)  they cannot avoid the tragedy of the commons. 
D)  once produced, it will not be possible to exclude those who do not pay for the good.

Question 9

A product is considered to be rival if

Accepted Answer

A)  you can keep those who did not pay for the item from enjoying its benefits. 
B)  you cannot keep those who did not pay for the item from enjoying its benefits. 
C)  your consumption of the product reduces the quantity available for others to consume. 
D)  it is jointly owned by all members of a community. 
A)  you can keep those who did not pay for the item from enjoying its benefits. 
B)  you cannot keep those who did not pay for the item from enjoying its benefits. 
C)  your consumption of the product reduces the quantity available for others to consume. 
D)  it is jointly owned by all members of a community.

Question 10

'When it comes to public goods,individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement.
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Accepted Answer

The statement is true.For example,in the

Question 11

All of the following are examples of public goods except

Accepted Answer

A)  broadcast television with commercials. 
B)  clean water systems. 
C)  stock of knowledge in the public domain. 
D)  crime prevention. 
A)  broadcast television with commercials. 
B)  clean water systems. 
C)  stock of knowledge in the public domain. 
D)  crime prevention.

Question 12

Which of the following is an example of a command and control approach to reducing pollution?

Accepted Answer

A)  The government sets a target for maximum emissions 
B)  The government imposed a per unit tax on the good that creates pollution 
C)  The government gives firms a tax rebate for every unit of pollution abated 
D)  None of the above 
A)  The government sets a target for maximum emissions 
B)  The government imposed a per unit tax on the good that creates pollution 
C)  The government gives firms a tax rebate for every unit of pollution abated 
D)  None of the above

Question 13

What is the common source of negative externalities and the tragedy of the commons?

Accepted Answer

A)  A lack of clearly defined and enforced property rights 
B)  A lack of concern for human rights 
C)  A lack of competition 
D)  Self-interest motives of consumers and producers 
A)  A lack of clearly defined and enforced property rights 
B)  A lack of concern for human rights 
C)  A lack of competition 
D)  Self-interest motives of consumers and producers

Question 14

An example,from the list below,of a common resource is

Accepted Answer

A)  lions in the wild. 
B)  elephants in a zoo. 
C)  a university education. 
D)  public transportation. 
A)  lions in the wild. 
B)  elephants in a zoo. 
C)  a university education. 
D)  public transportation.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Common resources differ from public goods in that

Accepted Answer

A)  common resources are non-excludable while public goods are excludable to those who do not pay for the good. 
B)  unlike public goods, common resources are rival in consumption. 
C)  common resources are collectively owned by a group of people while public goods are government owned. 
D)  common resources are resources that cannot be renewed, but the production of public goods can be increased any time. 
A)  common resources are non-excludable while public goods are excludable to those who do not pay for the good. 
B)  unlike public goods, common resources are rival in consumption. 
C)  common resources are collectively owned by a group of people while public goods are government owned. 
D)  common resources are resources that cannot be renewed, but the production of public goods can be increased any time.

Question 17

The Coase theorem asserts that government intervention is a prerequisite for addressing externality problems.

Accepted Answer

A) True 
 B)False

Question 18

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms 'rivalry' and 'excludability' as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.
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Accepted Answer

Rivalry occurs when one person's consumi

Question 19

Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 20

What does a market demand curve reflect?

Accepted Answer

A)  Private benefits of consuming a product 
B)  External benefits of consuming a product 
C)  Social benefits of consuming a product 
D)  The sum of private and social benefits of consuming a product 
A)  Private benefits of consuming a product 
B)  External benefits of consuming a product 
C)  Social benefits of consuming a product 
D)  The sum of private and social benefits of consuming a product

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

An externality is an example of a market failure.

Which of the following conditions holds in economically efficient competitive market equilibrium?

When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of

Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem,government action is to achieve an amount of pollution.

Private producers have no incentive to provide public goods because

A product is considered to be rival if

All of the following are examples of public goods except

Which of the following is an example of a command and control approach to reducing pollution?

What is the common source of negative externalities and the tragedy of the commons?

An example,from the list below,of a common resource is

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

Common resources differ from public goods in that

The Coase theorem asserts that government intervention is a prerequisite for addressing externality problems.

Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

What does a market demand curve reflect?

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

Filters

Exam 11: Government Intervention in the Market

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

An externality is an example of a market failure.

Which of the following conditions holds in economically efficient competitive market equilibrium?

When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of

Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem,government action is ________ to achieve an ________ amount of pollution.

Private producers have no incentive to provide public goods because

A product is considered to be rival if

All of the following are examples of public goods except

Which of the following is an example of a command and control approach to reducing pollution?

What is the common source of negative externalities and the tragedy of the commons?

An example,from the list below,of a common resource is

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

Common resources differ from public goods in that

The Coase theorem asserts that government intervention is a prerequisite for addressing externality problems.

Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

What does a market demand curve reflect?

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

Filters

Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem,government action is to achieve an amount of pollution.