Question 1

What is one result of the public choice model that is believed by most economists?

Accepted Answer

A)  When market failure occurs, government intervention will always lead to a more efficient outcome. 
B)  Government intervention will always result in a reduction in economic efficiency in regulated markets. 
C)  Policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency. 
D)  The voting paradox will prevent voters from selecting the best person for public office. 
A)  When market failure occurs, government intervention will always lead to a more efficient outcome. 
B)  Government intervention will always result in a reduction in economic efficiency in regulated markets. 
C)  Policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency. 
D)  The voting paradox will prevent voters from selecting the best person for public office.

Question 2

Figure 11.8   Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 11.8.What does D2 represent?

Accepted Answer

A)  The social welfare curve 
B)  The demand curve reflecting social benefit 
C)  The demand curve reflecting private benefit 
D)  The positive externalities curve 
A)  The social welfare curve 
B)  The demand curve reflecting social benefit 
C)  The demand curve reflecting private benefit 
D)  The positive externalities curve

Question 3

What is an externality?

Accepted Answer

A)  A benefit realised by the purchaser of a good or service 
B)  A cost paid for by the producer of a good or service 
C)  A benefit or cost experienced by someone who is not a producer or consumer of a good or service 
D)  Anything that is external or not relevant to the production of a good or service 
A)  A benefit realised by the purchaser of a good or service 
B)  A cost paid for by the producer of a good or service 
C)  A benefit or cost experienced by someone who is not a producer or consumer of a good or service 
D)  Anything that is external or not relevant to the production of a good or service

Question 4

An example of a product that is non-excludable and rival is -.

Accepted Answer

A)  national defence 
B)  automobiles 
C)  free concert (with limited seating in a public park) 
D)  chicken pox vaccines 
A)  national defence 
B)  automobiles 
C)  free concert (with limited seating in a public park) 
D)  chicken pox vaccines

Question 5

What are the two primary characteristics that distinguish public goods?

Accepted Answer

A)  Exclusivity and rivalry 
B)  Government intervention and low prices 
C)  Market failure and high prices 
D)  Non-excludability and non-rivalry 
A)  Exclusivity and rivalry 
B)  Government intervention and low prices 
C)  Market failure and high prices 
D)  Non-excludability and non-rivalry

Question 6

Which of the following displays rivalry and excludability in consumption?

Accepted Answer

A)  Public goods 
B)  Private goods 
C)  Quasi-public goods 
D)  Common resources 
A)  Public goods 
B)  Private goods 
C)  Quasi-public goods 
D)  Common resources

Question 7

Private solutions to the problem of externalities are most likely when

Accepted Answer

A)  government actively encourages these solutions. 
B)  transactions costs are low and the number of bargaining parties is small. 
C)  transactions costs are low and the number of bargaining parties is large. 
D)  transactions costs are low and the monetary damages to third parties is high. 
A)  government actively encourages these solutions. 
B)  transactions costs are low and the number of bargaining parties is small. 
C)  transactions costs are low and the number of bargaining parties is large. 
D)  transactions costs are low and the monetary damages to third parties is high.

Question 8

Figure 11.4   Figure 11.4 shows a market with a negative externality.
-Refer to Figure 11.4.What is the private profit-maximising quantity for the firm?

Accepted Answer

A)  Qa 
B)  Qb 
C)  Qb - Qd. 
D)  Qd 
A)  Qa 
B)  Qb 
C)  Qb - Qd. 
D)  Qd

Question 9

If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 10

Economists often analyse the interaction of individuals and firms in markets.Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others,a process that is referred to as

Accepted Answer

A)  rent seeking. 
B)  logrolling. 
C)  government failure. 
D)  the public choice initiative. 
A)  rent seeking. 
B)  logrolling. 
C)  government failure. 
D)  the public choice initiative.

Question 11

Figure 11.1  
-Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If 8000 metrics of pecans are sold,

Accepted Answer

A)  the deadweight loss is equal to economic surplus. 
B)  producer surplus equals consumer surplus. 
C)  the marginal benefit of each of the 8000 metrics of pecans equals $9. 
D)  marginal benefit is equal to marginal cost. 
A)  the deadweight loss is equal to economic surplus. 
B)  producer surplus equals consumer surplus. 
C)  the marginal benefit of each of the 8000 metrics of pecans equals $9. 
D)  marginal benefit is equal to marginal cost.

Question 12

Figure 11.1  
-Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9,

Accepted Answer

A)  economic surplus is maximised. 
B)  too many consumers want to buy pecans. 
C)  the quantity supplied is greater than the economically efficient quantity. 
D)  the quantity demanded is economically efficient, but the quantity supplied is economically inefficient. 
A)  economic surplus is maximised. 
B)  too many consumers want to buy pecans. 
C)  the quantity supplied is greater than the economically efficient quantity. 
D)  the quantity demanded is economically efficient, but the quantity supplied is economically inefficient.

Question 13

Figure 11.11   Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 11.11 illustrates the situation in the toilet paper market.
-Refer to Figure 11.11.An efficient way to get the firm to produce the socially optimal output level is

Accepted Answer

A)  for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B)  to impose a tax to make the industry bear the external costs it creates. 
C)  to grant a subsidy to enable the industry to internalise the external costs of production. 
D)  to assign property rights to the firms in the industry. 
A)  for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B)  to impose a tax to make the industry bear the external costs it creates. 
C)  to grant a subsidy to enable the industry to internalise the external costs of production. 
D)  to assign property rights to the firms in the industry.

Question 14

Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents.In this sense,these mandatory helmet laws are reducing ________ of risky behaviour.

Accepted Answer

A)  positive externalities 
B)  negative externalities 
C)  the private benefit 
D)  the social benefit 
A)  positive externalities 
B)  negative externalities 
C)  the private benefit 
D)  the social benefit

Question 15

What does the supply curve of a public goods show?

Accepted Answer

A)  The total quantities that all producers are willing and able to supply at each price 
B)  The maximum amount suppliers require to produce each quantity of the good 
C)  The total cost of producing each unit of the good 
D)  The marginal cost of producing each unit of the good 
A)  The total quantities that all producers are willing and able to supply at each price 
B)  The maximum amount suppliers require to produce each quantity of the good 
C)  The total cost of producing each unit of the good 
D)  The marginal cost of producing each unit of the good

Question 16

How does a public good differ from a quasi-public good? In your answer give an example of each type of good.
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Accepted Answer

A pubic good is: (a)non-rival-one person

Question 17

A market failure

Accepted Answer

A)  refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
B)  refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
D)  refers to a breakdown in a market economy because of widespread corruption in government. 
A)  refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
B)  refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
D)  refers to a breakdown in a market economy because of widespread corruption in government.

Question 18

A tragedy of the commons occurs when a resource is

Accepted Answer

A)  rival and excludable. 
B)  rival and non-excludable. 
C)  non-rival and non-excludable. 
D)  non-rival and excludable. 
A)  rival and excludable. 
B)  rival and non-excludable. 
C)  non-rival and non-excludable. 
D)  non-rival and excludable.

Question 19

Consider a used car market in which half the cars are good and half are bad (lemons).If buyers are rational,the prices being offered for used cars will result in

Accepted Answer

A)  an equal proportion of a good cars and lemons being sold in an efficient market. 
B)  a larger proportion of good cars being sold and consequently, consumer surplus is increased. 
C)  a larger proportion of lemons being sold and consequently, producer surplus is increased. 
D)  an equal proportion of good cars and lemons being sold in an inefficient market. 
A)  an equal proportion of a good cars and lemons being sold in an efficient market. 
B)  a larger proportion of good cars being sold and consequently, consumer surplus is increased. 
C)  a larger proportion of lemons being sold and consequently, producer surplus is increased. 
D)  an equal proportion of good cars and lemons being sold in an inefficient market.

Question 20

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

Accepted Answer

A)  a transactions cost. 
B)  a Pigovian tax. 
C)  a Pigovian subsidy. 
D)  the Coase Theorem. 
A)  a transactions cost. 
B)  a Pigovian tax. 
C)  a Pigovian subsidy. 
D)  the Coase Theorem.

What is one result of the public choice model that is believed by most economists?

Figure 11.8 Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11.8.What does D₂ represent?

What is an externality?

An example of a product that is non-excludable and rival is -.

What are the two primary characteristics that distinguish public goods?

Which of the following displays rivalry and excludability in consumption?

Private solutions to the problem of externalities are most likely when

Figure 11.4 Figure 11.4 shows a market with a negative externality. -Refer to Figure 11.4.What is the private profit-maximising quantity for the firm?

If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.

Economists often analyse the interaction of individuals and firms in markets.Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others,a process that is referred to as

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If 8000 metrics of pecans are sold,

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9,

Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents.In this sense,these mandatory helmet laws are reducing ________ of risky behaviour.

What does the supply curve of a public goods show?

A market failure

A tragedy of the commons occurs when a resource is

Consider a used car market in which half the cars are good and half are bad (lemons).If buyers are rational,the prices being offered for used cars will result in

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

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

What is one result of the public choice model that is believed by most economists?

Figure 11.8 Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11.8.What does D2 represent?

What is an externality?

An example of a product that is non-excludable and rival is -.

What are the two primary characteristics that distinguish public goods?

Which of the following displays rivalry and excludability in consumption?

Private solutions to the problem of externalities are most likely when

Figure 11.4 Figure 11.4 shows a market with a negative externality. -Refer to Figure 11.4.What is the private profit-maximising quantity for the firm?

If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.

Economists often analyse the interaction of individuals and firms in markets.Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others,a process that is referred to as

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If 8000 metrics of pecans are sold,

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9,

Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents.In this sense,these mandatory helmet laws are reducing ________ of risky behaviour.

What does the supply curve of a public goods show?

A market failure

A tragedy of the commons occurs when a resource is

Consider a used car market in which half the cars are good and half are bad (lemons).If buyers are rational,the prices being offered for used cars will result in

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

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

Figure 11.8 Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11.8.What does D₂ represent?