Question 1

Government financing of a public good with taxes:

Accepted Answer

A) leads to a more efficient allocation of resources compared to private markets. 
B) reveals accurately the society's demand for the public good. 
C) leads to deficit in the current account of the trade balance. 
D) inevitably results in a budget surplus. 
A) leads to a more efficient allocation of resources compared to private markets. 
B) reveals accurately the society's demand for the public good. 
C) leads to deficit in the current account of the trade balance. 
D) inevitably results in a budget surplus.

Question 2

A competitive market will generally _____ a good that involves an external cost.

Accepted Answer

A) underproduce 
B) overproduce 
C) produce the optimal amount of 
D) produce no units of 
A) underproduce 
B) overproduce 
C) produce the optimal amount of 
D) produce no units of

Question 3

A firm produces a product valued by many loyal customers.In the process of producing the product,the firm produces a by-product that benefits the growth of fish and other aquatic life in the near-by stream.The impact of the firm's production on aquatic life is an example of:

Accepted Answer

A) a moral hazard. 
B) an external benefit. 
C) an opportunity cost. 
D) a free rider advantage. 
A) a moral hazard. 
B) an external benefit. 
C) an opportunity cost. 
D) a free rider advantage.

Question 4

In case of a good that is nonrival in consumption,the quantity of the good produced:

Accepted Answer

A) increases with the increase in consumption. 
B) decreases with the increase in consumption 
C) is not affected by the change in consumption. 
D) is not affected by changes in the cost of production of the good. 
A) increases with the increase in consumption. 
B) decreases with the increase in consumption 
C) is not affected by the change in consumption. 
D) is not affected by changes in the cost of production of the good.

Question 5

Use the following figure to answer the question : Figure 20-1 : DS1U1B11S1U1B0 and SS1U1B11S1U1B0 are the private demand and supply curves,of a commodity produced by a competitive firm.SS1U1B12S1U1B0 reflects the social marginal cost of production,while SS1U1B10S1U1B0 represents the external marginal cost.  
-Refer to Figure 20-1.Which of the following policies can be adopted by the government to increase production from the equilibrium level to the efficient level?

Accepted Answer

A) Provide a subsidy of $30 per unit 
B) Impose a tax of $100 per unit 
C) Provide a subsidy of $100 per unit 
D) Impose a tax of $20 per unit 
A) Provide a subsidy of $30 per unit 
B) Impose a tax of $100 per unit 
C) Provide a subsidy of $100 per unit 
D) Impose a tax of $20 per unit

Question 6

Mention some of the situations in which the Coase Theorem will not ensure an efficient outcome?

Accepted Answer

The Coase Theorem states that,as long as

Question 7

Which of the following characteristics can be associated with a museum charging entry fees to all the visitors above 12 years of age?

Accepted Answer

A) Nonexclusion 
B) Positive externality 
C) Exclusion 
D) Negative externality 
A) Nonexclusion 
B) Positive externality 
C) Exclusion 
D) Negative externality

Question 8

The good for which the characteristics of exclusion and rivalry in consumption do not apply is referred to as a:

Accepted Answer

A) public good. 
B) common resource. 
C) inferior good. 
D) normal good. 
A) public good. 
B) common resource. 
C) inferior good. 
D) normal good.

Question 9

The efficient output of a public good is determined at the point where:

Accepted Answer

A) the average revenue curve intersects the marginal cost curve. 
B) the total benefit curve is at its maximum. 
C) the social marginal benefit curve intersects the marginal cost curve. 
D) the social total cost curve intersects the social benefit curve. 
A) the average revenue curve intersects the marginal cost curve. 
B) the total benefit curve is at its maximum. 
C) the social marginal benefit curve intersects the marginal cost curve. 
D) the social total cost curve intersects the social benefit curve.

Question 10

Which of the following will hold true when property rights are not well defined or are not appropriately assigned?

Accepted Answer

A) Goods that generate external costs will be overproduced. 
B) Goods that generate external costs will be underproduced. 
C) Goods that generate external benefits will be overproduced. 
D) Goods that generate external benefits will be produced only by the government. 
A) Goods that generate external costs will be overproduced. 
B) Goods that generate external costs will be underproduced. 
C) Goods that generate external benefits will be overproduced. 
D) Goods that generate external benefits will be produced only by the government.

Question 11

The government can overcome the free rider problem in the provision of a public good by:

Accepted Answer

A) encouraging private firms to produce it. 
B) producing the good at a zero marginal cost. 
C) providing the goods only to those who pay taxes. 
D) subsidizing the production of public goods. 
A) encouraging private firms to produce it. 
B) producing the good at a zero marginal cost. 
C) providing the goods only to those who pay taxes. 
D) subsidizing the production of public goods.

Question 12

A congested,non-toll road is characterized by:

Accepted Answer

A) nonexclusion and nonrivalry in consumption. 
B) nonexclusion and rivalry in consumption. 
C) exclusion and nonrivalry in consumption. 
D) exclusion and rivalry in consumption. 
A) nonexclusion and nonrivalry in consumption. 
B) nonexclusion and rivalry in consumption. 
C) exclusion and nonrivalry in consumption. 
D) exclusion and rivalry in consumption.

Question 13

The free rider problem associated with the provision of a public good becomes unsustainable with a(n):

Accepted Answer

A) increase in the number of beneficiaries. 
B) decrease in the accessibility of the good. 
C) increase in the elasticity of supply of the good. 
D) decrease in the budget deficit. 
A) increase in the number of beneficiaries. 
B) decrease in the accessibility of the good. 
C) increase in the elasticity of supply of the good. 
D) decrease in the budget deficit.

Question 14

Suppose good A is a public good.The marginal cost of providing 5 units of this good is $300.The marginal benefit derived from the consumption of 5 units by 3 individuals X,Y,and Z are $75,$125,and $100 respectively.Assuming that X,Y,and Z are the only consumers of good A,which of the following will hold true?

Accepted Answer

A) Good A will be overproduced in the economy. 
B) Good A will be underproduced in the economy. 
C) Producing 5 units of A is efficient. 
D) More than 5 units of good A must be produced to make the outcome efficient. 
A) Good A will be overproduced in the economy. 
B) Good A will be underproduced in the economy. 
C) Producing 5 units of A is efficient. 
D) More than 5 units of good A must be produced to make the outcome efficient.

Question 15

Identify the correct statement.

Accepted Answer

A) The marginal cost of producing a public good is zero. 
B) Any good that is provided by the government can be considered as a public good. 
C) A public good is often under consumed as supply usually exceeds demand. 
D) The consumers of a public good tend to underestimate the value of the good. 
A) The marginal cost of producing a public good is zero. 
B) Any good that is provided by the government can be considered as a public good. 
C) A public good is often under consumed as supply usually exceeds demand. 
D) The consumers of a public good tend to underestimate the value of the good.

Question 16

Use the following figure to answer the question : Figure 20-2 : shows the competitive supply curve of a commodity is given by SS1U1B11S1U1B0,the private marginal benefit curve is DS1U1B11S1U1B0,the marginal social benefit curve is DS1U1B12S1U1B0,and the MBS1U1B1ES1U1B0 curve reflects the marginal external benefits.  
-In Figure 20-2,if the current level of output is 700 units,then the marginal social benefit is:

Accepted Answer

A) more than the marginal social cost and the output is more than the socially optimum level. 
B) more than the marginal social cost and the output is less than the socially optimum level. 
C) less than the marginal social cost and the output is more than the socially optimum level. 
D) equal to the marginal social cost and the output is equal to the socially optimum level. 
A) more than the marginal social cost and the output is more than the socially optimum level. 
B) more than the marginal social cost and the output is less than the socially optimum level. 
C) less than the marginal social cost and the output is more than the socially optimum level. 
D) equal to the marginal social cost and the output is equal to the socially optimum level.

Question 17

The marginal social cost and marginal private cost curves of an economic activity coincide:

Accepted Answer

A) when there are no negative externalities. 
B) if the marginal social cost is a ray from the origin. 
C) when marginal external benefits are small,but positive. 
D) at very high output levels. 
A) when there are no negative externalities. 
B) if the marginal social cost is a ray from the origin. 
C) when marginal external benefits are small,but positive. 
D) at very high output levels.

Question 18

Which of the following is true of externalities?

Accepted Answer

A) Positive externalities arise when an economic activity imposes costs on others who are not directly involved in the activity. 
B) Negative externalities can be internalized by offering subsidies to the agents who generate such externalities. 
C) Like public goods,externalities always result in a free rider problem. 
D) Externalities may arise from either production or consumption of a good or service. 
A) Positive externalities arise when an economic activity imposes costs on others who are not directly involved in the activity. 
B) Negative externalities can be internalized by offering subsidies to the agents who generate such externalities. 
C) Like public goods,externalities always result in a free rider problem. 
D) Externalities may arise from either production or consumption of a good or service.

Question 19

The economic efficiency argument for patents is to:

Accepted Answer

A) ensure the profitability of firms with patent protection. 
B) enable people and firms to internalize the external benefits of their inventions. 
C) raise sufficient revenue for the firms so that they can at least break even. 
D) ensure that the benefits of discoveries and inventions are entirely transferred to society at-large. 
A) ensure the profitability of firms with patent protection. 
B) enable people and firms to internalize the external benefits of their inventions. 
C) raise sufficient revenue for the firms so that they can at least break even. 
D) ensure that the benefits of discoveries and inventions are entirely transferred to society at-large.

Question 20

An uncongested,non-toll road is characterized by:

Accepted Answer

A) nonexclusion and nonrivalry in consumption. 
B) nonexclusion and rivalry in consumption. 
C) exclusion and nonrivalry in consumption. 
D) exclusion and rivalry in consumption. 
A) nonexclusion and nonrivalry in consumption. 
B) nonexclusion and rivalry in consumption. 
C) exclusion and nonrivalry in consumption. 
D) exclusion and rivalry in consumption.

Government financing of a public good with taxes:

A competitive market will generally _____ a good that involves an external cost.

A firm produces a product valued by many loyal customers.In the process of producing the product,the firm produces a by-product that benefits the growth of fish and other aquatic life in the near-by stream.The impact of the firm's production on aquatic life is an example of:

In case of a good that is nonrival in consumption,the quantity of the good produced:

Mention some of the situations in which the Coase Theorem will not ensure an efficient outcome?

Which of the following characteristics can be associated with a museum charging entry fees to all the visitors above 12 years of age?

The good for which the characteristics of exclusion and rivalry in consumption do not apply is referred to as a:

The efficient output of a public good is determined at the point where:

Which of the following will hold true when property rights are not well defined or are not appropriately assigned?

The government can overcome the free rider problem in the provision of a public good by:

A congested,non-toll road is characterized by:

The free rider problem associated with the provision of a public good becomes unsustainable with a(n):

Identify the correct statement.

The marginal social cost and marginal private cost curves of an economic activity coincide:

Which of the following is true of externalities?

The economic efficiency argument for patents is to:

An uncongested,non-toll road is characterized by:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Filters

Exam 20: Public Goods and Externalities

Government financing of a public good with taxes:

A competitive market will generally _____ a good that involves an external cost.

A firm produces a product valued by many loyal customers.In the process of producing the product,the firm produces a by-product that benefits the growth of fish and other aquatic life in the near-by stream.The impact of the firm's production on aquatic life is an example of:

In case of a good that is nonrival in consumption,the quantity of the good produced:

Mention some of the situations in which the Coase Theorem will not ensure an efficient outcome?

Which of the following characteristics can be associated with a museum charging entry fees to all the visitors above 12 years of age?

The good for which the characteristics of exclusion and rivalry in consumption do not apply is referred to as a:

The efficient output of a public good is determined at the point where:

Which of the following will hold true when property rights are not well defined or are not appropriately assigned?

The government can overcome the free rider problem in the provision of a public good by:

A congested,non-toll road is characterized by:

The free rider problem associated with the provision of a public good becomes unsustainable with a(n):

Identify the correct statement.

The marginal social cost and marginal private cost curves of an economic activity coincide:

Which of the following is true of externalities?

The economic efficiency argument for patents is to:

An uncongested,non-toll road is characterized by:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Filters