Question 1

For which of the following goods will the free rider problem arise?

Accepted Answer

A) A private golf course 
B) Cable television 
C) Movie theatres 
D) A toll free highway 
A) A private golf course 
B) Cable television 
C) Movie theatres 
D) A toll free highway

Question 2

Perfect competition ensures efficiency in industry output if:

Accepted Answer

A) the demand and supply curves are perfectly inelastic. 
B) the marginal cost of producing the good is zero. 
C) the demand and supply curves properly reflect the marginal benefits and costs. 
D) the market price of the commodity truly reflects the private costs of production. 
A) the demand and supply curves are perfectly inelastic. 
B) the marginal cost of producing the good is zero. 
C) the demand and supply curves properly reflect the marginal benefits and costs. 
D) the market price of the commodity truly reflects the private costs of production.

Question 3

The free-rider problem occurs because:
a.it is easy to exclude others from consuming the good.
b.consumption is rival in nature,and the consumption of a product by one individual diminishes that available for others.
c.exclusion is costly or impossible,so that a consumer or producer can use the good without having to pay for it.
d.the consumption of a good imposes costs on others who not directly involved in the transaction.

Accepted Answer

C
Section

Question 4

Tradable permits that establish a maximum amount of pollution and then allow firms to trade pollution quota permits among them:

Accepted Answer

A) works most efficiently if the polluting industries are dominated by a large firm. 
B) tend to work better than taxes but only when the government originally allocates the permits to the biggest polluters. 
C) tend to not work because firms don't have an incentive to minimize their pollution. 
D) tend to work better than taxes because firms with higher costs of eliminating pollution buy permits from firms with lower costs of eliminating pollution. 
A) works most efficiently if the polluting industries are dominated by a large firm. 
B) tend to work better than taxes but only when the government originally allocates the permits to the biggest polluters. 
C) tend to not work because firms don't have an incentive to minimize their pollution. 
D) tend to work better than taxes because firms with higher costs of eliminating pollution buy permits from firms with lower costs of eliminating pollution.

Question 5

Which of the following aspects of the free-rider problem is overcome by government financing of a public good?

Accepted Answer

A) The problem of overproduction 
B) The external cost associated with production 
C) The tendency of people to withhold payment 
D) The high search cost associated with the consumption of the good 
A) The problem of overproduction 
B) The external cost associated with production 
C) The tendency of people to withhold payment 
D) The high search cost associated with the consumption of the good

Question 6

If there is an external cost associated with the production or consumption of a good in a competitive industry,then:

Accepted Answer

A) the output of the good produced will be too small compared to its demand in the market. 
B) in equilibrium,the social marginal cost of production will be greater than the private marginal benefit to the consumers. 
C) private benefits derived from the consumption of the good will exceed the private cost of producing the good. 
D) the efficient level of output is given by the point where the private marginal cost curve intersects the private marginal benefit curve. 
A) the output of the good produced will be too small compared to its demand in the market. 
B) in equilibrium,the social marginal cost of production will be greater than the private marginal benefit to the consumers. 
C) private benefits derived from the consumption of the good will exceed the private cost of producing the good. 
D) the efficient level of output is given by the point where the private marginal cost curve intersects the private marginal benefit curve.

Question 7

Which of the following is a point of similarity between public goods and the goods that generate an external benefit?

Accepted Answer

A) Both are overproduced 
B) A free rider problem arises in case of both the goods 
C) Both result in inefficient allocation of resources 
D) Both can be produced at zero marginal cost 
A) Both are overproduced 
B) A free rider problem arises in case of both the goods 
C) Both result in inefficient allocation of resources 
D) Both can be produced at zero marginal cost

Question 8

A local band practices next door to Joe,who enjoys a peaceful and quiet environment.The benefit (in present value terms)to the band of practicing is $100 and the cost (in present value terms)to Joe of the band practicing is $150.
a)What will happen if the band is held legally liable for their noise damage? Assume this is the only place they can practice.
b)What will happen if the band is not held legally liable for their noise damage? Assume this is the only place they can practice.
c)Now let the benefit (in present value terms)to the band of practicing be $150 and the cost (in present value terms)to Jack of the noise be $100.What will happen when the band is held legally liable for their noise damage and when they are not? Assume this is the only place they can practice.
d)Again let the benefit (in present value terms)to the band of practicing be $100 and the cost (in present value terms)to Jack of the noise be $150.But now the band can pay to make their apartment soundproof at a cost of $40.What will happen when the band is held legally liable for their noise damage and when they are not?

Accepted Answer

a)Assuming the band cannot move and prac

Question 9

Answer the following:
a)Explain how the free rider problem might apply to the research and development of new technologies,medicine,and processes if research and development were only financed by private funds.
b)How does the government combat the free-rider problem in new ideas?

Accepted Answer

a)The free rider problem is a problem wi

Question 10

Which of the following activities is most likely to generate a positive externality?

Accepted Answer

A) Tony plants roses in the large flowerbed in front of his condominium. 
B) Terry buys a cheeseburger from McDonalds. 
C) Pat installs a new CD player in his sedan. 
D) Sam shovels the snow from the porch of his house. 
A) Tony plants roses in the large flowerbed in front of his condominium. 
B) Terry buys a cheeseburger from McDonalds. 
C) Pat installs a new CD player in his sedan. 
D) Sam shovels the snow from the porch of his house.

Question 11

All of the following statements are true in the context of the Coase theorem,except:

Accepted Answer

A) private bargaining will not always produce an efficient outcome. 
B) as long as the property rights are clearly defined and enforced,bargaining between the parties can ensure an efficient outcome. 
C) the initial assignment of property rights has distributional implications but will not affect the attainment of an efficient outcome,as long as there is a small number of parties involved. 
D) government intervention is necessary to achieve an efficient outcome in the presence of externalities. 
A) private bargaining will not always produce an efficient outcome. 
B) as long as the property rights are clearly defined and enforced,bargaining between the parties can ensure an efficient outcome. 
C) the initial assignment of property rights has distributional implications but will not affect the attainment of an efficient outcome,as long as there is a small number of parties involved. 
D) government intervention is necessary to achieve an efficient outcome in the presence of externalities.

Question 12

Patents generally encourage firms to invest in research and development when:

Accepted Answer

A) the marginal cost of the invention is greater than the marginal benefit. 
B) the invention has nonrival benefits but exclusion is not possible. 
C) the private cost of the invention is less than the social benefit. 
D) the private cost of invention is equal to the social cost. 
A) the marginal cost of the invention is greater than the marginal benefit. 
B) the invention has nonrival benefits but exclusion is not possible. 
C) the private cost of the invention is less than the social benefit. 
D) the private cost of invention is equal to the social cost.

Question 13

Which of the following pollution abatement policies of the government is based on the Coasean approach?
a.Subsidizing less pollution generating firms
b.Tradable permits
c.Command and control
d.Pollution tax

Accepted Answer

B
Section Reference:

Question 14

A Web site which allows users to share music at no cost is an example of a(n):

Accepted Answer

A) good characterized by rivalry and exclusion. 
B) inferior good. 
C) luxury good. 
D) good that is nonrival in consumption. 
A) good characterized by rivalry and exclusion. 
B) inferior good. 
C) luxury good. 
D) good that is nonrival in consumption.

Question 15

Which of the following problems can be associated with goods characterized by nonexclusion?

Accepted Answer

A) Externality 
B) Decreasing returns to scale 
C) Adverse selection problem 
D) Free riding 
A) Externality 
B) Decreasing returns to scale 
C) Adverse selection problem 
D) Free riding

Question 16

A socially efficient quantity of a good is said to be produced,if at that output level:

Accepted Answer

A) the marginal external cost equals the marginal social benefit. 
B) the private marginal cost equals the marginal social benefit. 
C) the marginal private costs are equal to external costs. 
D) the difference between the private marginal cost and social marginal benefit is maximized. 
A) the marginal external cost equals the marginal social benefit. 
B) the private marginal cost equals the marginal social benefit. 
C) the marginal private costs are equal to external costs. 
D) the difference between the private marginal cost and social marginal benefit is maximized.

Question 17

Which of the following is true of the Coase theorem?

Accepted Answer

A) The market generally ensures an efficient allocation of resources. 
B) The assignment of property rights determines the allocation of resources. 
C) Bargaining between parties can lead to an efficient allocation of resources if property rights are well defined. 
D) Private benefits exceed social benefits when property rights are ensured. 
A) The market generally ensures an efficient allocation of resources. 
B) The assignment of property rights determines the allocation of resources. 
C) Bargaining between parties can lead to an efficient allocation of resources if property rights are well defined. 
D) Private benefits exceed social benefits when property rights are ensured.

Question 18

Explain with the help of a suitable real life example how common resources are depleted if property rights are not ensured?

Accepted Answer

Students answer may vary.Common ownershi

Question 19

Free rider behavior is:

Accepted Answer

A) always irrational since the individual who free rides causes a misallocation of resources. 
B) a rational behavior in the case of public goods. 
C) more likely to cause a problem if it is provided by private firms. 
D) less likely to cause a problem if it is consumed by a large number of people. 
A) always irrational since the individual who free rides causes a misallocation of resources. 
B) a rational behavior in the case of public goods. 
C) more likely to cause a problem if it is provided by private firms. 
D) less likely to cause a problem if it is consumed by a large number of people.

Question 20

When there are external costs to production,output produced in a competitive market:

Accepted Answer

A) is less than the efficient level. 
B) is more than the efficient level. 
C) increases with an imposition of a tax on the commodity. 
D) eventually falls to zero. 
A) is less than the efficient level. 
B) is more than the efficient level. 
C) increases with an imposition of a tax on the commodity. 
D) eventually falls to zero.

For which of the following goods will the free rider problem arise?

Perfect competition ensures efficiency in industry output if:

Tradable permits that establish a maximum amount of pollution and then allow firms to trade pollution quota permits among them:

Which of the following aspects of the free-rider problem is overcome by government financing of a public good?

If there is an external cost associated with the production or consumption of a good in a competitive industry,then:

Which of the following is a point of similarity between public goods and the goods that generate an external benefit?

Answer the following: a)Explain how the free rider problem might apply to the research and development of new technologies,medicine,and processes if research and development were only financed by private funds. b)How does the government combat the free-rider problem in new ideas?

Which of the following activities is most likely to generate a positive externality?

All of the following statements are true in the context of the Coase theorem,except:

Patents generally encourage firms to invest in research and development when:

Which of the following pollution abatement policies of the government is based on the Coasean approach? a.Subsidizing less pollution generating firms b.Tradable permits c.Command and control d.Pollution tax

A Web site which allows users to share music at no cost is an example of a(n):

Which of the following problems can be associated with goods characterized by nonexclusion?

A socially efficient quantity of a good is said to be produced,if at that output level:

Which of the following is true of the Coase theorem?

Explain with the help of a suitable real life example how common resources are depleted if property rights are not ensured?

Free rider behavior is:

When there are external costs to production,output produced in a competitive market:

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

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Exam 20: Public Goods and Externalities

For which of the following goods will the free rider problem arise?

Perfect competition ensures efficiency in industry output if:

Tradable permits that establish a maximum amount of pollution and then allow firms to trade pollution quota permits among them:

Which of the following aspects of the free-rider problem is overcome by government financing of a public good?

If there is an external cost associated with the production or consumption of a good in a competitive industry,then:

Which of the following is a point of similarity between public goods and the goods that generate an external benefit?

Answer the following: a)Explain how the free rider problem might apply to the research and development of new technologies,medicine,and processes if research and development were only financed by private funds. b)How does the government combat the free-rider problem in new ideas?

Which of the following activities is most likely to generate a positive externality?

All of the following statements are true in the context of the Coase theorem,except:

Patents generally encourage firms to invest in research and development when:

Which of the following pollution abatement policies of the government is based on the Coasean approach? a.Subsidizing less pollution generating firms b.Tradable permits c.Command and control d.Pollution tax

A Web site which allows users to share music at no cost is an example of a(n):

Which of the following problems can be associated with goods characterized by nonexclusion?

A socially efficient quantity of a good is said to be produced,if at that output level:

Which of the following is true of the Coase theorem?

Explain with the help of a suitable real life example how common resources are depleted if property rights are not ensured?

Free rider behavior is:

When there are external costs to production,output produced in a competitive market:

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