Question 1

State and local governments subsidise university students with grants and low-interest loans.The loans and subsidies are examples of

Accepted Answer

A)  positive externalities. 
B)  Coase subsidies. 
C)  Pigovian subsidies. 
D)  emission allowances. 
A)  positive externalities. 
B)  Coase subsidies. 
C)  Pigovian subsidies. 
D)  emission allowances.

Question 2

Which of the following is an example of a positive externality?

Accepted Answer

A)  Banning the sale of chocolate in primary schools 
B)  Planting trees along the footpath, which adds beauty and creates shade 
C)  Forbidding the use of mobile phones in public 
D)  Prohibiting street parking in all residential neighbourhoods 
A)  Banning the sale of chocolate in primary schools 
B)  Planting trees along the footpath, which adds beauty and creates shade 
C)  Forbidding the use of mobile phones in public 
D)  Prohibiting street parking in all residential neighbourhoods

Question 3

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 4

Which of the following is an example of a Pigovian tax?

Accepted Answer

A)  Payments by utilities to obtain tradable emissions allowances 
B)  A payroll tax 
C)  Payments for licences to pollute 
D)  A tax imposed on a utility that internalises the cost of externalities caused by the utility 
A)  Payments by utilities to obtain tradable emissions allowances 
B)  A payroll tax 
C)  Payments for licences to pollute 
D)  A tax imposed on a utility that internalises the cost of externalities caused by the utility

Question 5

Figure 11-7   Figure 11-7 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 11-7.Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality.The economically efficient output is Q2.In that case,diagram shows

Accepted Answer

A)  the effect of a subsidy granted to producers of a good. 
B)  the effect of excess demand in a market. 
C)  the effect of a positive externality on the consumption of a good. 
D)  the effect of a negative externality on the consumption of a good. 
A)  the effect of a subsidy granted to producers of a good. 
B)  the effect of excess demand in a market. 
C)  the effect of a positive externality on the consumption of a good. 
D)  the effect of a negative externality on the consumption of a good.

Question 6

What is the relationship between market failure and government failure?

Accepted Answer

Market failure is a case where the marke

Question 7

An externality is

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 8

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 are 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 are high.

Question 9

Figure 11-2   Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 11-2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 11-2.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Accepted Answer

A)  The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. 
B)  Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. 
C)  The optimal quantity will be installed only if the two parties split the cost of installation equally. 
D)  The optimal quantity will be installed only if Bree pays for the entire installation cost. 
A)  The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. 
B)  Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. 
C)  The optimal quantity will be installed only if the two parties split the cost of installation equally. 
D)  The optimal quantity will be installed only if Bree pays for the entire installation cost.

Question 10

Which of the following can a firm use to defend a successful product's brand name?

Accepted Answer

A)  The firm can obtain a patent on the brand name. 
B)  The firm can apply for a trademark to ban other firms from using the product's name. 
C)  The firm can increase the amount it spends on advertising for the product. 
D)  The firm can attempt to copyright the brand name. 
A)  The firm can obtain a patent on the brand name. 
B)  The firm can apply for a trademark to ban other firms from using the product's name. 
C)  The firm can increase the amount it spends on advertising for the product. 
D)  The firm can attempt to copyright the brand name.

Question 11

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 is the deadweight loss resulting from producing at the market equilibrium?

Accepted Answer

A)  B + C 
B)  E + C 
C)  F 
D)  C 
A)  B + C 
B)  E + C 
C)  F 
D)  C

Question 12

Ronald Coase is famous for the Coase theorem,which is based on the premise that there is an economically efficient level of pollution reduction.Many economists believe that the tradable emissions allowance program that has been used to deal with the problem of acid rain has been successful in reducing emissions of sulphur dioxide in an economically efficient manner.Why isn't this program an example of the Coase theorem?

Accepted Answer

The Coase theorem states that if transac

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

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 15

What are property rights?

Accepted Answer

A)  The title to ownership of any physical asset. 
B)  A legal document verifying ownership of intangible assets. 
C)  The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it. 
D)  The right of the government to appropriate private assets for the good of society. 
A)  The title to ownership of any physical asset. 
B)  A legal document verifying ownership of intangible assets. 
C)  The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it. 
D)  The right of the government to appropriate private assets for the good of society.

Question 16

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.Suppose the government wants to use a Pigovian tax to bring about the efficient level of production.What should the value of the tax be?

Accepted Answer

A)  (P2- P1) per tonne of output 
B)  (P2- P0) per tonne of output 
C)  (P1- P0) per tonne of output 
D)  P1 per tonne of output 
A)  (P2- P1) per tonne of output 
B)  (P2- P0) per tonne of output 
C)  (P1- P0) per tonne of output 
D)  P1 per tonne of output

Question 17

Figure 11-8   Figure 11-8 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 11-8.Why is there a deadweight loss?

Accepted Answer

A)  Because the marginal private benefit for each additional unit between Q1 and Q2 exceeds the marginal cost. 
B)  Because the marginal private cost for each additional unit between Q1 and Q2 exceeds the marginal private benefit. 
C)  Because the marginal social cost for each additional unit between Q1 and Q2 exceeds the marginal social benefit. 
D)  Because the marginal social benefit for each additional unit between Q1 and Q2 exceeds the marginal cost. 
A)  Because the marginal private benefit for each additional unit between Q1 and Q2 exceeds the marginal cost. 
B)  Because the marginal private cost for each additional unit between Q1 and Q2 exceeds the marginal private benefit. 
C)  Because the marginal social cost for each additional unit between Q1 and Q2 exceeds the marginal social benefit. 
D)  Because the marginal social benefit for each additional unit between Q1 and Q2 exceeds the marginal cost.

Question 18

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.The efficient output is

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 19

Which of the following best illustrates the free rider problem?

Accepted Answer

A)  Since no one owns elephants and elephants are valued for their hide, meat and ivory, elephants can be hunted to extinction. 
B)  For every purchase of a $30 fare card, you are entitled to five free bus rides. 
C)  If your neighbours professionally landscape their front yards, it is likely that the market value of your property will increase. 
D)  All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute. 
A)  Since no one owns elephants and elephants are valued for their hide, meat and ivory, elephants can be hunted to extinction. 
B)  For every purchase of a $30 fare card, you are entitled to five free bus rides. 
C)  If your neighbours professionally landscape their front yards, it is likely that the market value of your property will increase. 
D)  All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute.

Question 20

A free market fails when

Accepted Answer

A)  there is government intervention. 
B)  there is an external effect in either production, consumption, or both. 
C)  firms that produce goods which create positive externalities go bankrupt. 
D)  firms that produce goods which create negative externalities earn high profits. 
A)  there is government intervention. 
B)  there is an external effect in either production, consumption, or both. 
C)  firms that produce goods which create positive externalities go bankrupt. 
D)  firms that produce goods which create negative externalities earn high profits.

State and local governments subsidise university students with grants and low-interest loans.The loans and subsidies are examples of

Which of the following is an example of a positive externality?

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.

Which of the following is an example of a Pigovian tax?

What is the relationship between market failure and government failure?

An externality is

Private solutions to the problem of externalities are most likely when

Which of the following can a firm use to defend a successful product's brand name?

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 is the deadweight loss resulting from producing at the market equilibrium?

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

What are property rights?

Figure 11-8 Figure 11-8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11-8.Why is there a deadweight loss?

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.The efficient output is

Which of the following best illustrates the free rider problem?

A free market fails when

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 11: Monopolistic Competition and Oligopoly

State and local governments subsidise university students with grants and low-interest loans.The loans and subsidies are examples of

Which of the following is an example of a positive externality?

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.

Which of the following is an example of a Pigovian tax?

What is the relationship between market failure and government failure?

An externality is

Private solutions to the problem of externalities are most likely when

Which of the following can a firm use to defend a successful product's brand name?

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 is the deadweight loss resulting from producing at the market equilibrium?

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

What are property rights?

Figure 11-8 Figure 11-8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11-8.Why is there a deadweight loss?

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.The efficient output is

Which of the following best illustrates the free rider problem?

A free market fails when

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters