Question 1

If a positive externality results from the consumption of higher education, then the marginal benefit students receive from education:

Accepted Answer

A) equals the marginal social benefit. 
B) is less than the marginal social benefit. 
C) includes the marginal external benefit. 
D) exceeds the marginal social benefit. 
A) equals the marginal social benefit. 
B) is less than the marginal social benefit. 
C) includes the marginal external benefit. 
D) exceeds the marginal social benefit.

Question 2

Signaling is important because:

Accepted Answer

A) it increases social benefits associated with public goods. 
B) it decreases external costs associated with externalities. 
C) it reduces information costs associated with asymmetric information. 
D) all of the above 
E) none of the above 
A) it increases social benefits associated with public goods. 
B) it decreases external costs associated with externalities. 
C) it reduces information costs associated with asymmetric information. 
D) all of the above 
E) none of the above

Question 3

Assume that production of a good imposes external costs on others.The equilibrium price will be ____ and the equilibrium quantity ____ for efficient resource allocation.

Accepted Answer

A) too high; too high. 
B) too high; too low. 
C) too low; too high. 
D) too low; too low. 
A) too high; too high. 
B) too high; too low. 
C) too low; too high. 
D) too low; too low.

Question 4

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

Accepted Answer

A) does not include the external cost. 
B) includes the external cost. 
C) does not include the external benefit. 
D) includes the external benefit. 
E) equals the social cost of oil refining. 
A) does not include the external cost. 
B) includes the external cost. 
C) does not include the external benefit. 
D) includes the external benefit. 
E) equals the social cost of oil refining.

Question 5

If the world supply of diamonds increases, the market price of diamonds decreases, and the consumer surplus derived by diamond consumers increases.

Accepted Answer

A) True 
 B)False

Question 6

Producer surplus from a unit of output is the difference between the market price and the seller's cost of producing that unit.

Accepted Answer

A) True 
 B)False

Question 7

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, there would probably be:

Accepted Answer

A) an increase in consumption. 
B) a decrease in consumption. 
C) a greater misallocation of resources. 
D) a decrease in the market price of the product. 
A) an increase in consumption. 
B) a decrease in consumption. 
C) a greater misallocation of resources. 
D) a decrease in the market price of the product.

Question 8

Demand is relatively elastic when the price elasticity coefficient exceeds 1.0.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is most likely to be an example of the winner's curse?

Accepted Answer

A) a college student purchasing a text book at the campus book store 
B) a new parent subscribing to a parenting magazine 
C) roommates joining an online fantasy football league 
D) a baseball team offering the highest contract to a free agent player 
A) a college student purchasing a text book at the campus book store 
B) a new parent subscribing to a parenting magazine 
C) roommates joining an online fantasy football league 
D) a baseball team offering the highest contract to a free agent player

Question 10

A situation in which the winner of an auction is worse off than the loser because of inaccurate valuation is known as:

Accepted Answer

A) adverse selection. 
B) winner's curse. 
C) free rider problem. 
D) negative externality. 
A) adverse selection. 
B) winner's curse. 
C) free rider problem. 
D) negative externality.

Question 11

Among the following pairs, which is likely to have the greatest price elasticity of demand? Why?
a. cars or Toyotas
b. electricity usage during a month or during a year
c. cable television or an apartment rental

Accepted Answer

a. The price elasticity of demand is lik

Question 12

In a recent fare war, America West reduced the price of its roundtrip airfare from Charlotte, North Carolina, to New York City from $198 to $138 to match American Airlines.America West matched the fare reluctantly, saying it would cost the company millions of dollars in revenue for those tickets to be sold for less.American, on the other hand, believed the fare cut would increase its revenue even if rival airlines matched the lower fares.What different assumptions about the underlying price elasticity of demand for airline tickets on that route did each airline believe true?

Accepted Answer

America West must have believed demand i

Question 13

Which of the following statements is true?

Accepted Answer

A) Externalities can never refer to costs borne by the seller. 
B) Both external costs and external benefits can never exist for the same good. 
C) Externalities can never lead to under-production of a specific good. 
D) External benefits can never exceed external costs. 
A) Externalities can never refer to costs borne by the seller. 
B) Both external costs and external benefits can never exist for the same good. 
C) Externalities can never lead to under-production of a specific good. 
D) External benefits can never exceed external costs.

Question 14

Los Angeles Mayor James Hahn believes strongly that education provides great benefits to the community and urges the state government to provide the district with more money.An economist would say that this reflects Mayor Hahn's belief that:

Accepted Answer

A) since teachers are overpaid, the district needs more money to hire enough teachers for its classrooms. 
B) there are positive external benefits associated with education. 
C) there are nontrivial external costs associated with education. 
D) public schools provide a higher quality education than private schools. 
A) since teachers are overpaid, the district needs more money to hire enough teachers for its classrooms. 
B) there are positive external benefits associated with education. 
C) there are nontrivial external costs associated with education. 
D) public schools provide a higher quality education than private schools.

Question 15

Figure 6-F  
-Admission to Disney World is an example of a private good from which nonpaying individuals can be excluded.

Accepted Answer

A) True 
 B)False

Question 16

If taxi cab drivers were no longer required to obtain one of a restricted number of licenses to operate, it is likely that:

Accepted Answer

A) cab fares would decrease and more taxis would be available. 
B) cab fares would increase and fewer taxis would be available. 
C) cab fares would not change but more taxis would be available. 
D) cab fares would not change but fewer taxis would be available. 
E) cab fares would increase and the same quantity of taxis would be available. 
A) cab fares would decrease and more taxis would be available. 
B) cab fares would increase and fewer taxis would be available. 
C) cab fares would not change but more taxis would be available. 
D) cab fares would not change but fewer taxis would be available. 
E) cab fares would increase and the same quantity of taxis would be available.

Question 17

Figure 6-F  
-When negative externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable.

Accepted Answer

A) True 
 B)False

Question 18

To internalize a negative externality:

Accepted Answer

A) a producer's costs could be reduced by an amount equal to the external cost resulting from the production of a good. 
B) a producer's costs could be increased by an amount equal to the external cost resulting from the production of a good. 
C) a producer could receive a subsidy equal to the external cost resulting from the production of a good. 
D) None of the above are correct. 
A) a producer's costs could be reduced by an amount equal to the external cost resulting from the production of a good. 
B) a producer's costs could be increased by an amount equal to the external cost resulting from the production of a good. 
C) a producer could receive a subsidy equal to the external cost resulting from the production of a good. 
D) None of the above are correct.

Question 19

When the production or consumption of a good involves an externality:

Accepted Answer

A) resources are necessarily overallocated to the good. 
B) resources are necessarily underallocated to the good. 
C) someone not involved in buying or selling the good is affected. 
D) the market will efficiently allocate resources to its production. 
E) none of the above will be true. 
A) resources are necessarily overallocated to the good. 
B) resources are necessarily underallocated to the good. 
C) someone not involved in buying or selling the good is affected. 
D) the market will efficiently allocate resources to its production. 
E) none of the above will be true.

Question 20

Private costs are those borne by:

Accepted Answer

A) the government. 
B) the producer of an item. 
C) both an item's producer and outside parties affected by a negative externality. 
D) outside parties affected by a negative externality. 
A) the government. 
B) the producer of an item. 
C) both an item's producer and outside parties affected by a negative externality. 
D) outside parties affected by a negative externality.

If a positive externality results from the consumption of higher education, then the marginal benefit students receive from education:

Signaling is important because:

Assume that production of a good imposes external costs on others.The equilibrium price will be and the equilibrium quantity for efficient resource allocation.

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

If the world supply of diamonds increases, the market price of diamonds decreases, and the consumer surplus derived by diamond consumers increases.

Producer surplus from a unit of output is the difference between the market price and the seller's cost of producing that unit.

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, there would probably be:

Demand is relatively elastic when the price elasticity coefficient exceeds 1.0.

Which of the following is most likely to be an example of the winner's curse?

A situation in which the winner of an auction is worse off than the loser because of inaccurate valuation is known as:

Among the following pairs, which is likely to have the greatest price elasticity of demand? Why? a. cars or Toyotas b. electricity usage during a month or during a year c. cable television or an apartment rental

Which of the following statements is true?

Los Angeles Mayor James Hahn believes strongly that education provides great benefits to the community and urges the state government to provide the district with more money.An economist would say that this reflects Mayor Hahn's belief that:

Figure 6-F -Admission to Disney World is an example of a private good from which nonpaying individuals can be excluded.

If taxi cab drivers were no longer required to obtain one of a restricted number of licenses to operate, it is likely that:

Figure 6-F -When negative externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable.

To internalize a negative externality:

When the production or consumption of a good involves an externality:

Private costs are those borne by:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Exam 5: Market Failure and Public Choice

If a positive externality results from the consumption of higher education, then the marginal benefit students receive from education:

Signaling is important because:

Assume that production of a good imposes external costs on others.The equilibrium price will be ____ and the equilibrium quantity ____ for efficient resource allocation.

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

If the world supply of diamonds increases, the market price of diamonds decreases, and the consumer surplus derived by diamond consumers increases.

Producer surplus from a unit of output is the difference between the market price and the seller's cost of producing that unit.

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, there would probably be:

Demand is relatively elastic when the price elasticity coefficient exceeds 1.0.

Which of the following is most likely to be an example of the winner's curse?

A situation in which the winner of an auction is worse off than the loser because of inaccurate valuation is known as:

Among the following pairs, which is likely to have the greatest price elasticity of demand? Why? a. cars or Toyotas b. electricity usage during a month or during a year c. cable television or an apartment rental

Which of the following statements is true?

Los Angeles Mayor James Hahn believes strongly that education provides great benefits to the community and urges the state government to provide the district with more money.An economist would say that this reflects Mayor Hahn's belief that:

Figure 6-F -Admission to Disney World is an example of a private good from which nonpaying individuals can be excluded.

If taxi cab drivers were no longer required to obtain one of a restricted number of licenses to operate, it is likely that:

Figure 6-F -When negative externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable.

To internalize a negative externality:

When the production or consumption of a good involves an externality:

Private costs are those borne by:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Assume that production of a good imposes external costs on others.The equilibrium price will be and the equilibrium quantity for efficient resource allocation.