Question 1

Which of the following would be considered an example of adverse selection?

Accepted Answer

A)  Malpractice insurance may increase the amount of malpractice 
B)  Drivers may be less cautious because they have airbags installed in a car 
C)  Those individuals who most need insurance are the ones most likely to buy it 
D)  Work contracts that give a set number of sick-days may encourage more workers to call in sick 
A)  Malpractice insurance may increase the amount of malpractice 
B)  Drivers may be less cautious because they have airbags installed in a car 
C)  Those individuals who most need insurance are the ones most likely to buy it 
D)  Work contracts that give a set number of sick-days may encourage more workers to call in sick

Question 2

The equilibrium point in the market is where S and D curve intersect.   Refer to the graph above. At equilibrium, consumer surplus would be represented by the area:

Accepted Answer

A)  a + b 
B)  a + b + c 
C)  a 
D)  b + c 
A)  a + b 
B)  a + b + c 
C)  a 
D)  b + c

Question 3

At equilibrium in a market for a product, the total revenues received by sellers equal the:

Accepted Answer

A)  Market producer surplus 
B)  Total amount spent by buyers on the product 
C)  Total profits of sellers 
D)  Market consumer surplus 
A)  Market producer surplus 
B)  Total amount spent by buyers on the product 
C)  Total profits of sellers 
D)  Market consumer surplus

Question 4

In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

Accepted Answer

A) True 
 B)False

Question 5

Refer to the graph above. Suppose consumers do not fully appreciate the benefits of the product whose market shown in the graph. If an external agency is able to provide full information about the benefits of the product, then:

Accepted Answer

A)  The supply curve will shift to the left 
B)  The demand curve will shift to the right 
C)  Both the new equilibrium price and quantity will be lower 
D)  The new equilibrium price will be higher but the equilibrium quantity will be either higher or lower 
A)  The supply curve will shift to the left 
B)  The demand curve will shift to the right 
C)  Both the new equilibrium price and quantity will be lower 
D)  The new equilibrium price will be higher but the equilibrium quantity will be either higher or lower

Question 6

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

Accepted Answer

A)  Providing a subsidy to correct for an overallocation of resources 
B)  Providing a subsidy to correct for an underallocation of resources 
C)  Imposing a corrective tax to correct for an overallocation of resources 
D)  Imposing a corrective tax to correct for an underallocation of resources 
A)  Providing a subsidy to correct for an overallocation of resources 
B)  Providing a subsidy to correct for an underallocation of resources 
C)  Imposing a corrective tax to correct for an overallocation of resources 
D)  Imposing a corrective tax to correct for an underallocation of resources

Question 7

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.

Accepted Answer

A) True 
 B)False

Question 8

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a fireworks display, then we'd have a demand-side market failure.

Accepted Answer

A) True 
 B)False

Question 9

A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table.   Refer to the above table and information. What is the total cost and total benefit of projects 1, 2, and 3?

Accepted Answer

A)  Total cost is $18 million and total benefit is $19 million 
B)  Total cost is $24 million and total benefit is $27 million 
C)  Total cost is $37 million and total benefit is $41 million 
D)  Total cost is $65 million and total benefit is $66 million 
A)  Total cost is $18 million and total benefit is $19 million 
B)  Total cost is $24 million and total benefit is $27 million 
C)  Total cost is $37 million and total benefit is $41 million 
D)  Total cost is $65 million and total benefit is $66 million

Question 10

Answer the question on the basis of the following information is for public good. Pa and Pb represent the prices that citizens (a) and (b), the only two people in this nation, are willing to pay for additional units of a quantity (Qc) of the public good. Qs represents the quantity of the public good supplied by government at each of the collective prices.   Refer to the above information. In equilibrium, the marginal benefit and cost of the public good will be:

Accepted Answer

A)  $7 
B)  $6 
C)  $5 
D)  $3 
A)  $7 
B)  $6 
C)  $5 
D)  $3

Question 11

Which of the following situations is not an example of market failure:

Accepted Answer

A)  Ben's Department Store cannot charge passers-by for using the sidewalk outside the store 
B)  Ben cannot afford to buy a high-end Mercedes Benz luxury car 
C)  Ben's Place is the only restaurant in town and thus he has significant power to set menu prices 
D)  Ben's Industries is dumping its wastewater into the unregulated river behind the factory 
A)  Ben's Department Store cannot charge passers-by for using the sidewalk outside the store 
B)  Ben cannot afford to buy a high-end Mercedes Benz luxury car 
C)  Ben's Place is the only restaurant in town and thus he has significant power to set menu prices 
D)  Ben's Industries is dumping its wastewater into the unregulated river behind the factory

Question 12

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n):

Accepted Answer

A)  Reverse wealth problem 
B)  Negative externality problem 
C)  Adverse selection problem 
D)  Moral hazard problem 
A)  Reverse wealth problem 
B)  Negative externality problem 
C)  Adverse selection problem 
D)  Moral hazard problem

Question 13

A competitive market can produce economically efficient outcomes if these conditions are met, except:

Accepted Answer

A)  The market produces only units for which benefits are at least equal to cost 
B)  The market demand curve reflects the buyers' full willingness to pay 
C)  The market supply curve reflects all costs of production 
D)  The market produces only units for which costs are at least equal to benefits 
A)  The market produces only units for which benefits are at least equal to cost 
B)  The market demand curve reflects the buyers' full willingness to pay 
C)  The market supply curve reflects all costs of production 
D)  The market produces only units for which costs are at least equal to benefits

Question 14

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of:

Accepted Answer

A)  Moral hazard 
B)  Adverse selection 
C)  Externalities 
D)  Diminishing utility 
A)  Moral hazard 
B)  Adverse selection 
C)  Externalities 
D)  Diminishing utility

Question 15

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

Accepted Answer

A)  $19. 
B)  $0.90. 
C)  $90. 
D)  $1. 
A)  $19. 
B)  $0.90. 
C)  $90. 
D)  $1.

Question 16

The free-rider problem makes a good highly profitable for a private firm to provide.

Accepted Answer

A) True 
 B)False

Question 17

In a well-functioning cap-and-trade system for pollution rights, the right to pollute will go to those who are able to acquire the largest net benefit from using the scarce resource "clean air".

Accepted Answer

A) True 
 B)False

Question 18

Refer to the above table. The producer surplus is $4 for producer:

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 19

Answer the question based on the following information. Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime control. This table shows the expected annual costs and benefits of these alternatives.   Refer to the above information. Based on cost-benefit analysis, Normal University should undertake Level:

Accepted Answer

A)  Two 
B)  Three 
C)  Four 
D)  Five 
A)  Two 
B)  Three 
C)  Four 
D)  Five

Question 20

Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects. The marginal cost and the marginal benefits of each of the four projects are given in the table.   Refer to the above table and information. What is the net benefit of project D?

Accepted Answer

A)  $1 billion 
B)  $3 billion 
C)  $4 billion 
D)  $20 billion 
A)  $1 billion 
B)  $3 billion 
C)  $4 billion 
D)  $20 billion

Which of the following would be considered an example of adverse selection?

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, consumer surplus would be represented by the area:

At equilibrium in a market for a product, the total revenues received by sellers equal the:

In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

Refer to the graph above. Suppose consumers do not fully appreciate the benefits of the product whose market shown in the graph. If an external agency is able to provide full information about the benefits of the product, then:

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a fireworks display, then we'd have a demand-side market failure.

A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table. Refer to the above table and information. What is the total cost and total benefit of projects 1, 2, and 3?

Which of the following situations is not an example of market failure:

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n):

A competitive market can produce economically efficient outcomes if these conditions are met, except:

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of:

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

The free-rider problem makes a good highly profitable for a private firm to provide.

In a well-functioning cap-and-trade system for pollution rights, the right to pollute will go to those who are able to acquire the largest net benefit from using the scarce resource "clean air".

Refer to the above table. The producer surplus is $4 for producer:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Governments Role and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 4: Market Failures: Public Goods and Externalities

Which of the following would be considered an example of adverse selection?

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, consumer surplus would be represented by the area:

At equilibrium in a market for a product, the total revenues received by sellers equal the:

In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

Refer to the graph above. Suppose consumers do not fully appreciate the benefits of the product whose market shown in the graph. If an external agency is able to provide full information about the benefits of the product, then:

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a fireworks display, then we'd have a demand-side market failure.

A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table. Refer to the above table and information. What is the total cost and total benefit of projects 1, 2, and 3?

Which of the following situations is not an example of market failure:

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n):

A competitive market can produce economically efficient outcomes if these conditions are met, except:

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of:

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

The free-rider problem makes a good highly profitable for a private firm to provide.

In a well-functioning cap-and-trade system for pollution rights, the right to pollute will go to those who are able to acquire the largest net benefit from using the scarce resource "clean air".

Refer to the above table. The producer surplus is $4 for producer:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Governments Role and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters