Question 1

A market for pollution rights can be expected to:

Accepted Answer

A)  Eliminate all pollution 
B)  Produce a shortage of pollution 
C)  Encourage potential polluters to increase emissions 
D)  Provide potential polluters with a monetary incentive to reduce emissions 
A)  Eliminate all pollution 
B)  Produce a shortage of pollution 
C)  Encourage potential polluters to increase emissions 
D)  Provide potential polluters with a monetary incentive to reduce emissions

Question 2

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  An increase in the value of land you own when a nearby development is completed 
B)  The costs paid by a company to build an automated factory 
C)  Falling property values in a neighborhood where a disreputable nightclub is operating 
D)  The higher price you pay when you buy a heavily advertised product 
A)  An increase in the value of land you own when a nearby development is completed 
B)  The costs paid by a company to build an automated factory 
C)  Falling property values in a neighborhood where a disreputable nightclub is operating 
D)  The higher price you pay when you buy a heavily advertised product

Question 4

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of:

Accepted Answer

A)  New cars being better than used-cars in quality 
B)  A declining quality of used cars in the market 
C)  A rising quality of used cars in the market 
D)  Used-car buyers willing to pay higher prices 
A)  New cars being better than used-cars in quality 
B)  A declining quality of used cars in the market 
C)  A rising quality of used cars in the market 
D)  Used-car buyers willing to pay higher prices

Question 5

Refer to the above table. What is the producer surplus for all producers A, B, C, and D?

Accepted Answer

A)  $6 
B)  $13 
C)  $19 
D)  $24 
A)  $6 
B)  $13 
C)  $19 
D)  $24

Question 6

Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $1.50, $1.20, $1.00, and $0.90. If the actual price of lemonade is $1.00 per glass, then consumer surplus in this market will be $0.70.

Accepted Answer

A) True 
 B)False

Question 7

In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair while Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of shoes is $65. What is the combined amount of consumer surplus of Jena and Jane?

Accepted Answer

A)  $10 
B)  $30 
C)  $130 
D)  $215 
A)  $10 
B)  $30 
C)  $130 
D)  $215

Question 8

When economic efficiency is attained, it implies all of the following, except:

Accepted Answer

A)  Per-unit cost of output produced is at minimum 
B)  Allocative efficiency is achieved 
C)  Total consumer and producer surplus is at a maximum 
D)  The gap between marginal benefits and marginal costs of production is at maximum 
A)  Per-unit cost of output produced is at minimum 
B)  Allocative efficiency is achieved 
C)  Total consumer and producer surplus is at a maximum 
D)  The gap between marginal benefits and marginal costs of production is at maximum

Question 9

A moral hazard problem occurs before a transaction - when people alter their behavior before they sign a contract, imposing costs on the other party.

Accepted Answer

A) True 
 B)False

Question 10

The market supply curve indicates the:

Accepted Answer

A)  Minimum acceptable prices that sellers are willing to accept for the product 
B)  Maximum prices that buyers are willing and able to pay for the product 
C)  Total revenues that sellers would receive from selling various quantities of the product 
D)  Total amount that buyers will pay in buying a given quantity of the product 
A)  Minimum acceptable prices that sellers are willing to accept for the product 
B)  Maximum prices that buyers are willing and able to pay for the product 
C)  Total revenues that sellers would receive from selling various quantities of the product 
D)  Total amount that buyers will pay in buying a given quantity of the product

Question 11

The franchising of fast-food restaurants would be an example of how a private business:

Accepted Answer

A)  Overcomes market information problems 
B)  Solves the moral hazard problem in insurance 
C)  Expands the limits of the Coase theorem 
D)  Corrects the problem of externalities 
A)  Overcomes market information problems 
B)  Solves the moral hazard problem in insurance 
C)  Expands the limits of the Coase theorem 
D)  Corrects the problem of externalities

Question 12

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called:

Accepted Answer

A)  Nonrivalry 
B)  Nonexcludability 
C)  Nontaxability 
D)  Nondiscrimination 
A)  Nonrivalry 
B)  Nonexcludability 
C)  Nontaxability 
D)  Nondiscrimination

Question 13

A public good:

Accepted Answer

A)  Generally results in substantial negative externalities 
B)  Can never be provided by a nongovernmental organization 
C)  Costs essentially nothing to produce and is thus provided by the government at a zero price 
D)  Can't be provided to one person without making it available to others as well 
A)  Generally results in substantial negative externalities 
B)  Can never be provided by a nongovernmental organization 
C)  Costs essentially nothing to produce and is thus provided by the government at a zero price 
D)  Can't be provided to one person without making it available to others as well

Question 14

An emission fee levied against polluting firms will tend to shift the:

Accepted Answer

A)  Supply curve of the firms to the left 
B)  Supply curve of the firms to the right 
C)  Demand curve for the product to the left 
D)  Demand curve for the product to the right 
A)  Supply curve of the firms to the left 
B)  Supply curve of the firms to the right 
C)  Demand curve for the product to the left 
D)  Demand curve for the product to the right

Question 15

An example of an adverse selection problem is in insurance, where the people most likely to claim insurance payouts are the people who will seek to buy the most generous policies.

Accepted Answer

A) True 
 B)False

Question 16

The equilibrium point in the market is where S and D curve intersect.   Refer to the graph above. At equilibrium, the total maximum amount that consumers would have been willing to pay for the product is 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 17

External benefits in consumption refer to benefits accruing to:

Accepted Answer

A)  Those who are selling the product to the consumers 
B)  Those who bought and consumed the product 
C)  Those other than the ones who consumed the product 
D)  Those who are consuming the product abroad 
A)  Those who are selling the product to the consumers 
B)  Those who bought and consumed the product 
C)  Those other than the ones who consumed the product 
D)  Those who are consuming the product abroad

Question 18

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

Accepted Answer

A)  b 
B)  b + c 
C)  a + b 
D)  b + c + d 
A)  b 
B)  b + c 
C)  a + b 
D)  b + c + 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. The marginal benefits of crime control for Level Two are:

Accepted Answer

A)  $10,000 
B)  $40,000 
C)  $50,000 
D)  $200,000 
A)  $10,000 
B)  $40,000 
C)  $50,000 
D)  $200,000

Question 20

Deadweight losses occur when the quantity of an output produced is:

Accepted Answer

A)  less than, but not when it is greater than, the competitive equilibrium quantity 
B)  greater than, but not when it is less than, the competitive equilibrium quantity 
C)  less than or greater than the competitive equilibrium quantity 
D)  such that the marginal benefit of the output is just equal to the marginal cost 
A)  less than, but not when it is greater than, the competitive equilibrium quantity 
B)  greater than, but not when it is less than, the competitive equilibrium quantity 
C)  less than or greater than the competitive equilibrium quantity 
D)  such that the marginal benefit of the output is just equal to the marginal cost

Exam 4: Market Failures: Public Goods and Externalities

A market for pollution rights can be expected to:

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

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

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of:

Refer to the above table. What is the producer surplus for all producers A, B, C, and D?

Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $1.50, $1.20, $1.00, and $0.90. If the actual price of lemonade is $1.00 per glass, then consumer surplus in this market will be $0.70.

In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair while Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of shoes is $65. What is the combined amount of consumer surplus of Jena and Jane?

When economic efficiency is attained, it implies all of the following, except:

A moral hazard problem occurs before a transaction - when people alter their behavior before they sign a contract, imposing costs on the other party.

The market supply curve indicates the:

The franchising of fast-food restaurants would be an example of how a private business:

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called:

A public good:

An emission fee levied against polluting firms will tend to shift the:

An example of an adverse selection problem is in insurance, where the people most likely to claim insurance payouts are the people who will seek to buy the most generous policies.

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, the total maximum amount that consumers would have been willing to pay for the product is represented by the area:

External benefits in consumption refer to benefits accruing to:

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

Deadweight losses occur when the quantity of an output produced is:

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

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