Question 1

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 2

The efficient level of pollution abatement is greater

Accepted Answer

A) ​The higher the marginal social benefit of abatement function and the higher the marginal social benefit of abatement function. 
B) ​The higher the marginal social benefit of abatement function and the lower the marginal social benefit of abatement function. 
C) ​The lower the marginal social benefit of abatement function and the higher the marginal social benefit of abatement function. 
D) ​The lower the marginal social benefit of abatement function and the lower the marginal social benefit of abatement function. 
A) ​The higher the marginal social benefit of abatement function and the higher the marginal social benefit of abatement function. 
B) ​The higher the marginal social benefit of abatement function and the lower the marginal social benefit of abatement function. 
C) ​The lower the marginal social benefit of abatement function and the higher the marginal social benefit of abatement function. 
D) ​The lower the marginal social benefit of abatement function and the lower the marginal social benefit of abatement function.

Question 3

If the magnitude of the external costs in an industry increased

Accepted Answer

A) ​The supply curve including external costs would increase 
B) ​The efficient price would increase 
C) ​The market price would increase 
D) ​Both a and b are true 
A) ​The supply curve including external costs would increase 
B) ​The efficient price would increase 
C) ​The market price would increase 
D) ​Both a and b are true

Question 4

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 5

A tax equal to the external cost on firms that emit pollutants would:

Accepted Answer

A) ​provide firms with the incentive to increase the level of activity creating the pollution. 
B) ​provide firms with the incentive to decrease the level of activity creating the pollution. 
C) ​provide firms with little incentive to search for less environmentally damaging production methods. 
D) ​not reduce pollution levels at all. 
A) ​provide firms with the incentive to increase the level of activity creating the pollution. 
B) ​provide firms with the incentive to decrease the level of activity creating the pollution. 
C) ​provide firms with little incentive to search for less environmentally damaging production methods. 
D) ​not reduce pollution levels at all.

Question 6

The greater the magnitude of the external benefits of production,

Accepted Answer

A) ​The larger is the deadweight loss from overproduction. 
B) ​The greater would be the optimal tax. 
C) ​The less the private market solution would deviate from the socially efficient level of output. 
D) ​All of the above are true. 
A) ​The larger is the deadweight loss from overproduction. 
B) ​The greater would be the optimal tax. 
C) ​The less the private market solution would deviate from the socially efficient level of output. 
D) ​All of the above are true.

Question 7

Exhibit 8-2 ​  
-Refer to Exhibit 8-2. The supply curve S private includes the following costs.

Accepted Answer

A) ​Costs that production imposes on others 
B) Private costs and external costs 
C) ​External costs and spillover costs 
D) ​Costs of capital, entrepreneurship, land, and labor 
A) ​Costs that production imposes on others 
B) Private costs and external costs 
C) ​External costs and spillover costs 
D) ​Costs of capital, entrepreneurship, land, and labor

Question 8

Golf course developers who buy the land around the golf course they build are attempting to:

Accepted Answer

A) ​impose external costs on non-consenting third parties. 
B) ​internalize external benefits. 
C) ​turn a private good into a public good. 
D) ​internalize external costs. 
A) ​impose external costs on non-consenting third parties. 
B) ​internalize external benefits. 
C) ​turn a private good into a public good. 
D) ​internalize external costs.

Question 9

If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be:

Accepted Answer

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

Question 10

If transaction costs of negotiating are ____, the ____ suggests that the private market ____ allocate resources.

Accepted Answer

A) ​high; Externality Theorem; will efficiently 
B) ​high; Coase Theorem; will not efficiently 
C) ​low; Coase Theorem; will efficiently 
D) ​both b and c 
A) ​high; Externality Theorem; will efficiently 
B) ​high; Coase Theorem; will not efficiently 
C) ​low; Coase Theorem; will efficiently 
D) ​both b and c

Question 11

Which of the following is true?

Accepted Answer

A) ​Consumption of a public good by one individual reduces the availability of the good for others. 
B) ​It is extremely difficult to limit the benefits of a public good to the people who pay for it. 
C) ​Public goods are free whenever the government produces them. 
D) ​From an efficiency standpoint, a market economy will generally supply too much of a public good. 
A) ​Consumption of a public good by one individual reduces the availability of the good for others. 
B) ​It is extremely difficult to limit the benefits of a public good to the people who pay for it. 
C) ​Public goods are free whenever the government produces them. 
D) ​From an efficiency standpoint, a market economy will generally supply too much of a public good.

Question 12

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 13

Various new cars are sold with sensors that automatically turn on the headlights at night or in low light conditions. Would these sensors create a positive externality or a negative externality? How?

Accepted Answer

Cars with these new sensors would likely

Question 14

It is possible to increase our consumption of a clean environment without giving up anything.

Accepted Answer

A) True 
 B)False

Question 15

Health insurance is subject to

Accepted Answer

A) ​Both asymmetric information problems and moral hazard problems 
B) ​Neither asymmetric information problems nor moral hazard problems 
C) ​Asymmetric information problems but not moral hazard problems 
D) ​moral hazard problems but not asymmetric information problems 
A) ​Both asymmetric information problems and moral hazard problems 
B) ​Neither asymmetric information problems nor moral hazard problems 
C) ​Asymmetric information problems but not moral hazard problems 
D) ​moral hazard problems but not asymmetric information problems

Question 16

Transferable pollution rights allow a given level of pollution reduction to be achieved:

Accepted Answer

A) ​at zero cost. 
B) ​at higher cost than compliance standards. 
C) ​at lower cost than compliance standards. 
D) ​at higher cost than a system of pollution taxes. 
A) ​at zero cost. 
B) ​at higher cost than compliance standards. 
C) ​at lower cost than compliance standards. 
D) ​at higher cost than a system of pollution taxes.

Question 17

In the absence of government action, the private market would probably not provide as much police protection as is socially desirable because:

Accepted Answer

A) ​individuals are too poorly informed about the value of police protection. 
B) ​the private benefits are greater than the private costs of providing police protection. 
C) ​it is difficult to prevent free riders from benefiting from some police protection services. 
D) ​the use of police services by one person will significantly reduce the police protection available to others. 
A) ​individuals are too poorly informed about the value of police protection. 
B) ​the private benefits are greater than the private costs of providing police protection. 
C) ​it is difficult to prevent free riders from benefiting from some police protection services. 
D) ​the use of police services by one person will significantly reduce the police protection available to others.

Question 18

In a competitive market,

Accepted Answer

A) ​demand will always reflect all spillover costs. 
B) ​demand will always reflect all spillover benefits. 
C) ​supply will always reflect all spillover costs. 
D) ​none of the above are true. 
A) ​demand will always reflect all spillover costs. 
B) ​demand will always reflect all spillover benefits. 
C) ​supply will always reflect all spillover costs. 
D) ​none of the above are true.

Question 19

Which of the following is most likely to be characterized by substantial asymmetric information?

Accepted Answer

A) ​a soft drink purchased in a vending machine 
B) ​a car wash to benefit the local high school band 
C) ​a collectible baseball card purchased on eBay 
D) ​wireless service that includes unlimited minutes and texting 
A) ​a soft drink purchased in a vending machine 
B) ​a car wash to benefit the local high school band 
C) ​a collectible baseball card purchased on eBay 
D) ​wireless service that includes unlimited minutes and texting

Question 20

Public goods are those that are consumed:

Accepted Answer

A) ​only by those who have paid for them. 
B) ​only by the government that provides them. 
C) ​by the private group that funds them. 
D) ​by the paying and nonpaying public alike. 
A) ​only by those who have paid for them. 
B) ​only by the government that provides them. 
C) ​by the private group that funds them. 
D) ​by the paying and nonpaying public alike.

Exam 8: Market Failure

Which of the following statements is true?

The efficient level of pollution abatement is greater

If the magnitude of the external costs in an industry increased

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

A tax equal to the external cost on firms that emit pollutants would:

The greater the magnitude of the external benefits of production,

Exhibit 8-2 ​ -Refer to Exhibit 8-2. The supply curve S private includes the following costs.

Golf course developers who buy the land around the golf course they build are attempting to:

If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be:

If transaction costs of negotiating are ____, the ____ suggests that the private market ____ allocate resources.

Which of the following is true?

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

Various new cars are sold with sensors that automatically turn on the headlights at night or in low light conditions. Would these sensors create a positive externality or a negative externality? How?

It is possible to increase our consumption of a clean environment without giving up anything.

Health insurance is subject to

Transferable pollution rights allow a given level of pollution reduction to be achieved:

In the absence of government action, the private market would probably not provide as much police protection as is socially desirable because:

In a competitive market,

Which of the following is most likely to be characterized by substantial asymmetric information?

Public goods are those that are consumed:

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

Exhibit 8-2 -Refer to Exhibit 8-2. The supply curve S private includes the following costs.

If transaction costs of negotiating are , the suggests that the private market allocate resources.