Question 1

As a result of technology spillovers: Taxes may move us closer to the efficient output level in such industries.

Accepted Answer

A) ​Other members of society bear external costs. 
B) ​Too much production takes place in the high technology areas. 
C) ​Taxes may move us closer to the efficient output level in such industries. 
D) ​None of the above are true. 
A) ​Other members of society bear external costs. 
B) ​Too much production takes place in the high technology areas. 
C) ​Taxes may move us closer to the efficient output level in such industries. 
D) ​None of the above are true.

Question 2

A warranty offered by a seller is one way to overcome:

Accepted Answer

A) ​A warranty offered by a seller is one way to overcome:. 
B) ​a negative externality problem. 
C) ​an adverse selection problem. 
D) ​a free-rider problem. 
A) ​A warranty offered by a seller is one way to overcome:. 
B) ​a negative externality problem. 
C) ​an adverse selection problem. 
D) ​a free-rider problem.

Question 3

If the rivers, lakes and air in the United States could all be privately owned, then:

Accepted Answer

A) ​there would be less pollution. 
B) ​costs of production for many firms would rise. 
C) ​externalities would be internalized. 
D) ​all of the above are correct. 
A) ​there would be less pollution. 
B) ​costs of production for many firms would rise. 
C) ​externalities would be internalized. 
D) ​all of the above are correct.

Question 4

Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.

Accepted Answer

A) True 
 B)False

Question 5

To internalize a positive externality:

Accepted Answer

A) ​the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good. 
B) ​a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good. 
C) ​consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good. 
D) ​None of the above are correct. 
A) ​the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good. 
B) ​a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good. 
C) ​consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good. 
D) ​None of the above are correct.

Question 6

If both the marginal social benefit of abatement function and the marginal social benefit of abatement function shifted up.

Accepted Answer

A) ​The greater would be the efficient level of pollution abatement. 
B) ​The smaller would be the efficient level of pollution abatement. 
C) ​There would be no change in the efficient level of pollution abatement. 
D) ​We do not know whether the efficient level of pollution abatement would rise or fall. 
A) ​The greater would be the efficient level of pollution abatement. 
B) ​The smaller would be the efficient level of pollution abatement. 
C) ​There would be no change in the efficient level of pollution abatement. 
D) ​We do not know whether the efficient level of pollution abatement would rise or fall.

Question 7

A system of transferable pollution rights:

Accepted Answer

A) ​increases the quantity of pollution generated. 
B) ​provides firms with an incentive to develop new pollution-abatement technologies. 
C) ​is not as cost-effective in reducing pollution as a system based on compliance standards. 
D) ​is characterized by none of the above. 
A) ​increases the quantity of pollution generated. 
B) ​provides firms with an incentive to develop new pollution-abatement technologies. 
C) ​is not as cost-effective in reducing pollution as a system based on compliance standards. 
D) ​is characterized by none of the above.

Question 8

Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers; the government can use taxes to overcome this problem of nonpayment.

Accepted Answer

A) True 
 B)False

Question 9

Because of the problem of second-hand smoke, if unregulated, the market for cigarettes would produce a quantity that is too ____ at a price that is too ____ when compared to the socially optimal results.

Accepted Answer

A) ​low; low 
B) ​high; low 
C) ​low; high 
D) ​high; high 
A) ​low; low 
B) ​high; low 
C) ​low; high 
D) ​high; high

Question 10

The free rider problem suggests that a producer will tend to:

Accepted Answer

A) ​produce more than the optimal quantity of a public good. 
B) ​produce less than the optimal quantity of a public good. 
C) ​produce the optimal quantity of a public good if it is funded out of tax revenue. 
D) ​do none of the above. 
A) ​produce more than the optimal quantity of a public good. 
B) ​produce less than the optimal quantity of a public good. 
C) ​produce the optimal quantity of a public good if it is funded out of tax revenue. 
D) ​do none of the above.

Question 11

Consumers will willingly make less-informed decisions:

Accepted Answer

A) ​if information costs are less than the perceived benefits of gathering information. 
B) ​if information costs are greater than the perceived benefits of gathering information. 
C) ​since ignorance always leads to bliss. 
D) ​whenever acquiring more information requires sacrifice. 
A) ​if information costs are less than the perceived benefits of gathering information. 
B) ​if information costs are greater than the perceived benefits of gathering information. 
C) ​since ignorance always leads to bliss. 
D) ​whenever acquiring more information requires sacrifice.

Question 12

Which of the following statements is correct?

Accepted Answer

A) ​The ideal solution to a pollution problem is to reduce pollution until it is technologically impossible to reduce it any further. 
B) ​The ideal and fair solution to a pollution problem is to impose identical compliance standards on all polluting firms. 
C) ​Charging firms for transferable emissions permits is a more efficient way of dealing with pollution than are compliance standards. 
D) ​A per-unit pollution tax is a more efficient way of dealing with pollution than is a system of transferable emissions permits. 
A) ​The ideal solution to a pollution problem is to reduce pollution until it is technologically impossible to reduce it any further. 
B) ​The ideal and fair solution to a pollution problem is to impose identical compliance standards on all polluting firms. 
C) ​Charging firms for transferable emissions permits is a more efficient way of dealing with pollution than are compliance standards. 
D) ​A per-unit pollution tax is a more efficient way of dealing with pollution than is a system of transferable emissions permits.

Question 13

When positive 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 14

Without government intervention, society is likely to get too much production of:
I.private goods that generate external costs
II.private goods that generate external benefits
IiI.public goods
​
​

Accepted Answer

A) ​(i) only 
B) ​(ii) only 
C) ​(iii) only 
D) ​both (ii) and (iii) 
A) ​(i) only 
B) ​(ii) only 
C) ​(iii) only 
D) ​both (ii) and (iii)

Question 15

The noise from the low altitude combat training the Air Force conducts over the Yippy I-O Ranch causes the ranch's cattle to lose weight. Which of the following actions is not consistent with recognition that the Yippy I-O has a property right to its skies?

Accepted Answer

A) ​The Air Force equips its planes with mufflers. 
B) ​The Air Force compensates the Yippy I-O for the value of the lost weight. 
C) ​The ranch compensates the Air Force for the cost of moving the exercises to another location. 
D) ​The Air Force pays for cow earplugs for the ranch herd. 
A) ​The Air Force equips its planes with mufflers. 
B) ​The Air Force compensates the Yippy I-O for the value of the lost weight. 
C) ​The ranch compensates the Air Force for the cost of moving the exercises to another location. 
D) ​The Air Force pays for cow earplugs for the ranch herd.

Question 16

Beginning from a situation where there were no clear property rights to clean air and water:

Accepted Answer

A) ​subsidies could not improve efficiency in cases of external benefits. 
B) ​subsidies could not improve efficiency in cases of external costs. 
C) ​taxes could not improve efficiency in cases of external costs. 
D) ​neither external benefits nor external costs could improve efficiency in either the case of external benefits or the case of external costs. 
A) ​subsidies could not improve efficiency in cases of external benefits. 
B) ​subsidies could not improve efficiency in cases of external costs. 
C) ​taxes could not improve efficiency in cases of external costs. 
D) ​neither external benefits nor external costs could improve efficiency in either the case of external benefits or the case of external costs.

Question 17

Consider two goods-one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce:

Accepted Answer

A) ​too much of both goods, relative to the social optimum. 
B) ​too little of both goods, relative to the social optimum. 
C) ​too much of the good that generates external benefits relative to the social optimum, and too little of the good that generates external costs. 
D) ​too little of the good that generates external benefits relative to the social optimum, and too much of the good that generates external costs. 
A) ​too much of both goods, relative to the social optimum. 
B) ​too little of both goods, relative to the social optimum. 
C) ​too much of the good that generates external benefits relative to the social optimum, and too little of the good that generates external costs. 
D) ​too little of the good that generates external benefits relative to the social optimum, and too much of the good that generates external costs.

Question 18

The main duty of the Environmental Protection Agency is to monitor a government-enforced system of property rights.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not true with regard to pollution control through transferable pollution rights?

Accepted Answer

A) ​It does not require the government to know in advance the pollution abatement techniques to be utilized. 
B) ​It creates an incentive to develop improved pollution abatement technologies. 
C) ​It ultimately requires all firms to reduce pollution in equal amounts. 
D) ​It established private property rights that can be sold. 
A) ​It does not require the government to know in advance the pollution abatement techniques to be utilized. 
B) ​It creates an incentive to develop improved pollution abatement technologies. 
C) ​It ultimately requires all firms to reduce pollution in equal amounts. 
D) ​It established private property rights that can be sold.

Question 20

If negative externalities are created in the production of a good, then society will:

Accepted Answer

A) ​produce too much of the good since the marginal private cost to firms is less than the marginal social cost. 
B) ​produce too little of the good since the marginal private cost to firms is less than the marginal social cost. 
C) ​produce too much of the good since the marginal private cost to firms is greater than the marginal social cost. 
D) ​produce too little of the good since the marginal private cost to firms is greater than the marginal social cost. 
A) ​produce too much of the good since the marginal private cost to firms is less than the marginal social cost. 
B) ​produce too little of the good since the marginal private cost to firms is less than the marginal social cost. 
C) ​produce too much of the good since the marginal private cost to firms is greater than the marginal social cost. 
D) ​produce too little of the good since the marginal private cost to firms is greater than the marginal social cost.

Exam 8: Market Failure

As a result of technology spillovers: Taxes may move us closer to the efficient output level in such industries.

A warranty offered by a seller is one way to overcome:

If the rivers, lakes and air in the United States could all be privately owned, then:

Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.

To internalize a positive externality:

If both the marginal social benefit of abatement function and the marginal social benefit of abatement function shifted up.

A system of transferable pollution rights:

Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers; the government can use taxes to overcome this problem of nonpayment.

Because of the problem of second-hand smoke, if unregulated, the market for cigarettes would produce a quantity that is too ____ at a price that is too ____ when compared to the socially optimal results.

The free rider problem suggests that a producer will tend to:

Consumers will willingly make less-informed decisions:

Which of the following statements is correct?

When positive externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable.

Without government intervention, society is likely to get too much production of: I.private goods that generate external costs II.private goods that generate external benefits IiI.public goods ​ ​

The noise from the low altitude combat training the Air Force conducts over the Yippy I-O Ranch causes the ranch's cattle to lose weight. Which of the following actions is not consistent with recognition that the Yippy I-O has a property right to its skies?

Beginning from a situation where there were no clear property rights to clean air and water:

Consider two goods-one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce:

The main duty of the Environmental Protection Agency is to monitor a government-enforced system of property rights.

Which of the following is not true with regard to pollution control through transferable pollution rights?

If negative externalities are created in the production of a good, then society will:

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

Because of the problem of second-hand smoke, if unregulated, the market for cigarettes would produce a quantity that is too at a price that is too when compared to the socially optimal results.

Without government intervention, society is likely to get too much production of: I.private goods that generate external costs II.private goods that generate external benefits IiI.public goods