Question 1

When the commons are converted into privately owned resources:

Accepted Answer

A) utilization is increased, and benefits to the society declines. 
B) utilization is increased, and the benefits to the society also increases. 
C) utilization is decreased, and the benefits to the society also decreases. 
D) utilization remains unchanged, and the benefits to the society increases. 
E) utilization is decreased, and the benefits to the society increases. 
A) utilization is increased, and benefits to the society declines. 
B) utilization is increased, and the benefits to the society also increases. 
C) utilization is decreased, and the benefits to the society also decreases. 
D) utilization remains unchanged, and the benefits to the society increases. 
E) utilization is decreased, and the benefits to the society increases.

Question 2

As opposed to economists like Tinbergen and Galbraith, the "public choice" school argues that:

Accepted Answer

A) the invisible hand of the market is inefficient in allocating resources to their best uses. 
B) the government often does not take correct economic decisions as it is run by self-interested politicians. 
C) the government takes correct decisions as it is run by conscious and educated individuals. 
D) the market fails to maximize social efficiency. 
E) the government is a non-profit making organization which works to maximize social efficiency. 
A) the invisible hand of the market is inefficient in allocating resources to their best uses. 
B) the government often does not take correct economic decisions as it is run by self-interested politicians. 
C) the government takes correct decisions as it is run by conscious and educated individuals. 
D) the market fails to maximize social efficiency. 
E) the government is a non-profit making organization which works to maximize social efficiency.

Question 3

Why do market failures arise in case of public goods?

Accepted Answer

A) The quantity produced is much more than is actually required by the people. 
B) The quality of these goods are not good enough. 
C) The quantity produced is too less from the society's point of view. 
D) The government wastes a lot of resources for producing a public good. 
E) The users of such goods are required to pay a high price for these goods. 
A) The quantity produced is much more than is actually required by the people. 
B) The quality of these goods are not good enough. 
C) The quantity produced is too less from the society's point of view. 
D) The government wastes a lot of resources for producing a public good. 
E) The users of such goods are required to pay a high price for these goods.

Question 4

The European Union Emission Trading Scheme is an example of:

Accepted Answer

A) a pollution tax. 
B) a pollution subsidy. 
C) a command approach. 
D) cap and trade. 
E) a direct government control on private firms. 
A) a pollution tax. 
B) a pollution subsidy. 
C) a command approach. 
D) cap and trade. 
E) a direct government control on private firms.

Question 5

Consumers in used car markets can very easily differentiate between high-quality and low-quality cars.

Accepted Answer

A) True 
 B)False

Question 6

Suppose the current price of a marketable permit to emit one ton of sulfur dioxide is $100.If the marginal cost for a firm to reduce one ton of sulfur dioxide is $80, then:

Accepted Answer

A) the firm will buy the permit and emit one more ton of sulfur dioxide. 
B) the firm will reduce its emissions of sulfur dioxide by one ton. 
C) the firm will buy the permit and increase its emissions by 20 tons. 
D) the firm will shut down. 
E) the firm will be willing to pay up to $200 for a permit. 
A) the firm will buy the permit and emit one more ton of sulfur dioxide. 
B) the firm will reduce its emissions of sulfur dioxide by one ton. 
C) the firm will buy the permit and increase its emissions by 20 tons. 
D) the firm will shut down. 
E) the firm will be willing to pay up to $200 for a permit.

Question 7

For which of the following goods will the free rider problem arise?

Accepted Answer

A) Private golf course 
B) Cable television 
C) Privately owned apartment 
D) National defense 
E) Movie theatres 
A) Private golf course 
B) Cable television 
C) Privately owned apartment 
D) National defense 
E) Movie theatres

Question 8

When resources are commonly owned, there are incentives in place to ensure that the resources are used efficiently.

Accepted Answer

A) True 
 B)False

Question 9

A tradable government permit for the atmospheric release of a ton of sulfur dioxide can help reduce acid rain.

Accepted Answer

A) True 
 B)False

Question 10

Production becomes more efficient if a common property is turned into a private property.

Accepted Answer

A) True 
 B)False

Question 11

A pollution tax has the effect of reducing the costs of production for a firm, leading to a rightward shift of the supply curve.

Accepted Answer

A) True 
 B)False

Question 12

The figure given below shows the demand and supply curves of automobiles. Figure 13.3   In the figure,
D: Demand curve of automobiles
S: Supply of automobiles prior to the tax
S+t: Supply of automobiles after the tax
According to Figure 13.3, the market attains equilibrium before the tax at:

Accepted Answer

A) point d. 
B) point a. 
C) point b. 
D) point c. 
E) point e. 
A) point d. 
B) point a. 
C) point b. 
D) point c. 
E) point e.

Question 13

When legislators support one another's project in order to ensure support for their own, it is referred to as:

Accepted Answer

A) rent seeking. 
B) moral hazard. 
C) political hazard. 
D) logrolling. 
E) bribery. 
A) rent seeking. 
B) moral hazard. 
C) political hazard. 
D) logrolling. 
E) bribery.

Question 14

When a good commodity is driven out of the market by a bad commodity it is called:

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) positive externality. 
D) negative externality. 
E) tragedy of commons. 
A) moral hazard. 
B) adverse selection. 
C) positive externality. 
D) negative externality. 
E) tragedy of commons.

Question 15

When economic activity imposes costs on others not directly involved in the transaction:

Accepted Answer

A) a negative externality exists. 
B) a positive externality exists. 
C) then the market, will produce too little of the good. 
D) the tragedy of commons problem arises. 
E) a free rider problem arises. 
A) a negative externality exists. 
B) a positive externality exists. 
C) then the market, will produce too little of the good. 
D) the tragedy of commons problem arises. 
E) a free rider problem arises.

Question 16

The figure below shows the demand and supply curves in the market for elementary education. Figure 13.1
  In the figure,
D: Private demand curve for elementary education
D + s: Demand curve which includes public benefits
S: Supply curve of education
Price and Quantity have been taken on vertical and horizontal axes respectively.
Figure 13.1 represents a situation of:

Accepted Answer

A) positive externalities. 
B) negative externalities. 
C) excess capacity. 
D) optimal provision of a public goods. 
E) comparative advantage. 
A) positive externalities. 
B) negative externalities. 
C) excess capacity. 
D) optimal provision of a public goods. 
E) comparative advantage.

Question 17

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

Accepted Answer

A) Smoking a cigarette 
B) Driving a less fuel efficient vehicle 
C) Setting up a chemicals factory in a residential area 
D) Overuse of chemical fertilizers 
E) Beekeepers keeping bees for honey 
A) Smoking a cigarette 
B) Driving a less fuel efficient vehicle 
C) Setting up a chemicals factory in a residential area 
D) Overuse of chemical fertilizers 
E) Beekeepers keeping bees for honey

Question 18

Which of the following may be explained by adverse selection?

Accepted Answer

A) When banks raise the interest rate on loans, high-risk applicants leave the market. 
B) When health insurance companies decrease insurance charges but increase deductibles, less healthy people are more willing to purchase insurance. 
C) As the cost of insurance rises, low-risk applicants reduce their coverage. 
D) Products are sold at prices that reflect their true value. 
E) Loan companies do not require down payments. 
A) When banks raise the interest rate on loans, high-risk applicants leave the market. 
B) When health insurance companies decrease insurance charges but increase deductibles, less healthy people are more willing to purchase insurance. 
C) As the cost of insurance rises, low-risk applicants reduce their coverage. 
D) Products are sold at prices that reflect their true value. 
E) Loan companies do not require down payments.

Question 19

When consumers or producers do not bear the full cost of their economic decisions, they tend to produce or consume more than they otherwise would.

Accepted Answer

A) True 
 B)False

Question 20

When economic resources are devoted to transferring wealth from one sector of the economy to another rather than being used for productive purposes, the process is known as:

Accepted Answer

A) rent seeking. 
B) logrolling. 
C) central planning. 
D) negative externalities. 
E) deficit financing. 
A) rent seeking. 
B) logrolling. 
C) central planning. 
D) negative externalities. 
E) deficit financing.

Exam 48: Market Failures, Government Failures, and Rent Seeking

When the commons are converted into privately owned resources:

As opposed to economists like Tinbergen and Galbraith, the "public choice" school argues that:

Why do market failures arise in case of public goods?

The European Union Emission Trading Scheme is an example of:

Consumers in used car markets can very easily differentiate between high-quality and low-quality cars.

Suppose the current price of a marketable permit to emit one ton of sulfur dioxide is $100.If the marginal cost for a firm to reduce one ton of sulfur dioxide is $80, then:

For which of the following goods will the free rider problem arise?

When resources are commonly owned, there are incentives in place to ensure that the resources are used efficiently.

A tradable government permit for the atmospheric release of a ton of sulfur dioxide can help reduce acid rain.

Production becomes more efficient if a common property is turned into a private property.

A pollution tax has the effect of reducing the costs of production for a firm, leading to a rightward shift of the supply curve.

The figure given below shows the demand and supply curves of automobiles. Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax According to Figure 13.3, the market attains equilibrium before the tax at:

When legislators support one another's project in order to ensure support for their own, it is referred to as:

When a good commodity is driven out of the market by a bad commodity it is called:

When economic activity imposes costs on others not directly involved in the transaction:

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

Which of the following may be explained by adverse selection?

When consumers or producers do not bear the full cost of their economic decisions, they tend to produce or consume more than they otherwise would.

When economic resources are devoted to transferring wealth from one sector of the economy to another rather than being used for productive purposes, the process is known as:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters