Question 1

Which of the following is an example of government failure?

Accepted Answer

A) Negative externalities 
B) Logrolling 
C) Club goods 
D) Information asymmetries 
E) Moral hazard 
A) Negative externalities 
B) Logrolling 
C) Club goods 
D) Information asymmetries 
E) Moral hazard

Question 2

If the government is successful in internalizing the external costs of production in a market, then:

Accepted Answer

A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero. 
A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero.

Question 3

Which of the following is an example of the command approach to regulation?

Accepted Answer

A) The market for permits to emit sulfur dioxide on the Chicago Mercantile Exchange 
B) A carbon tax 
C) Zoning in many areas that restricts the types of buildings that can be constructed 
D) The government providing subsidies for public education 
E) A Pigouvian tax 
A) The market for permits to emit sulfur dioxide on the Chicago Mercantile Exchange 
B) A carbon tax 
C) Zoning in many areas that restricts the types of buildings that can be constructed 
D) The government providing subsidies for public education 
E) A Pigouvian tax

Question 4

If the value of a network to a single user is $1 for each other user on the network, then a network of size 100 has a value of:

Accepted Answer

A) $9, 500. 
B) $9, 900. 
C) $9, 000. 
D) $10, 000. 
E) $10, 100. 
A) $9, 500. 
B) $9, 900. 
C) $9, 000. 
D) $10, 000. 
E) $10, 100.

Question 5

Asymmetric information arises when:

Accepted Answer

A) both the parties to an exchange have perfect information about the good. 
B) none of the parties to exchange have any information about the good. 
C) one party to an exchange knows more than the other party. 
D) a good is provided by the government. 
E) the market is perfectly competitive. 
A) both the parties to an exchange have perfect information about the good. 
B) none of the parties to exchange have any information about the good. 
C) one party to an exchange knows more than the other party. 
D) a good is provided by the government. 
E) the market is perfectly competitive.

Question 6

Which of the following is a measure taken by the government to internalize the externalities?

Accepted Answer

A) Value Added Tax 
B) Income Tax 
C) Cap and Trade 
D) Tariffs 
E) Deficit financing 
A) Value Added Tax 
B) Income Tax 
C) Cap and Trade 
D) Tariffs 
E) Deficit financing

Question 7

Under a marketable pollution permit system, property rights to an externality are created so that a more efficient allocation of resources will result.

Accepted Answer

A) True 
 B)False

Question 8

Co-payments and deductibles provide a means of reducing moral hazard problems because they allow each party in the transaction to share in the costs.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is true of externality?

Accepted Answer

A) An externality enhances the efficiency of the market system. 
B) An externality is not an economic problem because it is external to the market. 
C) An externality is a cost borne by the people who are directly or indirectly involved in the production of a good or service. 
D) An externality accrues to someone who had nothing to do with the production or consumption of a good or service. 
E) An externality refers to some unexpected change in the equilibrium price or quantity of a product. 
A) An externality enhances the efficiency of the market system. 
B) An externality is not an economic problem because it is external to the market. 
C) An externality is a cost borne by the people who are directly or indirectly involved in the production of a good or service. 
D) An externality accrues to someone who had nothing to do with the production or consumption of a good or service. 
E) An externality refers to some unexpected change in the equilibrium price or quantity of a product.

Question 10

Which of the following is true of a public good?

Accepted Answer

A) The demand curve for a public good is clearly defined because each consumer consumes the same quantity of the good. 
B) The demand curve for a public good is clearly defined because each individual pays the same price. 
C) The demand curve for a public good may not exist because individuals can consume the good without being forced to pay a market price for the good. 
D) The supply curve of a public good may not exist because individuals can consume the good without being forced to pay a market price for the good. 
E) The supply curve of a public good is perfectly elastic as a small increase in the price leads to an infinite increase in the supply of the good. 
A) The demand curve for a public good is clearly defined because each consumer consumes the same quantity of the good. 
B) The demand curve for a public good is clearly defined because each individual pays the same price. 
C) The demand curve for a public good may not exist because individuals can consume the good without being forced to pay a market price for the good. 
D) The supply curve of a public good may not exist because individuals can consume the good without being forced to pay a market price for the good. 
E) The supply curve of a public good is perfectly elastic as a small increase in the price leads to an infinite increase in the supply of the good.

Question 11

Wikipedia and other projects utilizing wiki technology, represent an example of:

Accepted Answer

A) cap and trade. 
B) voluntary contributions. 
C) transaction cost. 
D) market failure. 
E) path dependence. 
A) cap and trade. 
B) voluntary contributions. 
C) transaction cost. 
D) market failure. 
E) path dependence.

Question 12

In China prior to 1990, most residential buildings were in dilapidation because:

Accepted Answer

A) people were not aware of the maintenance and beautification techniques. 
B) the government did not encourage wastage of resources for such purposes. 
C) no one had a property right to a home. 
D) all the properties were ancestral. 
E) the people had private property rights so they did not have an incentive to repair the houses. 
A) people were not aware of the maintenance and beautification techniques. 
B) the government did not encourage wastage of resources for such purposes. 
C) no one had a property right to a home. 
D) all the properties were ancestral. 
E) the people had private property rights so they did not have an incentive to repair the houses.

Question 13

When social costs of producing or consuming a good exceed private costs:

Accepted Answer

A) a positive externality exists. 
B) an inefficiently high quantity of a good will be produced and consumed. 
C) the direct consumers of the good will bear the external costs. 
D) the individuals involved in the production of the good do not bear the private costs. 
E) the quantity of the good produced will be less than the socially efficient level. 
A) a positive externality exists. 
B) an inefficiently high quantity of a good will be produced and consumed. 
C) the direct consumers of the good will bear the external costs. 
D) the individuals involved in the production of the good do not bear the private costs. 
E) the quantity of the good produced will be less than the socially efficient level.

Question 14

When negotiation is costly, it makes a difference where liability is placed in terms of reaching an efficient solution to a negative externality problem.

Accepted Answer

A) True 
 B)False

Question 15

James insured his car with a renowned insurance company that checked his driving skills and verified his accident records before insuring his car.After paying two premiums for this insurance, James took to drinking and driving.This action of James is likely to create:

Accepted Answer

A) an economic loss. 
B) a positive externality. 
C) an economic bad. 
D) a moral hazard. 
E) diseconomies of scale. 
A) an economic loss. 
B) a positive externality. 
C) an economic bad. 
D) a moral hazard. 
E) diseconomies of scale.

Question 16

Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the American Medical Association has been able to persuade the Congress to pass a no-fault insurance law protecting doctors from malpractice suits.The reduction in costs to doctors is a rent.

Accepted Answer

A) True 
 B)False

Question 18

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing.The fisherman were charged $50 on each boat they sent out for fishing.The following table shows the total pounds of fish caught per hour and the number of boats used for fishing. Table 13.2
  Refer to Table 13.2.Suppose fish sells for $1 per pound.If each fisherman decides whether or not to fish based on the average catch, how many boats per hour will go out to fish?

Accepted Answer

A) 6 
B) 5 
C) 4 
D) 3 
E) 2 
A) 6 
B) 5 
C) 4 
D) 3 
E) 2

Question 19

Higher the economic freedom in a country:

Accepted Answer

A) lower is the standard of living of the people. 
B) higher is the life expectancy. 
C) greater is the bureaucratic freedom and red-tapism. 
D) lower is the level of education due to lack of government schools. 
E) lower is the literacy rate. 
A) lower is the standard of living of the people. 
B) higher is the life expectancy. 
C) greater is the bureaucratic freedom and red-tapism. 
D) lower is the level of education due to lack of government schools. 
E) lower is the literacy rate.

Question 20

A market in which adverse selection may not occur is:

Accepted Answer

A) the market for pre-owned residential apartments. 
B) the lemons market. 
C) the market for new sports utility vehicles. 
D) the capital market. 
E) the market for health insurance. 
A) the market for pre-owned residential apartments. 
B) the lemons market. 
C) the market for new sports utility vehicles. 
D) the capital market. 
E) the market for health insurance.

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

Which of the following is an example of government failure?

If the government is successful in internalizing the external costs of production in a market, then:

Which of the following is an example of the command approach to regulation?

If the value of a network to a single user is $1 for each other user on the network, then a network of size 100 has a value of:

Asymmetric information arises when:

Which of the following is a measure taken by the government to internalize the externalities?

Under a marketable pollution permit system, property rights to an externality are created so that a more efficient allocation of resources will result.

Co-payments and deductibles provide a means of reducing moral hazard problems because they allow each party in the transaction to share in the costs.

Which of the following is true of externality?

Which of the following is true of a public good?

Wikipedia and other projects utilizing wiki technology, represent an example of:

In China prior to 1990, most residential buildings were in dilapidation because:

When social costs of producing or consuming a good exceed private costs:

When negotiation is costly, it makes a difference where liability is placed in terms of reaching an efficient solution to a negative externality problem.

James insured his car with a renowned insurance company that checked his driving skills and verified his accident records before insuring his car.After paying two premiums for this insurance, James took to drinking and driving.This action of James is likely to create:

Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

Suppose the American Medical Association has been able to persuade the Congress to pass a no-fault insurance law protecting doctors from malpractice suits.The reduction in costs to doctors is a rent.

Higher the economic freedom in a country:

A market in which adverse selection may not occur is:

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

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