Question 1

Social cost is _____.

Accepted Answer

A) the sum of fixed and variable costs 
B) the difference between the total cost and opportunity cost 
C) the sum of private and external costs 
D) the difference between the private and external cost 
E) sum of fixed costs and opportunity costs 
A) the sum of fixed and variable costs 
B) the difference between the total cost and opportunity cost 
C) the sum of private and external costs 
D) the difference between the private and external cost 
E) sum of fixed costs and opportunity costs

Question 2

The major problem with common ownership is that, too much of the commonly owned is consumed, and not enough is produced.

Accepted Answer

A) True 
 B)False

Question 3

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, what is the profit that each fisherman earns?

Accepted Answer

A) $500 
B) $1, 000 
C) $3, 000 
D) $5, 000 
E) 0 
A) $500 
B) $1, 000 
C) $3, 000 
D) $5, 000 
E) 0

Question 4

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
Figure 13.3 represents a situation of:

Accepted Answer

A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) tragedy of commons. 
E) free rider problem. 
A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) tragedy of commons. 
E) free rider problem.

Question 5

Education is a good example of a positive externality because the benefits of an education accrue not only to the individual but also to society as a whole.

Accepted Answer

A) True 
 B)False

Question 6

In order to reduce the possibility of adverse selection banks should raise their interest rates charged on the loans.

Accepted Answer

A) True 
 B)False

Question 7

The figure given below shows the demand and supply curves of steel.Sp is the private supply curve, and Ss is the social supply curve that includes both private costs and external costs. Figure 13.2   In Figure 13.2, external costs are equal to _____.

Accepted Answer

A) Ps - Pp 
B) da 
C) Qp - Qs 
D) ab 
E) bc 
A) Ps - Pp 
B) da 
C) Qp - Qs 
D) ab 
E) bc

Question 8

Benefits granted to powerful special interest groups in return for political support are known as rents.

Accepted Answer

A) True 
 B)False

Question 9

When all costs and benefits of a transaction are borne by the participants of that transaction:

Accepted Answer

A) the market outcome will be inefficient. 
B) then private costs and social costs are identical. 
C) negative externalities exist. 
D) positive externalities exist. 
E) the private costs are more than the social costs. 
A) the market outcome will be inefficient. 
B) then private costs and social costs are identical. 
C) negative externalities exist. 
D) positive externalities exist. 
E) the private costs are more than the social costs.

Question 10

According to the Coase theorem, high transaction costs necessarily call for government action.

Accepted Answer

A) True 
 B)False

Question 11

The figure given below shows the demand for permits and the maximum permissible level of pollution. Figure 13.4   In the figure,
The downward sloping line is the demand curve of permits;
The vertical line denotes the maximum permissible limit of pollution.
In Figure 13.4, if the government sells Qb permits to pollute at a price of Pb each, then:

Accepted Answer

A) the allocation of pollution reduction is inefficient. 
B) firms in the market will be forced to shut down due to excessive government regulation. 
C) the allocation of pollution reduction is efficient, because only those firms with a marginal cost of pollution reduction greater than Pb will buy the permits. 
D) the allocation of pollution reduction is efficient, because only those firms with a marginal cost of pollution reduction less than Pb will buy the permits. 
E) the allocation of pollution reduction is inefficient, because only those firms with the lowest costs of pollution reduction will purchase the permits. 
A) the allocation of pollution reduction is inefficient. 
B) firms in the market will be forced to shut down due to excessive government regulation. 
C) the allocation of pollution reduction is efficient, because only those firms with a marginal cost of pollution reduction greater than Pb will buy the permits. 
D) the allocation of pollution reduction is efficient, because only those firms with a marginal cost of pollution reduction less than Pb will buy the permits. 
E) the allocation of pollution reduction is inefficient, because only those firms with the lowest costs of pollution reduction will purchase the permits.

Question 12

_____ occurs when unobservable qualities are valued incorrectly because of a lack of information.

Accepted Answer

A) Moral hazard 
B) Adverse selection 
C) Conspicuous consumption 
D) Marginal selection 
E) Statistical discrimination 
A) Moral hazard 
B) Adverse selection 
C) Conspicuous consumption 
D) Marginal selection 
E) Statistical discrimination

Question 13

Under a marketable permit system, if the government reduces the quantity of permits, the price of each permit will increase.

Accepted Answer

A) True 
 B)False

Question 14

The figure given below shows the demand and supply curves of steel.Sp is the private supply curve, and Ss is the social supply curve that includes both private costs and external costs. Figure 13.2   According to Figure 13.2:

Accepted Answer

A) both points a and b are socially efficient. 
B) both points a and b are inefficient. 
C) point a represents the social equilibrium, whereas point b represents the private equilibrium. 
D) point a represents the private equilibrium, whereas point b represents the social equilibrium. 
E) when external costs are zero, the socially efficient output level is equal to 0Qs units. 
A) both points a and b are socially efficient. 
B) both points a and b are inefficient. 
C) point a represents the social equilibrium, whereas point b represents the private equilibrium. 
D) point a represents the private equilibrium, whereas point b represents the social equilibrium. 
E) when external costs are zero, the socially efficient output level is equal to 0Qs units.

Question 15

A market failure occurs when:

Accepted Answer

A) the market outcome is viewed as unfair by a majority of consumers. 
B) a market fails to provide the good at a zero price. 
C) quantity demanded exceeds quantity supplied. 
D) the market outcome is not the socially efficient outcome. 
E) prices are determined by the interaction of the forces of demand and supply and not through central planning. 
A) the market outcome is viewed as unfair by a majority of consumers. 
B) a market fails to provide the good at a zero price. 
C) quantity demanded exceeds quantity supplied. 
D) the market outcome is not the socially efficient outcome. 
E) prices are determined by the interaction of the forces of demand and supply and not through central planning.

Question 16

The owner of a good has the right to decide how that good is used and to restrict others from using that good.This idea is known as:

Accepted Answer

A) the principle of mutual excludability. 
B) the principle of comparative advantage. 
C) the principle of public ownership. 
D) the principle of negative externalities. 
E) the law of demand. 
A) the principle of mutual excludability. 
B) the principle of comparative advantage. 
C) the principle of public ownership. 
D) the principle of negative externalities. 
E) the law of demand.

Question 17

When the government tries to control pollution through cap and trade, it _____.

Accepted Answer

A) issues permits that enables the owners of the permit to pollute. 
B) strictly mentions the amount of pollutants that can be emitted by a particular firm. 
C) levies tax on the polluting firm. 
D) gives subsidies to the firms who adopt clean production technologies. 
E) takes legal actions against the firms who pollute beyond the specified level. 
A) issues permits that enables the owners of the permit to pollute. 
B) strictly mentions the amount of pollutants that can be emitted by a particular firm. 
C) levies tax on the polluting firm. 
D) gives subsidies to the firms who adopt clean production technologies. 
E) takes legal actions against the firms who pollute beyond the specified level.

Question 18

When there exists a negative externality in case of a particular good and that is not reflected in the price:

Accepted Answer

A) too little of that good is produced and consumed. 
B) too much of that good is produced and consumed. 
C) nothing of that is either produced or consumed. 
D) the government completely prohibits the production of such goods. 
E) the resources are allocated to their highest-valued activity. 
A) too little of that good is produced and consumed. 
B) too much of that good is produced and consumed. 
C) nothing of that is either produced or consumed. 
D) the government completely prohibits the production of such goods. 
E) the resources are allocated to their highest-valued activity.

Question 19

One of the reasons that communism failed in the Soviet Union is that, under communism:

Accepted Answer

A) no one had a property right, so there is little incentive to use resources efficiently. 
B) there were high rates of unemployment and homelessness accompanied by a high rate of inflation. 
C) planners did not have all the information necessary to make efficient decisions. 
D) there was a high degree of political freedom. 
E) there was a high degree of economic freedom. 
A) no one had a property right, so there is little incentive to use resources efficiently. 
B) there were high rates of unemployment and homelessness accompanied by a high rate of inflation. 
C) planners did not have all the information necessary to make efficient decisions. 
D) there was a high degree of political freedom. 
E) there was a high degree of economic freedom.

Question 20

In the case of public goods:

Accepted Answer

A) the free rider problem does not arise. 
B) one person's consumption of the good reduces the consumption of the good by others. 
C) individuals can be easily excluded from consuming the good once it is provided. 
D) the quantity produced by a private market would be too large from society's viewpoint, because private firms could not force payment for the goods. 
E) the principle of mutual excludability and principle of rivalry does not apply. 
A) the free rider problem does not arise. 
B) one person's consumption of the good reduces the consumption of the good by others. 
C) individuals can be easily excluded from consuming the good once it is provided. 
D) the quantity produced by a private market would be too large from society's viewpoint, because private firms could not force payment for the goods. 
E) the principle of mutual excludability and principle of rivalry does not apply.

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

Social cost is _____.

The major problem with common ownership is that, too much of the commonly owned is consumed, and not enough is produced.

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 Figure 13.3 represents a situation of:

Education is a good example of a positive externality because the benefits of an education accrue not only to the individual but also to society as a whole.

In order to reduce the possibility of adverse selection banks should raise their interest rates charged on the loans.

The figure given below shows the demand and supply curves of steel.Sp is the private supply curve, and Ss is the social supply curve that includes both private costs and external costs. Figure 13.2 In Figure 13.2, external costs are equal to _____.

Benefits granted to powerful special interest groups in return for political support are known as rents.

When all costs and benefits of a transaction are borne by the participants of that transaction:

According to the Coase theorem, high transaction costs necessarily call for government action.

_____ occurs when unobservable qualities are valued incorrectly because of a lack of information.

Under a marketable permit system, if the government reduces the quantity of permits, the price of each permit will increase.

The figure given below shows the demand and supply curves of steel.Sp is the private supply curve, and Ss is the social supply curve that includes both private costs and external costs. Figure 13.2 According to Figure 13.2:

A market failure occurs when:

The owner of a good has the right to decide how that good is used and to restrict others from using that good.This idea is known as:

When the government tries to control pollution through cap and trade, it _____.

When there exists a negative externality in case of a particular good and that is not reflected in the price:

One of the reasons that communism failed in the Soviet Union is that, under communism:

In the case of public goods:

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

The figure given below shows the demand and supply curves of steel.S_p is the private supply curve, and S_s is the social supply curve that includes both private costs and external costs. Figure 13.2 In Figure 13.2, external costs are equal to _____.

The figure given below shows the demand and supply curves of steel.S_p is the private supply curve, and S_s is the social supply curve that includes both private costs and external costs. Figure 13.2 According to Figure 13.2: