Question 1

Public goods are those for which there

Accepted Answer

A) is no free-rider problem. 
B) are no externalities. 
C) are nonrivalry and non excludability. 
D) are rivalry and excludability.

Question 2

Which of the following statements is not true?

Accepted Answer

A) Some public goods are paid for by private philanthropy. 
B) Private provision of public goods is usually unprofitable. 
C) The free-rider problem results from the characteristics of nonrivalry and nonexcludability. 
D) Public goods are only provided by government.

Question 3

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment.If the government intervenes and corrects the externality in the situation described, we would expect

Accepted Answer

A) the supply of the output from the hydroelectric power plants to decrease. 
B) the supply of the output from the hydroelectric power plants to increase. 
C) the demand for the output from the hydroelectric power plants to decrease. 
D) the demand for the output from the hydroelectric power plants to increase.

Question 4

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero.

Accepted Answer

A) True 
 B)False

Question 5

An effective antipollution policy from the economic perspective requires that all pollution be eliminated and banned.

Accepted Answer

A) True 
 B)False

Question 6

The socially optimal amount of pollution abatement occurs where society's marginal

Accepted Answer

A) benefit of abatement exceeds its marginal cost of abatement by the greatest amount. 
B) benefit of abatement equals its marginal cost of abatement. 
C) benefit of abatement is zero. 
D) cost of abatement is at its maximum.

Question 7

From an economist's perspective, an important consideration for policies to address global warming is

Accepted Answer

A) the market for recyclable inputs. 
B) the supply and demand for recycled products. 
C) the marginal cost and marginal benefit of the policies. 
D) a lawsuit that can arise from the enactment of the policies.

Question 8

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

Accepted Answer

A) True 
 B)False

Question 9

A public good

Accepted Answer

A) can be profitably produced by private firms. 
B) is characterized by rivalry and excludability. 
C) produces no positive or negative externalities. 
D) is available to all and cannot be denied to anyone.

Question 10

A positive externality or spillover benefit occurs when

Accepted Answer

A) product differentiation increases the variety of products available to consumers. 
B) the benefits associated with a product exceed those accruing to people who consume it. 
C) a firm does not bear all of the costs of producing a good or service. 
D) firms earn positive economic profits.

Question 11

If many people in a community get flu shots, the whole community benefits, including those that did not get flu shots.Therefore, not enough people may decide to get the shots.This is one illustration of

Accepted Answer

A) the market allocating resources efficiently. 
B) monopoly power due to lack of competition. 
C) supply-side market failure. 
D) demand-side market failure.

Question 12

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good.Also, assume that the marginal cost of the third unit is $17.We can conclude that

Accepted Answer

A) the third unit should not be produced. 
B) the third unit should be produced. 
C) zero units should be produced. 
D) 4 units should be produced.

Question 13

Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers?

Accepted Answer

A) providing unemployment compensation insurance 
B) sponsoring legislation to reduce pollution 
C) licensing of medical doctors and surgeons 
D) requiring all car drivers to buy auto insurance

Question 14

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

Accepted Answer

A) an increase in the value of land you own when a nearby development is completed 
B) the costs paid by a company to build an automated factory 
C) falling property values in a neighborhood where a disreputable nightclub is operating 
D) the higher price you pay when you buy a heavily advertised product

Question 15

In the insurance business, the moral hazard problem arises when

Accepted Answer

A) not-so-healthy people are the ones more eager to buy insurance. 
B) people with unhealthy lifestyles buy more insurance coverage. 
C) people who have car-insurance coverage drive less carefully. 
D) people do not get sufficient car-insurance coverage.

Question 16

(Last Word) A cap-and-trade program

Accepted Answer

A) assigns a property right to the atmosphere. 
B) mandates that every firm individually cut its emissions to below a certain level. 
C) assigns a property right to polluting the atmosphere. 
D) is easy to establish and enforce.

Question 17

When producers (say, of roads) are not able to make all consumers pay for enjoying their product (i.e., the roads), they tend to see a

Accepted Answer

A) marginal cost of production that is too low, and there is a supply-side market failure. 
B) marginal benefit of production that is too high, and there is a demand-side market failure. 
C) marginal cost of production that is too high, and there is a supply-side market failure. 
D) marginal benefit of production that is too low, and there is a demand-side market failure.

Question 18

Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

Accepted Answer

A) True 
 B)False

Question 19

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically

Accepted Answer

A) generates more of a benefit than it costs to produce. 
B) produces a benefit exactly equal to the cost of producing the last unit. 
C) maximizes the net benefit to society. 
D) costs more to produce than it provides in benefits.

Question 20

In response to the financial crisis that began in 2007, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future.This illustrates

Accepted Answer

A) the adverse selection problem. 
B) the moral hazard problem. 
C) the principal-agent problem. 
D) logrolling.

Exam 4: Market Failures: Public Goods and Externalities

Public goods are those for which there

Which of the following statements is not true?

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero.

An effective antipollution policy from the economic perspective requires that all pollution be eliminated and banned.

The socially optimal amount of pollution abatement occurs where society's marginal

From an economist's perspective, an important consideration for policies to address global warming is

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

A public good

A positive externality or spillover benefit occurs when

If many people in a community get flu shots, the whole community benefits, including those that did not get flu shots.Therefore, not enough people may decide to get the shots.This is one illustration of

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good.Also, assume that the marginal cost of the third unit is $17.We can conclude that

Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers?

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

In the insurance business, the moral hazard problem arises when

(Last Word) A cap-and-trade program

When producers (say, of roads) are not able to make all consumers pay for enjoying their product (i.e., the roads) , they tend to see a

Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically

In response to the financial crisis that began in 2007, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future.This illustrates