Question 1

If the consumer is willing to pay a price higher than the actual price of a product, then the consumer will not buy the product because the consumer surplus will be negative.

Accepted Answer

A) True 
 B)False

Question 2

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of

Accepted Answer

A)  diminishing marginal utility.
B)  conservation of matter and energy.
C)  demand.
D)  diminishing returns.E) None of the above
F) All of the above

Question 3

For which one of the following goods would we need to sum individual demand curves vertically to obtain the total demand curve?

Accepted Answer

A)  frozen yogurt
B)  bubble gum
C)  microwave popcorn
D)  courts of lawE) A) and D)
F) A) and B)

Question 4

Which of the following does not illustrate the asymmetric information problem?

Accepted Answer

A)  Ordinary financial investors do not know the motivations of financial advisers.
B)  Ordinary customers do not know how sanitarily the food is prepared in a restaurant.
C)  Ordinary stock buyers do not know what will happen to the stock's price next week.
D)  Ordinary car buyers do not know the actual quality of the various cars in the dealer's lot.E) All of the above
F) A) and D)

Question 5

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.Refer to the above information.Which of the following policies would be most appropriate for dealing with this problem?

Accepted Answer

A)  levy a Pigovian tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources
B)  levy a Pigovian tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products
C)  levy a Pigovian tax on the producers of electricity and use the tax revenues to clean up the river
D)  levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the riverE) A) and D)
F) All of the above

Question 6

The free-rider problem makes a good highly profitable for a private firm to provide.

Accepted Answer

A) True 
 B)False

Question 7

When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.

Accepted Answer

A) True 
 B)False

Question 8

Among the following examples, the one that best illustrates a public good is

Accepted Answer

A)  the laptops used by students in a college or university.
B)  the movies produced by Hollywood companies.
C)  the bike paths around a city or town.
D)  the airline tickets bought by vacationers.E) A) and D)
F) All of the above

Question 9

The market system does not produce public goods because

Accepted Answer

A)  there is no need or demand for such goods.
B)  private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
C)  public enterprises can produce such goods at lower cost than can private enterprises.
D)  their production seriously distorts the distribution of income.E) A) and B)
F) All of the above

Question 10

Which of the following is an example of a market failure?

Accepted Answer

A)  There are not enough tickets available to concerts of extremely popular performers and artists.
B)  The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and procedures.
C)  Successful public schools provide benefits to the students who attend them, as well as to the community as a whole, including those who don't go to those public schools.
D)  Sharply declining prices of electronic equipment result in large numbers of bankruptcies in the computer industry.E) B) and C)
F) C) and D)

Question 11

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars.This is an example of

Accepted Answer

A)  the moral hazard problem.
B)  a spillover cost.
C)  a positive externality.
D)  asymmetric information.E) B) and C)
F) B) and D)

Question 12

(Consider This) The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

Accepted Answer

A) True 
 B)False

Question 13

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by

Accepted Answer

A)  providing a subsidy to correct for an overallocation of resources.
B)  providing a subsidy to correct for an underallocation of resources.
C)  imposing a corrective tax to correct for an overallocation of resources.
D)  imposing a corrective tax to correct for an underallocation of resources.E) A) and C)
F) A) and B)

Question 14

Nonrivalry in the use or consumption of a good means that only one person is consuming the good without any rivals.

Accepted Answer

A) True 
 B)False

Question 15

As it applies to insurance, the moral hazard problem is the tendency for

Accepted Answer

A)  those most likely to collect on insurance to buy it.
B)  those who buy insurance to take less precaution in avoiding the insured risk.
C)  sellers to price discriminate.
D)  sellers to restrict output and charge high prices.E) C) and D)
F) A) and C)

Question 16

If Congress decreases the amount of government insurance on bank deposits, then this action would

Accepted Answer

A)  create a moral hazard problem in banking.
B)  reduce a moral hazard problem in banking.
C)  create an adverse selection problem in banking.
D)  reduce an adverse selection problem in banking.E) None of the above
F) B) and C)

Question 17

Allocative efficiency occurs only at that output where

Accepted Answer

A)  marginal benefit exceeds marginal cost by the greatest amount.
B)  consumer surplus exceeds producer surplus by the greatest amount.
C)  the combined amounts of consumer surplus and producer surplus are maximized.
D)  the areas of consumer and producer surplus are equal.E) All of the above
F) A) and B)

Question 18

The optimal quantity of a public good is where the total benefits from it are equal to the total costs of producing it.

Accepted Answer

A) True 
 B)False

Question 19

Graphically, producer surplus is measured as the area

Accepted Answer

A)  under the demand curve and below the actual price.
B)  under the demand curve and above the actual price.
C)  above the supply curve and above the actual price.
D)  above the supply curve and below the actual price.E) All of the above
F) B) and D)

Question 20

(Consider This)  Augi is the hottest new pop singer, but her agent discovers that Internet sales of Augi's music have been poor due to Internet piracy.However, concerts are regularly sold out and merchandise (such as T-shirts)  sells well.If Augi wants to enhance profits, economists would most likely recommend that she

Accepted Answer

A)  charge more for downloads, concerts, and merchandise.
B)  cut prices for downloads, concerts, and merchandise.
C)  only give concerts.
D)  keep prices of downloads low and raise prices for concerts and merchandise.E) A) and B)
F) C) and D)

Exam 4: Market Failures: Public Goods and Externalities

The market system does not produce public goods because

Correct Answer
verified

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars.This is an example of

Correct Answer
verified

Allocative efficiency occurs only at that output where

Correct Answer
verified

If the consumer is willing to pay a price higher than the actual price of a product, then the consumer will not buy the product because the consumer surplus will be negative.

Correct Answer
verified

(Consider This) The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

Correct Answer
verified

The optimal quantity of a public good is where the total benefits from it are equal to the total costs of producing it.

Correct Answer
verified

Nonrivalry in the use or consumption of a good means that only one person is consuming the good without any rivals.

Correct Answer
verified

When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.

Correct Answer
verified

Correct Answer
verified

For which one of the following goods would we need to sum individual demand curves vertically to obtain the total demand curve?

Correct Answer
verified

The free-rider problem makes a good highly profitable for a private firm to provide.

Correct Answer
verified

Graphically, producer surplus is measured as the area

Correct Answer
verified

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of

Correct Answer
verified

Among the following examples, the one that best illustrates a public good is

Correct Answer
verified

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by

Correct Answer
verified

Which of the following does not illustrate the asymmetric information problem?

Correct Answer
verified

If Congress decreases the amount of government insurance on bank deposits, then this action would

Correct Answer
verified

As it applies to insurance, the moral hazard problem is the tendency for

Correct Answer
verified

Correct Answer
verified

Which of the following is an example of a market failure?

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

The market system does not produce public goods because

Correct AnswerverifiedShow Answer

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars.This is an example of

Correct AnswerverifiedShow Answer

Allocative efficiency occurs only at that output where

Correct AnswerverifiedShow Answer

If the consumer is willing to pay a price higher than the actual price of a product, then the consumer will not buy the product because the consumer surplus will be negative.

Correct AnswerverifiedShow Answer

(Consider This) The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

Correct AnswerverifiedShow Answer

The optimal quantity of a public good is where the total benefits from it are equal to the total costs of producing it.

Correct AnswerverifiedShow Answer

Nonrivalry in the use or consumption of a good means that only one person is consuming the good without any rivals.

Correct AnswerverifiedShow Answer

When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For which one of the following goods would we need to sum individual demand curves vertically to obtain the total demand curve?

Correct AnswerverifiedShow Answer

The free-rider problem makes a good highly profitable for a private firm to provide.

Correct AnswerverifiedShow Answer

Graphically, producer surplus is measured as the area

Correct AnswerverifiedShow Answer

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of

Correct AnswerverifiedShow Answer

Among the following examples, the one that best illustrates a public good is

Correct AnswerverifiedShow Answer

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by

Correct AnswerverifiedShow Answer

Which of the following does not illustrate the asymmetric information problem?

Correct AnswerverifiedShow Answer

If Congress decreases the amount of government insurance on bank deposits, then this action would

Correct AnswerverifiedShow Answer

As it applies to insurance, the moral hazard problem is the tendency for

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an example of a market failure?

Correct AnswerverifiedShow Answer

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