Question 1

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of

Accepted Answer

A)  new cars declining in quality because of competition from used cars.
B)  a declining quality of used cars for sale in the market.
C)  a rising quality of used cars for sale in the market.
D)  used-car buyers willing to pay higher prices in the market.E) All of the above
F) None of the above

Question 2

What resource problem is created by negative externalities?

Accepted Answer

A negative externality occurs as an over...

Question 3

Refer to the provided supply and demand graph. S₁ and D₁ represent the current market supply and demand, respectively. S₂ and D₂ represent the socially optimal supply and demand. One way that the government could shift demand to its socially optimal level is to

Accepted Answer

A)  tax the sellers.
B)  tax the buyers.
C)  subsidize the sellers.
D)  subsidize the buyers.E) A) and B)
F) A) and C)

Question 4

People with high opportunity costs for time won't mind sitting in traffic.

Accepted Answer

A) True 
 B)False

Question 5

If pollution coming from factories is bad, then why would the socially optimal level of pollution not be zero?

Accepted Answer

A)  because there are significant social costs of achieving zero pollution
B)  because there are significant social benefits from attaining zero pollution
C)  because the factories are privately owned in a market system
D)  because there are zero benefits from zero pollutionE) A) and D)
F) C) and D)

Question 6

The franchising of fast-food restaurants would be an example of how a private business

Accepted Answer

A)  overcomes product information problems.
B)  solves the moral hazard problem in insurance.
C)  expands the limits of the Coase theorem.
D)  corrects the problem of externalities.E) A) and D)
F) None of the above

Question 7

A competitive market produces the economically efficient outcome if the following conditions are met, except

Accepted Answer

A)  the market produces only units for which benefits are at least equal to cost.
B)  the market demand curve reflects the buyers' full willingness to pay.
C)  the market supply curve reflects all costs of production.
D)  the market produces only units for which costs are at least equal to benefits.E) C) and D)
F) A) and B)

Question 8

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

Accepted Answer

A) True 
 B)False

Question 9

As it applies to insurance, the adverse selection 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) B) and D)
F) A) and B)

Question 10

Depositors do not check their banks carefully for stability anymore, because of the federal deposit insurance program. This illustrates the problem of

Accepted Answer

A)  adverse selection.
B)  externalities.
C)  moral hazard.
D)  public goods.E) A) and B)
F) All of the above

Question 11

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Accepted Answer

A) True 
 B)False

Question 12

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) None of the above
F) B) and C)

Question 13

Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except

Accepted Answer

A)  subsiding the buyers of the product.
B)  taxing the sellers of the product.
C)  subsidizing the sellers of the product.
D)  providing the product itself.E) A) and B)
F) A) and C)

Question 14

When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q₀ and that government purposely shifts the market supply curve from S to S₁ in diagram (a) on the left and from S to S₂ in diagram (b) on the right. We can conclude that the government is correcting for

Accepted Answer

A)  negative externalities in diagram (a) and positive externalities in diagram (b) .
B)  positive externalities in diagram (a) and negative externalities in diagram (b) .
C)  negative externalities in both diagrams.
D)  positive externalities in both diagrams.E) A) and C)
F) C) and D)

Question 16

Refer to the provided graph of a competitive market. If the output level is Q₂, then there will be

Accepted Answer

A)  allocative efficiency.
B)  maximum deadweight losses.
C)  maximum consumer surplus.
D)  greater marginal benefits than marginal costs of the product.E) A) and D)
F) None of the above

Question 17

Discuss how congestion pricing works to eliminate crowded roadways.

Accepted Answer

When traffic is moderate or heavy, drive...

Question 18

When you enter a congested roadway,

Accepted Answer

A)  you are the only driver that is experiencing a negative externality from the heavy traffic.
B)  the opportunity cost of idling in slow traffic is the only additional cost.
C)  the increased use of gasoline is the only external cost incurred.
D)  there are mutual external costs from the slow traffic that include increased gasoline costs and more time spent on the roadway.E) C) and D)
F) B) and C)

Question 19

1, A) efficiency is achieved. B) consumer surplus is maximized. C) an efficiency loss (or deadweight loss) of b + d occurs. D) an efficiency loss (or deadweight loss) of e + d occurs." class="answers-bank-image d-inline" rel="preload" > Refer to the diagram. If actual production and consumption occur at Q1,

Accepted Answer

A)  efficiency is achieved.
B)  consumer surplus is maximized.
C)  an efficiency loss (or deadweight loss) of b + d occurs.
D)  an efficiency loss (or deadweight loss) of e + d occurs.E) A) and B)
F) A) and C)

Question 20

Refer to the provided graph of a competitive market. If the output level is Q₁, then there are efficiency losses indicated by the area

Accepted Answer

A)  0 abe.
B)  bce.
C)  0 eQ₁.
D)  ecf.E) All of the above
F) None of the above

Exam 4: Market Failures Caused by Externalities Asymmetric Information

What resource problem is created by negative externalities?

Correct Answer
verified
A negative externality occurs as an over...
View Answer

The franchising of fast-food restaurants would be an example of how a private business

Correct Answer
verified

Discuss how congestion pricing works to eliminate crowded roadways.

Correct Answer
verified
When traffic is moderate or heavy, drive...
View Answer

Correct Answer
verified

Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except

Correct Answer
verified

Refer to the provided supply and demand graph. S₁ and D₁ represent the current market supply and demand, respectively. S₂ and D₂ represent the socially optimal supply and demand. One way that the government could shift demand to its socially optimal level is to

Correct Answer
verified

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of

Correct Answer
verified

When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

Correct Answer
verified

People with high opportunity costs for time won't mind sitting in traffic.

Correct Answer
verified

Refer to the provided graph of a competitive market. If the output level is Q₁, then there are efficiency losses indicated by the area

Correct Answer
verified

Refer to the diagram. If actual production and consumption occur at Q₁,

Correct Answer
verified

A competitive market produces the economically efficient outcome if the following conditions are met, except

Correct Answer
verified

Refer to the provided graph of a competitive market. If the output level is Q₂, then there will be

Correct Answer
verified

As it applies to insurance, the adverse selection problem is the tendency for

Correct Answer
verified

If pollution coming from factories is bad, then why would the socially optimal level of pollution not be zero?

Correct Answer
verified

Depositors do not check their banks carefully for stability anymore, because of the federal deposit insurance program. This illustrates the problem of

Correct Answer
verified

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Correct Answer
verified

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

Correct Answer
verified

When you enter a congested roadway,

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

Exam 4: Market Failures Caused by Externalities Asymmetric Information

What resource problem is created by negative externalities?

Correct AnswerverifiedA negative externality occurs as an over...View AnswerShow Answer

The franchising of fast-food restaurants would be an example of how a private business

Correct AnswerverifiedShow Answer

Discuss how congestion pricing works to eliminate crowded roadways.

Correct AnswerverifiedWhen traffic is moderate or heavy, drive...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except

Correct AnswerverifiedShow Answer

Refer to the provided supply and demand graph. S₁ and D₁ represent the current market supply and demand, respectively. S₂ and D₂ represent the socially optimal supply and demand. One way that the government could shift demand to its socially optimal level is to

Correct AnswerverifiedShow Answer

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of

Correct AnswerverifiedShow Answer

When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

Correct AnswerverifiedShow Answer

People with high opportunity costs for time won't mind sitting in traffic.

Correct AnswerverifiedShow Answer

Refer to the provided graph of a competitive market. If the output level is Q₁, then there are efficiency losses indicated by the area

Correct AnswerverifiedShow Answer

Refer to the diagram. If actual production and consumption occur at Q1,

Correct AnswerverifiedShow Answer

A competitive market produces the economically efficient outcome if the following conditions are met, except

Correct AnswerverifiedShow Answer

Refer to the provided graph of a competitive market. If the output level is Q₂, then there will be

Correct AnswerverifiedShow Answer

As it applies to insurance, the adverse selection problem is the tendency for

Correct AnswerverifiedShow Answer

If pollution coming from factories is bad, then why would the socially optimal level of pollution not be zero?

Correct AnswerverifiedShow Answer

Depositors do not check their banks carefully for stability anymore, because of the federal deposit insurance program. This illustrates the problem of

Correct AnswerverifiedShow Answer

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Correct AnswerverifiedShow Answer

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

Correct AnswerverifiedShow Answer

When you enter a congested roadway,

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

Correct Answer
verified
A negative externality occurs as an over...
View Answer

Correct Answer
verified

Correct Answer
verified
When traffic is moderate or heavy, drive...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Refer to the diagram. If actual production and consumption occur at Q₁,

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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