Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

Accepted Answer

A) True 
 B)False

Question 3

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences

Accepted Answer

A)   a consumer surplus of $10, and Tony experiences a producer surplus of $190.
B)   a producer surplus of $200, and Tony experiences a consumer surplus of $10.
C)   a consumer surplus of $670, and Tony experiences a producer surplus of $200.
D)   a producer surplus of $10, and Tony experiences a consumer surplus of $190.E) A) and B)
F) B) and C)

Question 4

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

Accepted Answer

A)   taxed.
B)   prohibited.
C)   subsidized.
D)   left alone.E) B) and C)
F) A) and B)

Question 5

At the optimal quantity of a public good,

Accepted Answer

A)   marginal benefit exceeds marginal cost by the greatest amount.
B)   total benefit equals total cost.
C)   marginal benefit equals marginal cost.
D)   marginal benefit is zero.E) None of the above
F) C) and D)

Question 6

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the

Accepted Answer

A)   buyer and the government.
B)   seller and the government.
C)   taxpayer and the government.
D)   buyer and the seller.E) A) and D)
F) None of the above

Question 7

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?

Accepted Answer

A)   positive externality
B)   demand-side market failure
C)   supply-side market failure
D)   all of theseE) B) and C)
F) None of the above

Question 8

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

Question 9

Assume that a government is considering a new social program and may choose to include in this program one of four progressively larger projects. The marginal cost and the marginal benefits of each of the four projects are given in the table below. Refer to the provided table and information. What is the net benefit of project D?

Accepted Answer

A)   $1 billion
B)   $3 billion
C)   $4 billion
D)   $20 billionE) A) and B)
F) A) and C) C

Question 10

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. a and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society.   If the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be A)  1 unit. B)  2 units. C)  3 units. D)  4 units." class="answers-bank-image d-inline" rel="preload" > If the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be

Accepted Answer

A)   1 unit.
B)   2 units.
C)   3 units.
D)   4 units.E) A) and B)
F) A) and C)

Question 11

Credit bureaus provide credit histories to banks and insurance companies, in order to help deal with the problem of

Accepted Answer

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

Question 12

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

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

Question 13

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) C) and D)
F) B) and C)

Question 14

Sellers will opt out of markets in which

Accepted Answer

A)   there are significant negative externalities.
B)   standardized products exist.
C)   there are only foreign buyers.
D)   information about buyers is inadequate, and some buyers can impose high costs on the sellers.E) All of the above
F) B) and D)

Question 15

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

Accepted Answer

A)   $19.
B)   $0.90.
C)   $90.
D)   $1.E) All of the above
F) A) and B)

Question 16

Cost-benefit analysis attempts to

Accepted Answer

A)   compare the real worth, rather than the market values, of various goods and services.
B)   compare the relative desirability of alternative distributions of income.
C)   determine whether it is better to cut government expenditures or reduce taxes.
D)   compare the benefits and costs associated with any economic project or activity.E) B) and C)
F) C) and D) D

Question 17

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

Accepted Answer

A)   a consumer surplus of $12, and Nathan experiences a producer surplus of $3.
B)   a producer surplus of $9, and Nathan experiences a consumer surplus of $3.
C)   a consumer surplus of $9, and Nathan experiences a producer surplus of $3.
D)   a producer surplus of $9, and Nathan experiences a producer surplus of $12.E) B) and C)
F) None of the above

Question 18

When producers do not produce the efficient amount of a product because they are unable to charge consumers what they need to get in order to produce the efficient amount, then we have a

Accepted Answer

A)   demand-side market failure.
B)   supply-side market failure.
C)   competitive market.
D)   monopolistic market.E) A) and D)
F) None of the above

Question 19

What are the two characteristics that differentiate private goods from public goods?

Accepted Answer

A)   rivalry and excludability
B)   negative externality and positive externality
C)   marginal cost and marginal benefit
D)   ownership and usageE) None of the above
F) All of the above

Question 20

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. In the situation described above, we would expect an

Accepted Answer

A)   overproduction of paper in the mills.
B)   underproduction of paper in the mills.
C)   external cost resulting from the production of hydroelectric power.
D)   overproduction of power by the hydroelectric plants.E) A) and C)
F) A) and B)

Exam 4: Market Failures: Public Goods and Externalities

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

Correct Answer
verified

Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

Correct Answer
verified

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences

Correct Answer
verified

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

Correct Answer
verified

At the optimal quantity of a public good,

Correct Answer
verified

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the

Correct Answer
verified

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?

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
B

Correct Answer
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C

Correct Answer
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Credit bureaus provide credit histories to banks and insurance companies, in order to help deal with the problem of

Correct Answer
verified

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

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

Sellers will opt out of markets in which

Correct Answer
verified

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

Correct Answer
verified

Cost-benefit analysis attempts to

Correct Answer
verified
D

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

Correct Answer
verified

When producers do not produce the efficient amount of a product because they are unable to charge consumers what they need to get in order to produce the efficient amount, then we have a

Correct Answer
verified

What are the two characteristics that differentiate private goods from public goods?

Correct Answer
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Correct Answer
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Exam 4: Market Failures: Public Goods and Externalities

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

Correct AnswerverifiedShow Answer

Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

Correct AnswerverifiedShow Answer

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences

Correct AnswerverifiedShow Answer

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

Correct AnswerverifiedShow Answer

At the optimal quantity of a public good,

Correct AnswerverifiedShow Answer

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the

Correct AnswerverifiedShow Answer

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?

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 AnswerverifiedB

Correct AnswerverifiedC

Correct AnswerverifiedShow Answer

Credit bureaus provide credit histories to banks and insurance companies, in order to help deal with the problem of

Correct AnswerverifiedShow Answer

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

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

Sellers will opt out of markets in which

Correct AnswerverifiedShow Answer

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

Correct AnswerverifiedShow Answer

Cost-benefit analysis attempts to

Correct AnswerverifiedD

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

Correct AnswerverifiedShow Answer

When producers do not produce the efficient amount of a product because they are unable to charge consumers what they need to get in order to produce the efficient amount, then we have a

Correct AnswerverifiedShow Answer

What are the two characteristics that differentiate private goods from public goods?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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B

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C

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D

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