Question 1

In the case of a negative externality,the socially optimal output naturally exists if

Accepted Answer

A)  the external costs associated with the negative externality are extremely small. 
B)  the external costs divided by price is equal to price divided by marginal private cost. 
C)  there are no free riders. 
D)  the public good aspects of the negative externality outweigh the costs incurred by the negative externality. 
E)  none of the above 
A)  the external costs associated with the negative externality are extremely small. 
B)  the external costs divided by price is equal to price divided by marginal private cost. 
C)  there are no free riders. 
D)  the public good aspects of the negative externality outweigh the costs incurred by the negative externality. 
E)  none of the above

Question 2

Marginal social costs are equal to

Accepted Answer

A)  marginal private costs + external costs. 
B)  marginal private costs - external costs. 
C)  marginal private costs + internal costs. 
D)  marginal private costs - internal costs. 
A)  marginal private costs + external costs. 
B)  marginal private costs - external costs. 
C)  marginal private costs + internal costs. 
D)  marginal private costs - internal costs.

Question 3

Exhibit 31-2
  
-Refer to Exhibit 31-2.If the exhibit represents a positive externality situation,the private benefit of expanding output from Q1 to Q2 is the area of

Accepted Answer

A)  Q1ABQ2. 
B)  Q1AEQ2. 
C)  Q1CBQ2. 
D)  ABE. 
A)  Q1ABQ2. 
B)  Q1AEQ2. 
C)  Q1CBQ2. 
D)  ABE.

Question 4

Market failure is a situation in which

Accepted Answer

A)  negative economic profits persist in the long run. 
B)  negative economic profits exist in the short run. 
C)  the market does not provide the ideal or optimal amount of a particular good. 
D)  both a and b 
E)  a, b, and c 
A)  negative economic profits persist in the long run. 
B)  negative economic profits exist in the short run. 
C)  the market does not provide the ideal or optimal amount of a particular good. 
D)  both a and b 
E)  a, b, and c

Question 5

Suppose the production of a good results in positive externalities.If output occurs at the intersection of the marginal social benefits curve and the supply curve,then

Accepted Answer

A)  output will be at a higher level than if all benefits were not taken into account. 
B)  output will be at a lower level than the socially optimal level. 
C)  the marginal private benefit curve will lie above and to the right of the marginal social benefit curve. 
D)  there will be underproduction. 
E)  all of the above 
A)  output will be at a higher level than if all benefits were not taken into account. 
B)  output will be at a lower level than the socially optimal level. 
C)  the marginal private benefit curve will lie above and to the right of the marginal social benefit curve. 
D)  there will be underproduction. 
E)  all of the above

Exam 31: Market Failure: Externalities, Public Goods, and Asymmetric Information

In the case of a negative externality,the socially optimal output naturally exists if

Marginal social costs are equal to

Exhibit 31-2 -Refer to Exhibit 31-2.If the exhibit represents a positive externality situation,the private benefit of expanding output from Q1 to Q2 is the area of

Market failure is a situation in which

Suppose the production of a good results in positive externalities.If output occurs at the intersection of the marginal social benefits curve and the supply curve,then

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Exhibit 31-2 -Refer to Exhibit 31-2.If the exhibit represents a positive externality situation,the private benefit of expanding output from Q₁ to Q₂ is the area of