Question 1

A positive externality is internalized when

Accepted Answer

A)  demand shifts to the right until the socially optimum level of output is obtained. 
B)  demand shifts to the left until the socially optimum level of production is obtained. 
C)  supply shifts to the left until the socially optimum level of production is obtained. 
D)  b and c 
E)  none of the above 
A)  demand shifts to the right until the socially optimum level of output is obtained. 
B)  demand shifts to the left until the socially optimum level of production is obtained. 
C)  supply shifts to the left until the socially optimum level of production is obtained. 
D)  b and c 
E)  none of the above

Question 2

Suppose the production of a good results in negative externalities.If output is at the intersection of the demand curve and the marginal social cost curve,then

Accepted Answer

A)  the socially optimal level of output will be produced. 
B)  society will incur a net social cost. 
C)  society will want less output produced, and producers will be willing to satisfy this desire at a price that society deems acceptable. 
D)  b and c 
A)  the socially optimal level of output will be produced. 
B)  society will incur a net social cost. 
C)  society will want less output produced, and producers will be willing to satisfy this desire at a price that society deems acceptable. 
D)  b and c

Question 3

A nonexcludable public good is

Accepted Answer

A)  nonrivalrous in consumption. 
B)  rivalrous in consumption. 
C)  asymmetric. 
D)  a good for which it is impossible (or prohibitively costly) to exclude someone from receiving the benefits of its services. 
E)  a and d 
A)  nonrivalrous in consumption. 
B)  rivalrous in consumption. 
C)  asymmetric. 
D)  a good for which it is impossible (or prohibitively costly) to exclude someone from receiving the benefits of its services. 
E)  a and d

Question 4

A nonexcludable public good is characterized by nonrivalry in

Accepted Answer

A)  production and nonexcludability. 
B)  consumption and rivalry in production. 
C)  consumption and excludability. 
D)  consumption and nonexcludability. 
E)  none of the above 
A)  production and nonexcludability. 
B)  consumption and rivalry in production. 
C)  consumption and excludability. 
D)  consumption and nonexcludability. 
E)  none of the above

Question 5

Exhibit 31-3
  
-Refer to Exhibit 31-3.What is the cost to Firm B of eliminating 2 tons of pollution?

Accepted Answer

A)  $350 
B)  $250 
C)  $300 
D)  $140 
E)  $540 
A)  $350 
B)  $250 
C)  $300 
D)  $140 
E)  $540

Question 6

Insurance deductibles __________ the __________ problem of insurance coverage.

Accepted Answer

A)  are meant to reduce; adverse selection 
B)  are meant to reduce; moral hazard 
C)  unintentionally worsen; adverse selection 
D)  unintentionally worsen; moral hazard 
A)  are meant to reduce; adverse selection 
B)  are meant to reduce; moral hazard 
C)  unintentionally worsen; adverse selection 
D)  unintentionally worsen; moral hazard

Question 7

There are two divorce laws,A and B.Under A,it takes only one person to agree to a divorce and the divorce is granted.Under B,it takes two persons to agree to a divorce before it is granted.According to Coase,

Accepted Answer

A)  there will be the same number of divorces under both laws if transaction costs are zero. 
B)  there will be more divorces under law A. 
C)  there will be more divorces under law B. 
D)  taxes should be imposed on those parties who seek divorces. 
E)  subsidies should be granted to those persons who unwillingly get divorces. 
A)  there will be the same number of divorces under both laws if transaction costs are zero. 
B)  there will be more divorces under law A. 
C)  there will be more divorces under law B. 
D)  taxes should be imposed on those parties who seek divorces. 
E)  subsidies should be granted to those persons who unwillingly get divorces.

Question 8

Exhibit 31-3
  
-Refer to Exhibit 31-3.Suppose that Firms A,B,and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere.To cut the level of pollution in half,the government mandates system whereby each firm must reduce its pollution level by one-half.The total cost of complying with the mandate is

Accepted Answer

A)  $433. 
B)  $1,540. 
C)  $2,750. 
D)  $8,570. 
E)  $11,650. 
A)  $433. 
B)  $1,540. 
C)  $2,750. 
D)  $8,570. 
E)  $11,650.

Question 9

Exhibit 31-3
  
-Refer to Exhibit 31-3.Suppose that Firms A,B,and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere.To cut the level of pollution in half the government issues two transferable pollution permits to each firm. What is the total cost to society of decreasing pollution to half its present level if firm C buys one pollution permit from firm A and one pollution permit from firm B?

Accepted Answer

A)  $515 
B)  $1,300 
C)  $1,380 
D)  $965 
E)  $10,350 
A)  $515 
B)  $1,300 
C)  $1,380 
D)  $965 
E)  $10,350

Question 10

If private property rights were established in the air,there would probably be

Accepted Answer

A)  more air pollution. 
B)  less air pollution. 
C)  the same amount of air pollution that exists without private property rights in the air. 
D)  better weather. 
A)  more air pollution. 
B)  less air pollution. 
C)  the same amount of air pollution that exists without private property rights in the air. 
D)  better weather.

Question 11

A positive externality exists when

Accepted Answer

A)  a person's or group's actions cause a benefit that is felt by others. 
B)  a person's or group's actions cause a cost that is felt by others. 
C)  market output is less than socially optimal output. 
D)  a and c 
E)  b and c 
A)  a person's or group's actions cause a benefit that is felt by others. 
B)  a person's or group's actions cause a cost that is felt by others. 
C)  market output is less than socially optimal output. 
D)  a and c 
E)  b and c

Question 12

Exhibit 31-2
  
-Refer to Exhibit 31-2.If Exhibit 30-2 exhibits a positive externality situation,then what is Q2?

Accepted Answer

A)  It is the quantity of output at which marginal social benefits (MS
B)  equal marginal private benefits (MP
B) . 
B)  It is the quantity of output at which MPB > MSB. 
C)  It is the market output-the quantity of output that exists if the external benefits associated with the positive externality are not taken into account. 
D)  It is the socially optimal output-the quantity of output that exists if the external benefits associated with the positive externality are taken into account. 
E)  none of the above 
A)  It is the quantity of output at which marginal social benefits (MS
B)  equal marginal private benefits (MP
B) . 
B)  It is the quantity of output at which MPB > MSB. 
C)  It is the market output-the quantity of output that exists if the external benefits associated with the positive externality are not taken into account. 
D)  It is the socially optimal output-the quantity of output that exists if the external benefits associated with the positive externality are taken into account. 
E)  none of the above

Question 13

Exhibit 31-1
  
-Refer to Exhibit 31-1.If the exhibit represents a negative externality situation,the triangle ABC is representative of

Accepted Answer

A)  social failure. 
B)  optimal failure. 
C)  market failure. 
D)  socially optimal output. 
E)  none of the above 
A)  social failure. 
B)  optimal failure. 
C)  market failure. 
D)  socially optimal output. 
E)  none of the above

Question 14

One consequence of a negative externality is that

Accepted Answer

A)  social costs are greater than private costs. 
B)  private costs are greater than social costs. 
C)  the marginal private cost curve slopes upward. 
D)  the market output is less than the socially optimal output. 
E)  a and c 
A)  social costs are greater than private costs. 
B)  private costs are greater than social costs. 
C)  the marginal private cost curve slopes upward. 
D)  the market output is less than the socially optimal output. 
E)  a and c

Question 15

When a negative externality exists,the market is said to underproduce the good connected with the negative externality.

Accepted Answer

A) True 
 B)False

Question 16

A negative externality is internalized when __________ until the socially optimum level of production is obtained.

Accepted Answer

A)  supply shifts to the left 
B)  supply shifts to the right 
C)  demand shifts to the right 
D)  b and c 
E)  none of the above 
A)  supply shifts to the left 
B)  supply shifts to the right 
C)  demand shifts to the right 
D)  b and c 
E)  none of the above

Question 17

If the consumption of a good by one person reduces the amount of it that can be consumed by others,the good is

Accepted Answer

A)  excludable. 
B)  nonexcludable. 
C)  rivalrous in consumption. 
D)  nonrivalrous in consumption. 
A)  excludable. 
B)  nonexcludable. 
C)  rivalrous in consumption. 
D)  nonrivalrous in consumption.

Question 18

Generally,positive externalities result in

Accepted Answer

A)  too much of a good being produced. 
B)  the socially optimal output of a good being produced. 
C)  too little of a good being produced. 
D)  either a or c 
E)  any of the above 
A)  too much of a good being produced. 
B)  the socially optimal output of a good being produced. 
C)  too little of a good being produced. 
D)  either a or c 
E)  any of the above

Question 19

In the case of a positive externality,the entire demand curve lies

Accepted Answer

A)  above the entire marginal social benefit curve. 
B)  below the entire marginal social benefit curve. 
C)  above the entire supply curve. 
D)  below the entire supply curve. 
E)  b and c 
A)  above the entire marginal social benefit curve. 
B)  below the entire marginal social benefit curve. 
C)  above the entire supply curve. 
D)  below the entire supply curve. 
E)  b and c

Question 20

The free-rider problem arises if goods are

Accepted Answer

A)  nonrivalrous in consumption. 
B)  rivalrous in consumption. 
C)  nonexcludable. 
D)  excludable. 
E)  a and d 
A)  nonrivalrous in consumption. 
B)  rivalrous in consumption. 
C)  nonexcludable. 
D)  excludable. 
E)  a and d

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

A positive externality is internalized when

Suppose the production of a good results in negative externalities.If output is at the intersection of the demand curve and the marginal social cost curve,then

A nonexcludable public good is

A nonexcludable public good is characterized by nonrivalry in

Exhibit 31-3 -Refer to Exhibit 31-3.What is the cost to Firm B of eliminating 2 tons of pollution?

Insurance deductibles __________ the __________ problem of insurance coverage.

There are two divorce laws,A and B.Under A,it takes only one person to agree to a divorce and the divorce is granted.Under B,it takes two persons to agree to a divorce before it is granted.According to Coase,

If private property rights were established in the air,there would probably be

A positive externality exists when

Exhibit 31-2 -Refer to Exhibit 31-2.If Exhibit 30-2 exhibits a positive externality situation,then what is Q2?

Exhibit 31-1 -Refer to Exhibit 31-1.If the exhibit represents a negative externality situation,the triangle ABC is representative of

One consequence of a negative externality is that

When a negative externality exists,the market is said to underproduce the good connected with the negative externality.

A negative externality is internalized when __________ until the socially optimum level of production is obtained.

If the consumption of a good by one person reduces the amount of it that can be consumed by others,the good is

Generally,positive externalities result in

In the case of a positive externality,the entire demand curve lies

The free-rider problem arises if goods are

What Economics Is About

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Insurance deductibles the problem of insurance coverage.

Exhibit 31-2 -Refer to Exhibit 31-2.If Exhibit 30-2 exhibits a positive externality situation,then what is Q₂?