Question 1

A positive externality or external benefit occurs when:

Accepted Answer

A) product differentiation increases the variety of products available to consumers. 
B) the benefits associated with a product exceed those accruing to people who consume it. 
C) a firm produces at the P = MC output. 
D) economic profits are zero in the long run. 
A) product differentiation increases the variety of products available to consumers. 
B) the benefits associated with a product exceed those accruing to people who consume it. 
C) a firm produces at the P = MC output. 
D) economic profits are zero in the long run. B

Question 2

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.Without government interference, this market will result in:

Accepted Answer

A) an optimal allocation of society's resources. 
B) an under-allocation of resources to this product. 
C) an over-allocation of resources to this product. 
D) a higher price than is consistent with an optimal allocation of resources. 
A) an optimal allocation of society's resources. 
B) an under-allocation of resources to this product. 
C) an over-allocation of resources to this product. 
D) a higher price than is consistent with an optimal allocation of resources. C

Question 3

The term "productive efficiency" refers to:

Accepted Answer

A) the situation where producer surplus is greater than consumer surplus. 
B) the production of the product-mix most desired by consumers. 
C) the production of a good in the least costly way. 
D) the production of any good which producer desires to produce. 
A) the situation where producer surplus is greater than consumer surplus. 
B) the production of the product-mix most desired by consumers. 
C) the production of a good in the least costly way. 
D) the production of any good which producer desires to produce. C

Question 4

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good.Also, assume that the marginal cost of the third unit is $17.We can conclude that:

Accepted Answer

A) the third unit should not be produced. 
B) the third unit should be produced. 
C) zero units should be produced. 
D) 4 units should be produced. 
A) the third unit should not be produced. 
B) the third unit should be produced. 
C) zero units should be produced. 
D) 4 units should be produced.

Question 6

From society's perspective, if MB2 and MC1 are relevant:

Accepted Answer

A) Q4 represents too little pollution moderation. 
B) Q1 represents too little pollution moderation. 
C) Q3 represents an optimal amount of pollution moderation. 
D) none of these is true. 
A) Q4 represents too little pollution moderation. 
B) Q1 represents too little pollution moderation. 
C) Q3 represents an optimal amount of pollution moderation. 
D) none of these is true.

Question 7

Refer to the diagrams below in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it.If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be:

Accepted Answer

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

Question 8

There is little incentive for an individual firm to voluntarily internalize its negative externalities because to do so would:

Accepted Answer

A) cause it to forgo the diseconomies of agglomeration. 
B) shift its cost curves downward. 
C) put it at a competitive disadvantage compared to rival producers. 
D) make it subject to emission or effluent fees. 
A) cause it to forgo the diseconomies of agglomeration. 
B) shift its cost curves downward. 
C) put it at a competitive disadvantage compared to rival producers. 
D) make it subject to emission or effluent fees.

Question 9

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building.The Coase Theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:

Accepted Answer

A) the owners themselves. 
B) city government officials. 
C) a zoning ordinance restricting high-rise buildings. 
D) a government fine for the builder of the high-rise. 
A) the owners themselves. 
B) city government officials. 
C) a zoning ordinance restricting high-rise buildings. 
D) a government fine for the builder of the high-rise.

Question 10

Refer to the supply and demand graph for a public good.Line segment ad represents the amount at Q1 by which the:

Accepted Answer

A) marginal benefit of this public good is less than the marginal cost. 
B) total benefit of this public good is less than the total cost. 
C) marginal benefit of this public good is greater than the marginal cost. 
D) total benefit of this public good is greater than the total cost. 
A) marginal benefit of this public good is less than the marginal cost. 
B) total benefit of this public good is less than the total cost. 
C) marginal benefit of this public good is greater than the marginal cost. 
D) total benefit of this public good is greater than the total cost.

Question 11

Refer to the information below:   A government is considering undertaking one or more construction project(s).The estimated marginal costs and benefits of each project are given in the above table.What is the total amount that the government should spend on construction project?

Accepted Answer

A) $8 million. 
B) $11 million. 
C) $18 million. 
D) $19 million. 
A) $8 million. 
B) $11 million. 
C) $18 million. 
D) $19 million.

Question 12

With MB1 and MC1, society's optimal amount of pollution moderation is:

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4.

Question 13

Refer to the below supply and demand graph.Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective.This supply and demand graph indicates that there is (are):

Accepted Answer

A) positive externalities to the production of this product. 
B) negative externalities to the production of this product. 
C) an overallocation of resources to the production of this product. 
D) a negative externality from the production of this product. 
A) positive externalities to the production of this product. 
B) negative externalities to the production of this product. 
C) an overallocation of resources to the production of this product. 
D) a negative externality from the production of this product.

Question 14

Answer the question based on the following information.Way-Below Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism.The university is now considering several alternative levels of crime control.This table shows the expected annual costs and benefits of these alternatives.   Based on cost-benefit analysis, Way-Below Normal should undertake

Accepted Answer

A) Two. 
B) Three. 
C) Four. 
D) Five. 
A) Two. 
B) Three. 
C) Four. 
D) Five.

Question 15

The following information is 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.Suppose the government has already produced 4 units of this public good.The amount individual B is willing to voluntarily pay for the 4th unit is:

Accepted Answer

A) $14 
B) $5 
C) $2 
D) $0 
A) $14 
B) $5 
C) $2 
D) $0

Question 16

One condition for individual bargaining to occur according to the Coase Theorem is that there must be:

Accepted Answer

A) clearly defined property rights. 
B) many people affected and involved. 
C) government intervention to establish bargaining. 
D) government creation of a market for externalities. 
A) clearly defined property rights. 
B) many people affected and involved. 
C) government intervention to establish bargaining. 
D) government creation of a market for externalities.

Question 17

The market demand curve for a public good:

Accepted Answer

A) is derived in the same manner as demand curves for private goods. 
B) is derived by horizontally summing all individual demand curves. 
C) shows the total value that all individuals place on each unit of the good. 
D) shows the total number of units that would be produced by the private sector at each possible price. 
A) is derived in the same manner as demand curves for private goods. 
B) is derived by horizontally summing all individual demand curves. 
C) shows the total value that all individuals place on each unit of the good. 
D) shows the total number of units that would be produced by the private sector at each possible price.

Question 18

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 over-allocation of resources. 
B) providing a subsidy to correct for an under-allocation of resources. 
C) imposing a corrective tax to correct for an over-allocation of resources. 
D) imposing a corrective tax to correct for an under-allocation of resources. 
A) providing a subsidy to correct for an over-allocation of resources. 
B) providing a subsidy to correct for an under-allocation of resources. 
C) imposing a corrective tax to correct for an over-allocation of resources. 
D) imposing a corrective tax to correct for an under-allocation of resources.

Question 19

Which of the following statements is correct?

Accepted Answer

A) Private goods yield direct benefits to the purchaser and are financed by government. 
B) Public goods yield widespread external benefits and are purchased by government with tax revenues. 
C) Public goods are bought voluntarily out of private incomes and yield no significant external benefits. 
D) Public goods are bought voluntarily out of private incomes and yield widespread external benefits. 
A) Private goods yield direct benefits to the purchaser and are financed by government. 
B) Public goods yield widespread external benefits and are purchased by government with tax revenues. 
C) Public goods are bought voluntarily out of private incomes and yield no significant external benefits. 
D) Public goods are bought voluntarily out of private incomes and yield widespread external benefits.

Question 20

Negative externalities are likely to cause:

Accepted Answer

A) underproduction of goods. 
B) overallocation of resources. 
C) an increase in social welfare. 
D) demand-side market failures. 
A) underproduction of goods. 
B) overallocation of resources. 
C) an increase in social welfare. 
D) demand-side market failures.

Exam 4: Part B: Market Failures: Public Goods and Externalities

A positive externality or external benefit occurs when:

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.Without government interference, this market will result in:

The term "productive efficiency" refers to:

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good.Also, assume that the marginal cost of the third unit is $17.We can conclude that:

From society's perspective, if MB2 and MC1 are relevant:

Refer to the diagrams below in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it.If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be:

There is little incentive for an individual firm to voluntarily internalize its negative externalities because to do so would:

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building.The Coase Theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:

Refer to the supply and demand graph for a public good.Line segment ad represents the amount at Q1 by which the:

Refer to the information below: A government is considering undertaking one or more construction project(s).The estimated marginal costs and benefits of each project are given in the above table.What is the total amount that the government should spend on construction project?

With MB1 and MC1, society's optimal amount of pollution moderation is:

Refer to the below supply and demand graph.Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective.This supply and demand graph indicates that there is (are):

One condition for individual bargaining to occur according to the Coase Theorem is that there must be:

The market demand curve for a public good:

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

Which of the following statements is correct?

Negative externalities are likely to cause:

Part A: Limits, Alternatives, and Choices

Part B: Limits, Alternatives, and Choices

Part A: The Market System and the Circular Flow

Part B: The Market System and the Circular Flow

Part A: Demand, Supply, and Market Equilibrium

Part B: Demand, Supply, and Market Equilibrium

Part A: Market Failures: Public Goods and Externalities

Part A: Governments Role and Government Failure

Part B: Governments Role and Government Failure

Part A: An Introduction to Macroeconomics

Part B: An Introduction to Macroeconomics

Part A: Measuring the Economys Output

Part B: Measuring the Economys Output

Part A: Economic Growth

Part B: Economic Growth

Part A: Business Cycles, Unemployment, and Inflation

Part B: Business Cycles, Unemployment, and Inflation

Part A: Basic Macroeconomic Relationships

Part B: Basic Macroeconomic Relationships

Part A: The Aggregate Expenditures Model

Part B: The Aggregate Expenditures Model

Part A: Aggregate Demand and Aggregate Supply

Part B: Aggregate Demand and Aggregate Supply

Part A: Fiscal Policy, Deficits, Surpluses, and Debt

Part B: Fiscal Policy, Deficits, Surpluses, and Debt

Part A: Money, Banking, and Money Creation

Part B: Money, Banking, and Money Creation

Part A: Interest Rates and Monetary Policy

Part B: Interest Rates and Monetary Policy

Part A: Long-Run Macroeconomic Adjustments

Part B: Long-Run Macroeconomic Adjustments

Part A: International Trade

Part B: International Trade

Part C: Financial Economics

Part A: The Balance of Payments and Exchange Rates

Part B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

Refer to the diagram in which S is the market supply curve and S₁ is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.Without government interference, this market will result in:

From society's perspective, if MB₂ and MC₁ are relevant:

Refer to the supply and demand graph for a public good.Line segment ad represents the amount at Q₁ by which the:

With MB₁ and MC₁, society's optimal amount of pollution moderation is: