Question 1

Which of these is an example of an external cost?

Accepted Answer

A) an increase in the value of land you own when a nearby development is completed. 
B) the costs paid by a company to build an automated factory. 
C) decreased property values in a neighbourhood where several houses are burglarized. 
D) the higher price you pay when you buy a heavily advertised product. 
A) an increase in the value of land you own when a nearby development is completed. 
B) the costs paid by a company to build an automated factory. 
C) decreased property values in a neighbourhood where several houses are burglarized. 
D) the higher price you pay when you buy a heavily advertised product.

Question 2

It has been proposed that a government agency be charged with the responsibility for determining the amount of pollution which the atmosphere or a body of water can safely recycle, and sell these limited rights to polluters.What would be the advantage of such a market for pollution rights?

Accepted Answer

A) Government agencies can make a great deal of money. 
B) Pollution would be eliminated because nobody would want to pay for such a right. 
C) The quality of water or air can be maintained at some acceptable standard through economic incentives. 
D) The social consciousness of people would be raised as they obtain more appreciation for the importance of conservation. 
A) Government agencies can make a great deal of money. 
B) Pollution would be eliminated because nobody would want to pay for such a right. 
C) The quality of water or air can be maintained at some acceptable standard through economic incentives. 
D) The social consciousness of people would be raised as they obtain more appreciation for the importance of conservation.

Question 3

The graphs below refer to 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) and from S to S2 in diagram (b).The shift of the supply curve from S to S2 in diagram (b) might be caused by a per unit:

Accepted Answer

A) subsidy paid to the producers of this product. 
B) tax on the producers of this product. 
C) subsidy paid to the buyers of this product. 
D) tax on the buyers of this product. 
A) subsidy paid to the producers of this product. 
B) tax on the producers of this product. 
C) subsidy paid to the buyers of this product. 
D) tax on the buyers of this product.

Question 4

Efficiency loss refers to:

Accepted Answer

A) the situation where the maximum willingness to pay for a product is less than minimum acceptable price. 
B) the situation where the maximum willingness to pay for a product is equal to the minimum acceptable price. 
C) the difference between consumer and producer surplus. 
D) the sum of consumer and producer surplus. 
A) the situation where the maximum willingness to pay for a product is less than minimum acceptable price. 
B) the situation where the maximum willingness to pay for a product is equal to the minimum acceptable price. 
C) the difference between consumer and producer surplus. 
D) the sum of consumer and producer surplus.

Question 5

There is a positive relationship between equilibrium price and the amount of producer surplus.

Accepted Answer

A) True 
 B)False

Question 6

The major difficulty in asking people to pay voluntarily what a government program is worth to them is:

Accepted Answer

A) the free-rider problem. 
B) people have poor judgment. 
C) the fact that people don't know what programs they want. 
D) we would increase government expenditures too much. 
A) the free-rider problem. 
B) people have poor judgment. 
C) the fact that people don't know what programs they want. 
D) we would increase government expenditures too much.

Question 7

A demand-side market failure occurs when demand curves do not reflect consumers' full willingness to pay for a good or service.

Accepted Answer

A) True 
 B)False

Question 8

Market failures

Accepted Answer

A) fall only on the demand-side. 
B) fall only on the supply-side. 
C) can fall on either the demand-side or the supply-side. 
D) fall on non-competitive markets only. 
A) fall only on the demand-side. 
B) fall only on the supply-side. 
C) can fall on either the demand-side or the supply-side. 
D) fall on non-competitive markets only.

Question 9

When the full cost of producing a good or service is not reflected in the resultant curve this is referred to as what type of failure?

Accepted Answer

A) Supply side 
B) Demand side 
C) Market side 
D) Demand-supply side 
A) Supply side 
B) Demand side 
C) Market side 
D) Demand-supply side

Question 10

Which method for correcting externalities is common to both negative and positive externalities?

Accepted Answer

A) Private bargaining 
B) Lawsuits 
C) Government provision 
D) Direct controls 
A) Private bargaining 
B) Lawsuits 
C) Government provision 
D) Direct controls

Question 11

The marginal benefit to society of reducing pollution declines with increases in pollution moderation because of the law of:

Accepted Answer

A) increasing costs. 
B) diminishing returns. 
C) diminishing marginal utility. 
D) conservation of matter and energy. 
A) increasing costs. 
B) diminishing returns. 
C) diminishing marginal utility. 
D) conservation of matter and energy.

Question 12

For which one of the following would we need to sum individual demand curves vertically to obtain the total demand curve?

Accepted Answer

A) frozen yogurt 
B) bubble gum 
C) microwave popcorn 
D) courts of law 
A) frozen yogurt 
B) bubble gum 
C) microwave popcorn 
D) courts of law

Question 13

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. 
A) taxed. 
B) prohibited. 
C) subsidized. 
D) left alone.

Question 14

Productive efficiency means that the society is producing the combination of the output most desirable by consumers.

Accepted Answer

A) True 
 B)False

Question 15

In which of the following ways does the government of a nation estimate the true demand for a public good?

Accepted Answer

A) Surveys 
B) Government elections 
C) Voting in parliament 
D) Legislation 
A) Surveys 
B) Government elections 
C) Voting in parliament 
D) Legislation

Question 16

Positive externalities are likely to cause:

Accepted Answer

A) underallocation of resources. 
B) overallocation of resources. 
C) a scarcity of goods and services in society. 
D) a surplus of goods and services in society. 
A) underallocation of resources. 
B) overallocation of resources. 
C) a scarcity of goods and services in society. 
D) a surplus of goods and services in society.

Question 17

The graphs below refer to 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) and from S to S2 in diagram (b).The shift of the supply curve from S to S1 in diagram (a) might be caused by a per unit:

Accepted Answer

A) subsidy paid to the producers of this product. 
B) tax on the producers of this product. 
C) subsidy paid to the buyers of this product. 
D) tax on the buyers of this product. 
A) subsidy paid to the producers of this product. 
B) tax on the producers of this product. 
C) subsidy paid to the buyers of this product. 
D) tax on the buyers of this product.

Question 18

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.If the government wishes to establish an optimal allocation of resources in this market, it should:

Accepted Answer

A) not intervene because the market outcome is optimal. 
B) subsidize consumers so that the market demand curve shifts leftward. 
C) subsidize producers so that the market supply curve shifts leftward (upward). 
D) tax producers so that the market supply curve shifts leftward (upward). 
A) not intervene because the market outcome is optimal. 
B) subsidize consumers so that the market demand curve shifts leftward. 
C) subsidize producers so that the market supply curve shifts leftward (upward). 
D) tax producers so that the market supply curve shifts leftward (upward).

Question 19

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.The marginal benefits of crime control for Level Two are:

Accepted Answer

A) $20000 
B) $40000 
C) $60000 
D) $140000 
A) $20000 
B) $40000 
C) $60000 
D) $140000

Question 20

Quasi-public goods are:

Accepted Answer

A) government produced goods that can be produced so that exclusion is possible. 
B) government produced goods that can be produced so that exclusion is not possible. 
C) privately produced goods that can be produced so that exclusion is possible. 
D) privately produced goods that can be produced so that exclusion is not possible. 
A) government produced goods that can be produced so that exclusion is possible. 
B) government produced goods that can be produced so that exclusion is not possible. 
C) privately produced goods that can be produced so that exclusion is possible. 
D) privately produced goods that can be produced so that exclusion is not possible.

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

Which of these is an example of an external cost?

It has been proposed that a government agency be charged with the responsibility for determining the amount of pollution which the atmosphere or a body of water can safely recycle, and sell these limited rights to polluters.What would be the advantage of such a market for pollution rights?

Efficiency loss refers to:

There is a positive relationship between equilibrium price and the amount of producer surplus.

The major difficulty in asking people to pay voluntarily what a government program is worth to them is:

A demand-side market failure occurs when demand curves do not reflect consumers' full willingness to pay for a good or service.

Market failures

When the full cost of producing a good or service is not reflected in the resultant curve this is referred to as what type of failure?

Which method for correcting externalities is common to both negative and positive externalities?

The marginal benefit to society of reducing pollution declines with increases in pollution moderation because of the law of:

For which one of the following would we need to sum individual demand curves vertically to obtain the total demand curve?

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

Productive efficiency means that the society is producing the combination of the output most desirable by consumers.

In which of the following ways does the government of a nation estimate the true demand for a public good?

Positive externalities are likely to cause:

Quasi-public goods are:

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

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