Question 1

Which one of the following might shift the marginal cost curve from MC1 to MC2?

Accepted Answer

A) major new studies strongly linking cancer to pollution 
B) improved technology for reducing pollution 
C) a change in consumer tastes from services to manufactured goods 
D) an increase in the price of recycled goods 
A) major new studies strongly linking cancer to pollution 
B) improved technology for reducing pollution 
C) a change in consumer tastes from services to manufactured goods 
D) an increase in the price of recycled goods

Question 2

Refer to the below diagram of the market for product X.Curve St embodies all costs (including spillovers) and Dt embodies all benefits (including spillovers) associated with the production and consumption of X.Assuming the equilibrium output is Q2, we can conclude that the existence of spillover:

Accepted Answer

A) costs have resulted in an over-allocation of resources to X. 
B) benefits have resulted in an over-allocation of resources to X. 
C) costs have resulted in an under-allocation of resources to X. 
D) benefits have resulted in an under-allocation of resources to X. 
A) costs have resulted in an over-allocation of resources to X. 
B) benefits have resulted in an over-allocation of resources to X. 
C) costs have resulted in an under-allocation of resources to X. 
D) benefits have resulted in an under-allocation of resources to X.

Question 3

Consumer surplus and producer surplus can:

Accepted Answer

A) occur simultaneously. 
B) are independent. 
C) If there is a consumer surplus, there will be no producer surplus. 
D) If there is a producer surplus, there will be no consumer surplus. 
A) occur simultaneously. 
B) are independent. 
C) If there is a consumer surplus, there will be no producer surplus. 
D) If there is a producer surplus, there will be no consumer surplus.

Question 4

Which of the following is a characteristic of a private good:

Accepted Answer

A) free-rider problem 
B) external benefits 
C) external costs 
D) excludability 
A) free-rider problem 
B) external benefits 
C) external costs 
D) excludability

Question 5

Examples of quasi-public goods include:

Accepted Answer

A) education. 
B) highways. 
C) museums. 
D) all of the given possible answers are examples of quasi-public goods. 
A) education. 
B) highways. 
C) museums. 
D) all of the given possible answers are examples of quasi-public goods.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

If the price of a product increases:

Accepted Answer

A) the consumer surplus will decrease. 
B) the consumer surplus will increase. 
C) total revenue will increase if demand is price elastic. 
D) total revenue will decrease if demand is price inelastic. 
A) the consumer surplus will decrease. 
B) the consumer surplus will increase. 
C) total revenue will increase if demand is price elastic. 
D) total revenue will decrease if demand is price inelastic.

Question 8

The optimal quantity of a public good occurs where the marginal benefit of the citizen who has the highest preference for the good just equals the good's marginal cost.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following methods is used to correct both negative and positive externalities?

Accepted Answer

A) Private bargaining 
B) Tax on producers 
C) Subsidy to consumers 
D) Direct controls 
A) Private bargaining 
B) Tax on producers 
C) Subsidy to consumers 
D) Direct controls

Question 10

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.If government decides to correct this externality with a subsidy to consumers, then the:

Accepted Answer

A) demand curve will shift from D2 to D1. 
B) supply curve will shift from S1 to S2. 
C) demand curve will shift from D1 to D2. 
D) supply curve will shift from S2 to S1. 
A) demand curve will shift from D2 to D1. 
B) supply curve will shift from S1 to S2. 
C) demand curve will shift from D1 to D2. 
D) supply curve will shift from S2 to S1.

Question 11

A public good:

Accepted Answer

A) is not subject to rivalry and excludability. 
B) entails no externalities. 
C) is subject to rivalry and excludability. 
D) can not be produced by private firms. 
A) is not subject to rivalry and excludability. 
B) entails no externalities. 
C) is subject to rivalry and excludability. 
D) can not be produced by private firms.

Question 12

The optimal reduction of an externality occurs when:

Accepted Answer

A) society's marginal cost of reducing that externality is greater than its marginal benefit. 
B) public agencies could make a great deal of money. 
C) society's marginal cost and marginal benefit of reducing that externality are equal. 
D) society's marginal benefit of reducing that externality is greater than its marginal cost. 
A) society's marginal cost of reducing that externality is greater than its marginal benefit. 
B) public agencies could make a great deal of money. 
C) society's marginal cost and marginal benefit of reducing that externality are equal. 
D) society's marginal benefit of reducing that externality is greater than its marginal cost.

Question 13

Refer to the below diagram of the market for product X.Curve St embodies all costs (including spillovers) and Dt embodies all benefits (including spillovers) associated with the production and consumption of X.Assuming the equilibrium output is Q1, we can conclude that the existence of spillover:

Accepted Answer

A) costs have resulted in an over-allocation of resources to X. 
B) benefits have resulted in an over-allocation of resources to X. 
C) costs have resulted in an under-allocation of resources to X. 
D) benefits have resulted in an under-allocation of resources to X. 
A) costs have resulted in an over-allocation of resources to X. 
B) benefits have resulted in an over-allocation of resources to X. 
C) costs have resulted in an under-allocation of resources to X. 
D) benefits have resulted in an under-allocation of resources to X.

Question 14

Demand-side market failure

Accepted Answer

A) arises in situations in which a firm does not have to pay the full cost of producing its output. 
B) arises when it is impossible to charge consumers what they are willing to pay for a product. 
C) exists in equilibrium with supply-side market failure. 
D) happens only when the quantity of a good demanded is less than that which is supplied. 
A) arises in situations in which a firm does not have to pay the full cost of producing its output. 
B) arises when it is impossible to charge consumers what they are willing to pay for a product. 
C) exists in equilibrium with supply-side market failure. 
D) happens only when the quantity of a good demanded is less than that which is supplied.

Question 15

Which of the following is a private good?

Accepted Answer

A) a ballpoint pen 
B) national defence 
C) a highway 
D) a lighthouse 
A) a ballpoint pen 
B) national defence 
C) a highway 
D) a lighthouse

Question 16

The following table presents the demand schedule for product Z:   Assuming that the price of Z at equilibrium is $12, what is the total consumer surplus?

Accepted Answer

A) $12 
B) $11 
C) $8 
D) $20 
A) $12 
B) $11 
C) $8 
D) $20

Question 17

In a purely competitive industry at equilibrium price and quantity

Accepted Answer

A) the producer surplus exceeds the consumer surplus. 
B) the sum of consumer and producer surplus is maximized. 
C) the consumer surplus exceeds producer surplus. 
D) the willingness of consumers to pay exceeds the opportunity cost of producing the product. 
A) the producer surplus exceeds the consumer surplus. 
B) the sum of consumer and producer surplus is maximized. 
C) the consumer surplus exceeds producer surplus. 
D) the willingness of consumers to pay exceeds the opportunity cost of producing the product.

Question 18

If there are external benefits or positive externalities associated with consumption and production of a product, it can be said that the:

Accepted Answer

A) government should consider placing a special tax on producers. 
B) government should consider prohibiting the production of the commodity. 
C) supply curve for the product lies too far to the right to provide an efficient allocation of resources. 
D) demand curve understates the total benefit from the product and resources are under-allocated to its production. 
A) government should consider placing a special tax on producers. 
B) government should consider prohibiting the production of the commodity. 
C) supply curve for the product lies too far to the right to provide an efficient allocation of resources. 
D) demand curve understates the total benefit from the product and resources are under-allocated to its production.

Question 19

Which of the following is an example of externalities?

Accepted Answer

A) There are not enough tickets available to concerts of extremely popular performers. 
B) The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and techniques. 
C) Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them. 
D) Extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer industry. 
A) There are not enough tickets available to concerts of extremely popular performers. 
B) The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and techniques. 
C) Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them. 
D) Extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer industry.

Question 20

A public good can be best defined as one that:

Accepted Answer

A) has no externality associated with its production or consumption. 
B) entails rising costs of production. 
C) yields widespread benefits which cannot readily be denied to the public at large. 
D) yields benefits only to individuals who decide to buy it. 
A) has no externality associated with its production or consumption. 
B) entails rising costs of production. 
C) yields widespread benefits which cannot readily be denied to the public at large. 
D) yields benefits only to individuals who decide to buy it.

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

Which one of the following might shift the marginal cost curve from MC1 to MC2?

Refer to the below diagram of the market for product X.Curve St embodies all costs (including spillovers) and Dt embodies all benefits (including spillovers) associated with the production and consumption of X.Assuming the equilibrium output is Q2, we can conclude that the existence of spillover:

Consumer surplus and producer surplus can:

Which of the following is a characteristic of a private good:

Examples of quasi-public goods include:

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

If the price of a product increases:

The optimal quantity of a public good occurs where the marginal benefit of the citizen who has the highest preference for the good just equals the good's marginal cost.

Which of the following methods is used to correct both negative and positive externalities?

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.If government decides to correct this externality with a subsidy to consumers, then the:

A public good:

The optimal reduction of an externality occurs when:

Refer to the below diagram of the market for product X.Curve St embodies all costs (including spillovers) and Dt embodies all benefits (including spillovers) associated with the production and consumption of X.Assuming the equilibrium output is Q1, we can conclude that the existence of spillover:

Demand-side market failure

Which of the following is a private good?

The following table presents the demand schedule for product Z: Assuming that the price of Z at equilibrium is $12, what is the total consumer surplus?

In a purely competitive industry at equilibrium price and quantity

If there are external benefits or positive externalities associated with consumption and production of a product, it can be said that the:

Which of the following is an example of externalities?

A public good can be best defined as one that:

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

Which one of the following might shift the marginal cost curve from MC₁ to MC₂?