Question 1

A negative externality exists when

Accepted Answer

A) marginal social costs are less than marginal private costs. 
B) marginal social costs are greater than marginal private costs. 
C) marginal social benefits are less than marginal private benefits. 
D) marginal social benefits are greater than marginal private benefits. 
E) b and c 
A) marginal social costs are less than marginal private costs. 
B) marginal social costs are greater than marginal private costs. 
C) marginal social benefits are less than marginal private benefits. 
D) marginal social benefits are greater than marginal private benefits. 
E) b and c

Question 2

If the consumption of a good by one person reduces its consumption by others, then the good is

Accepted Answer

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

Question 3

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

Accepted Answer

A) more ocean pollution. 
B) less ocean pollution. 
C) the same amount of ocean pollution that exists without private property rights in the ocean. 
D) more ocean voyages on cruise ships. 
A) more ocean pollution. 
B) less ocean pollution. 
C) the same amount of ocean pollution that exists without private property rights in the ocean. 
D) more ocean voyages on cruise ships.

Question 4

It seems quite possible that cigarette companies concealed information about the effects of smoking on health, causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

Accepted Answer

A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower 
A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower

Question 5

Exhibit 30-1
​
  
-Refer to Exhibit 30-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q2 to Q1 is the area of

Accepted Answer

A) ABC. 
B) Q2BCQ1. 
C) Q2BAQ1. 
D) Q2EAQ1. 
A) ABC. 
B) Q2BCQ1. 
C) Q2BAQ1. 
D) Q2EAQ1.

Question 6

Which of the following is an example of an externality that has been internalized?

Accepted Answer

A) Acid rain, originating in the United States, destroys Canadian forests. 
B) Robert Frost breathes the air that has been polluted by the emissions of a nearby steel plant. 
C) Erica Evans, a beekeeper, decides to keep more bees because her neighbor, an orchard owner, has agreed to compensate her for the bees' pollination of the orchard. 
D) Miguel Sanchez, a concert pianist, rehearses Beethoven's "Moonlight Sonata" and his neighbors enjoy the "free concert." 
E) all of the above 
A) Acid rain, originating in the United States, destroys Canadian forests. 
B) Robert Frost breathes the air that has been polluted by the emissions of a nearby steel plant. 
C) Erica Evans, a beekeeper, decides to keep more bees because her neighbor, an orchard owner, has agreed to compensate her for the bees' pollination of the orchard. 
D) Miguel Sanchez, a concert pianist, rehearses Beethoven's "Moonlight Sonata" and his neighbors enjoy the "free concert." 
E) all of the above

Question 7

A subsidy may be used as a corrective device in the case of a positive externality because it will __________ marginal private benefits and __________ demand.

Accepted Answer

A) increase; decrease 
B) increase; increase 
C) decrease; decrease 
D) decrease; increase 
A) increase; decrease 
B) increase; increase 
C) decrease; decrease 
D) decrease; increase

Question 8

The __________ problem in the market for used cars is capable of collapsing the market for __________.

Accepted Answer

A) adverse selection; good used cars 
B) adverse selection; lemons 
C) moral hazard; good used cars 
D) moral hazard; lemons 
A) adverse selection; good used cars 
B) adverse selection; lemons 
C) moral hazard; good used cars 
D) moral hazard; lemons

Question 9

Which of the following situations is descriptive of the existence of a negative externality.

Accepted Answer

A) Vernon studies for his biology test late into the night and oversleeps the next morning, thus missing the test. 
B) Nancy is in the library looking for a book.She is talking to herself and consequently disturbs a few people in the library. 
C) Bob learns later that he could have purchased a pair of shoes for less than he paid. 
D) Jackie has had the flu and has stayed in bed for a week. 
E) none of the above 
A) Vernon studies for his biology test late into the night and oversleeps the next morning, thus missing the test. 
B) Nancy is in the library looking for a book.She is talking to herself and consequently disturbs a few people in the library. 
C) Bob learns later that he could have purchased a pair of shoes for less than he paid. 
D) Jackie has had the flu and has stayed in bed for a week. 
E) none of the above

Question 10

Social media, such as the online social networking portal Meetup, have increased the likelihood of people forming social tribes by reducing the transaction costs associated with forming such groups.

Accepted Answer

A) True 
 B)False

Question 11

When marginal private cost is equal to marginal social cost,

Accepted Answer

A) the activity in question generates no positive externality. 
B) the activity in question generates no negative externality. 
C) all positive externalities have been internalized. 
D) all negative externalities have been internalized. 
E) b or d 
A) the activity in question generates no positive externality. 
B) the activity in question generates no negative externality. 
C) all positive externalities have been internalized. 
D) all negative externalities have been internalized. 
E) b or d

Question 12

An externality is internalized if

Accepted Answer

A) the person(s) or group that generated the externality incorporate into their own private cost-benefit calculations the external benefits (in the case of a positive externality) or the external costs (in the case of a negative externality) that third parties bear. 
B) people are made aware of it and realize that social benefits are less than private benefits (in the case of a positive externality) and that social costs are less than private costs (in the case of a negative externality). 
C) the person(s) or group that generated the externality do not incorporate into their own private cost-benefit calculations the external benefits (in the case of a positive externality) or the external costs (in the case of a negative externality) that third parties bear. 
D) b and c 
E) none of the above 
A) the person(s) or group that generated the externality incorporate into their own private cost-benefit calculations the external benefits (in the case of a positive externality) or the external costs (in the case of a negative externality) that third parties bear. 
B) people are made aware of it and realize that social benefits are less than private benefits (in the case of a positive externality) and that social costs are less than private costs (in the case of a negative externality). 
C) the person(s) or group that generated the externality do not incorporate into their own private cost-benefit calculations the external benefits (in the case of a positive externality) or the external costs (in the case of a negative externality) that third parties bear. 
D) b and c 
E) none of the above

Question 13

The side effect of an action that increases the well-being of others is called

Accepted Answer

A) an augmentation. 
B) an elasticity. 
C) a passive benefit. 
D) a positive externality. 
A) an augmentation. 
B) an elasticity. 
C) a passive benefit. 
D) a positive externality.

Question 14

Most economists believe that the market __________ produce nonexcludable public goods because of __________.

Accepted Answer

A) will; the monetary incentive they have to produce them 
B) will not; the externality problem 
C) will not; the free rider problem 
D) will; the market shortage that often accompanies the production of public goods. 
E) none of the above 
A) will; the monetary incentive they have to produce them 
B) will not; the externality problem 
C) will not; the free rider problem 
D) will; the market shortage that often accompanies the production of public goods. 
E) none of the above

Question 15

If there is a negative externality, and the market output is 100 units more than the socially optimal output, then it follows that

Accepted Answer

A) the external costs associated with the negative externality are greater than the marginal private costs. 
B) the external costs associated with the negative externality are less than the marginal private costs. 
C) there is market failure. 
D) any tax imposed on the production of the output will bring about the socially optimal output. 
E) none of the above 
A) the external costs associated with the negative externality are greater than the marginal private costs. 
B) the external costs associated with the negative externality are less than the marginal private costs. 
C) there is market failure. 
D) any tax imposed on the production of the output will bring about the socially optimal output. 
E) none of the above

Question 16

Suppose the optimal amount of X is 100 units and that the market provides 123 units. This situation is descriptive of

Accepted Answer

A) externality provision. 
B) market failure. 
C) asymmetric information. 
D) a public goods problem. 
E) the free-rider dilemma. 
A) externality provision. 
B) market failure. 
C) asymmetric information. 
D) a public goods problem. 
E) the free-rider dilemma.

Question 17

A good is nonrivalrous in consumption if

Accepted Answer

A) its consumption by one person does not reduce its consumption by others. 
B) its consumption by one person reduces its consumption by others. 
C) it is possible, or not prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced. 
D) it is impossible, or prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced. 
E) a and d 
A) its consumption by one person does not reduce its consumption by others. 
B) its consumption by one person reduces its consumption by others. 
C) it is possible, or not prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced. 
D) it is impossible, or prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced. 
E) a and d

Question 18

Under an emission tax, polluters ________ what price they have to pay to pollute, __________________________ how much pollution will be generated.

Accepted Answer

A) know; and government knows 
B) don't know; and government doesn't know 
C) know; but government doesn't know 
D) don't know; but government knows 
A) know; and government knows 
B) don't know; and government doesn't know 
C) know; but government doesn't know 
D) don't know; but government knows

Question 19

A seller has some information about a good that the buyer does not have. When would the seller be most likely to provide the buyer with the currently "hidden" information?

Accepted Answer

A) When the seller thinks that providing the information will decrease the supply of the good. 
B) When the seller thinks that providing the information will increase the supply of the good. 
C) When the seller thinks that providing the information will decrease the demand for the good. 
D) When the seller thinks that providing the information will increase the demand for the good. 
E) There is not enough information to answer the question. 
A) When the seller thinks that providing the information will decrease the supply of the good. 
B) When the seller thinks that providing the information will increase the supply of the good. 
C) When the seller thinks that providing the information will decrease the demand for the good. 
D) When the seller thinks that providing the information will increase the demand for the good. 
E) There is not enough information to answer the question.

Question 20

A consequence of a negative externality is that social costs __________ private costs, and the socially optimal level of output __________.

Accepted Answer

A) equal; is not equal to social costs or private costs 
B) do not equal; is obtained 
C) do not equal; is not obtained 
D) equal; is obtained 
E) equal; is not obtained 
A) equal; is not equal to social costs or private costs 
B) do not equal; is obtained 
C) do not equal; is not obtained 
D) equal; is obtained 
E) equal; is not obtained

Exam 30: Market Failure Externalities Public Goods and Asymmetric Information

A negative externality exists when

If the consumption of a good by one person reduces its consumption by others, then the good is

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

It seems quite possible that cigarette companies concealed information about the effects of smoking on health, causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

Exhibit 30-1 ​ -Refer to Exhibit 30-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q2 to Q1 is the area of

Which of the following is an example of an externality that has been internalized?

A subsidy may be used as a corrective device in the case of a positive externality because it will __________ marginal private benefits and __________ demand.

The __________ problem in the market for used cars is capable of collapsing the market for __________.

Which of the following situations is descriptive of the existence of a negative externality.

Social media, such as the online social networking portal Meetup, have increased the likelihood of people forming social tribes by reducing the transaction costs associated with forming such groups.

When marginal private cost is equal to marginal social cost,

An externality is internalized if

The side effect of an action that increases the well-being of others is called

Most economists believe that the market __________ produce nonexcludable public goods because of __________.

If there is a negative externality, and the market output is 100 units more than the socially optimal output, then it follows that

Suppose the optimal amount of X is 100 units and that the market provides 123 units. This situation is descriptive of

A good is nonrivalrous in consumption if

Under an emission tax, polluters ________ what price they have to pay to pollute, __________________________ how much pollution will be generated.

A seller has some information about a good that the buyer does not have. When would the seller be most likely to provide the buyer with the currently "hidden" information?

A consequence of a negative externality is that social costs __________ private costs, and the socially optimal level of output __________.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money Banking and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Government and Product Markets Antitrust and Regulation

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Public Choice and Special Interest Group Politics

Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

It seems quite possible that cigarette companies concealed information about the effects of smoking on health, causing cigarette prices to be and cigarette sales to be than would have been the case under symmetric information.

Exhibit 30-1 -Refer to Exhibit 30-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q₂ to Q₁ is the area of

A subsidy may be used as a corrective device in the case of a positive externality because it will marginal private benefits and demand.

The problem in the market for used cars is capable of collapsing the market for .

Most economists believe that the market produce nonexcludable public goods because of .

Under an emission tax, polluters what price they have to pay to pollute, __________________ how much pollution will be generated.

A consequence of a negative externality is that social costs private costs, and the socially optimal level of output .