Question 1

The Coase theorem

Accepted Answer

A) shows that under certain conditions the market can internalize externalities. 
B) states that economic units should specialize in the production of those goods in which they have a comparative advantage. 
C) asserts that the firm should produce that output at which marginal cost is equal to marginal revenue. 
D) holds that the firm should produce that output at which marginal factor cost is equal to marginal revenue product. 
A) shows that under certain conditions the market can internalize externalities. 
B) states that economic units should specialize in the production of those goods in which they have a comparative advantage. 
C) asserts that the firm should produce that output at which marginal cost is equal to marginal revenue. 
D) holds that the firm should produce that output at which marginal factor cost is equal to marginal revenue product.

Question 2

Positive externalities can be internalized using persuasion, but persuasion is not effective with negative externalities.

Accepted Answer

A) True 
 B)False

Question 3

Hank goes to a Korean restaurant for the first time and he has no prior knowledge of Korean. He orders the Daenjang Chigae prepared medium hot and hopes for the best. Here an information __________ is __________ a market outcome.

Accepted Answer

A) symmetry; affecting 
B) symmetry; not affecting 
C) asymmetry; affecting 
D) asymmetry; not affecting 
A) symmetry; affecting 
B) symmetry; not affecting 
C) asymmetry; affecting 
D) asymmetry; not affecting

Question 4

Exhibit 30-4
​
  
-Refer to Exhibit 30-4. If a negative externality exists, then the external costs associated with the negative externality equal

Accepted Answer

A) P3 - P1. 
B) P4 - P3. 
C) P3 - P2. 
D) P2 - P1. 
A) P3 - P1. 
B) P4 - P3. 
C) P3 - P2. 
D) P2 - P1.

Question 5

A good is a nonexcludable if

Accepted Answer

A) its consumption by one person does not reduce its consumption by others. 
B) it is impossible to prevent people from obtaining the benefits of the good once it has been produced. 
C) no negative externalities are associated with its production and consumption. 
D) it is free in the first place; that is, it is so abundant that people can get all they want at zero price. 
A) its consumption by one person does not reduce its consumption by others. 
B) it is impossible to prevent people from obtaining the benefits of the good once it has been produced. 
C) no negative externalities are associated with its production and consumption. 
D) it is free in the first place; that is, it is so abundant that people can get all they want at zero price.

Question 6

Which of the following statements is false?

Accepted Answer

A) A subsidy can be used to internalize a negative externality; a tax can be used to internalize a positive externality. 
B) Ronald Coase stressed the reciprocal nature of externalities. 
C) One way to deal with negative externalities is for government to apply regulations directly to the activity that generates the externalities. 
D) Simply because taxes and subsidies are sometimes used to adjust for negative and positive externalities, respectively, it does not necessarily follow that the socially optimal level of output will be reached. 
A) A subsidy can be used to internalize a negative externality; a tax can be used to internalize a positive externality. 
B) Ronald Coase stressed the reciprocal nature of externalities. 
C) One way to deal with negative externalities is for government to apply regulations directly to the activity that generates the externalities. 
D) Simply because taxes and subsidies are sometimes used to adjust for negative and positive externalities, respectively, it does not necessarily follow that the socially optimal level of output will be reached.

Question 7

Exhibit 30-1
​
  
-Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, the social cost 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 8

Describe the Coase theorem and explain why it is significant in the analysis of externatility problems.

Accepted Answer

The Coase theorem states that in the cas

Question 9

Exhibit 30-5
​
  
-Refer to Exhibit 30-5. If a positive externality exists, then curve __________ represents the marginal social benefit curve and the area __________ represents the market failure.

Accepted Answer

A) 2; BDC 
B) 1; ABC 
C) 3; ABC 
D) 2; ABC 
E) 1; BDC 
A) 2; BDC 
B) 1; ABC 
C) 3; ABC 
D) 2; ABC 
E) 1; BDC

Question 10

In the case of a negative externality, the socially optimal output naturally exists if

Accepted Answer

A) the external costs associated with the negative externality are extremely small. 
B) the external costs divided by price is equal to price divided by marginal private cost. 
C) there are no free riders. 
D) the public good aspects of the negative externality outweigh the costs incurred by the negative externality. 
E) none of the above 
A) the external costs associated with the negative externality are extremely small. 
B) the external costs divided by price is equal to price divided by marginal private cost. 
C) there are no free riders. 
D) the public good aspects of the negative externality outweigh the costs incurred by the negative externality. 
E) none of the above

Question 11

Which of the following statements is true?

Accepted Answer

A) If a good is nonrivalrous in consumption then it is nonexcludable, too. 
B) A good can be rivalrous in consumption but not nonexcludable, too. 
C) An apple is nonrivalrous in consumption. 
D) Many economists maintain that the market fails to produce nonexcludable private goods. 
E) none of the above 
A) If a good is nonrivalrous in consumption then it is nonexcludable, too. 
B) A good can be rivalrous in consumption but not nonexcludable, too. 
C) An apple is nonrivalrous in consumption. 
D) Many economists maintain that the market fails to produce nonexcludable private goods. 
E) none of the above

Question 12

Samantha is given a flu shot by her doctor. This reduces the probability that she will get the flu and it also reduces the probability that others will get the flu, too. The latter is an example of a

Accepted Answer

A) negative externality. 
B) positive externality. 
C) substitute good. 
D) complementary good. 
A) negative externality. 
B) positive externality. 
C) substitute good. 
D) complementary good.

Question 13

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 14

Exhibit 30-5
​
  
-Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points __________, and the market output is __________.

Accepted Answer

A) A and C; Q2 
B) B and D; Q1 
C) C and A; Q1 
D) B and C; Q1 
E) b and c 
A) A and C; Q2 
B) B and D; Q1 
C) C and A; Q1 
D) B and C; Q1 
E) b and c

Question 15

Exhibit 30-5
​
  
-Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

Accepted Answer

A) C and A; Q1. 
B) D and B; Q1. 
C) D and B; Q2. 
D) A and B; Q2. 
A) C and A; Q1. 
B) D and B; Q1. 
C) D and B; Q2. 
D) A and B; Q2.

Question 16

If an asymmetry of information is removed and laborers' preferences change against employment, this will shift the equilibrium in the labor market to the

Accepted Answer

A) northwest. 
B) northeast. 
C) southwest. 
D) southeast. 
A) northwest. 
B) northeast. 
C) southwest. 
D) southeast.

Question 17

Asymmetric information can exist before, but not after, a transaction.

Accepted Answer

A) True 
 B)False

Question 18

Moral hazard occurs when the parties on once side of the market, who have information not known to others, self select in a way that adversely affects the parties on the other side of the market.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 30-3
  
-Refer to Exhibit 30-3. The government issues two pollution permits to each firm. Firm C will pay up to __________ to buy a permit from Firm A or B.

Accepted Answer

A) $2,200 
B) $1,000 
C) $600 
D) $500 
A) $2,200 
B) $1,000 
C) $600 
D) $500

Question 20

Exhibit 30-3
  
-Refer to Exhibit 30-3. 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.

Exam 30: Market Failure Externalities Public Goods and Asymmetric Information

The Coase theorem

Positive externalities can be internalized using persuasion, but persuasion is not effective with negative externalities.

Hank goes to a Korean restaurant for the first time and he has no prior knowledge of Korean. He orders the Daenjang Chigae prepared medium hot and hopes for the best. Here an information __________ is __________ a market outcome.

Exhibit 30-4 ​ -Refer to Exhibit 30-4. If a negative externality exists, then the external costs associated with the negative externality equal

A good is a nonexcludable if

Which of the following statements is false?

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

Describe the Coase theorem and explain why it is significant in the analysis of externatility problems.

Exhibit 30-5 ​ -Refer to Exhibit 30-5. If a positive externality exists, then curve __________ represents the marginal social benefit curve and the area __________ represents the market failure.

In the case of a negative externality, the socially optimal output naturally exists if

Which of the following statements is true?

Samantha is given a flu shot by her doctor. This reduces the probability that she will get the flu and it also reduces the probability that others will get the flu, too. The latter is an example of a

A positive externality is internalized when

Exhibit 30-5 ​ -Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points __________, and the market output is __________.

Exhibit 30-5 ​ -Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

If an asymmetry of information is removed and laborers' preferences change against employment, this will shift the equilibrium in the labor market to the

Asymmetric information can exist before, but not after, a transaction.

Moral hazard occurs when the parties on once side of the market, who have information not known to others, self select in a way that adversely affects the parties on the other side of the market.

Exhibit 30-3 -Refer to Exhibit 30-3. The government issues two pollution permits to each firm. Firm C will pay up to __________ to buy a permit from Firm A or B.

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

Hank goes to a Korean restaurant for the first time and he has no prior knowledge of Korean. He orders the Daenjang Chigae prepared medium hot and hopes for the best. Here an information is a market outcome.

Exhibit 30-4 -Refer to Exhibit 30-4. If a negative externality exists, then the external costs associated with the negative externality equal

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

Exhibit 30-5 -Refer to Exhibit 30-5. If a positive externality exists, then curve represents the marginal social benefit curve and the area represents the market failure.

Exhibit 30-5 -Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points , and the market output is .

Exhibit 30-5 -Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is