Question 1

At the output where the combined amounts of consumer and producer surplus are largest,

Accepted Answer

A) the areas of consumer and producer surplus necessarily are equal. 
B) the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output. 
C) consumer surplus exceeds producer surplus by the greatest amount. 
D) marginal benefit exceeds marginal cost by the greatest amount. 
A) the areas of consumer and producer surplus necessarily are equal. 
B) the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output. 
C) consumer surplus exceeds producer surplus by the greatest amount. 
D) marginal benefit exceeds marginal cost by the greatest amount. B

Question 2

Refer to the provided supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be

Accepted Answer

A) to the left of the D curve on the graph. 
B) to the right of the D curve on the graph. 
C) at the position of the D curve on the graph. 
D) an upward-sloping line. 
A) to the left of the D curve on the graph. 
B) to the right of the D curve on the graph. 
C) at the position of the D curve on the graph. 
D) an upward-sloping line. B

Question 3

The licensing and regulation of financial advisers is one way by which the government tries to deal with the problem of inadequate information that financial firms have about their customers.

Accepted Answer

A) True 
 B)False  False

Question 4

List four ways to correct positive externalities.

Accepted Answer

The four ways listed in the te

Question 5

There are no external costs with being on the roadways during peak driving hours; there are only private costs that include your gasoline and opportunity cost of time spent in traffic.

Accepted Answer

A) True 
 B)False

Question 6

Adverse selection is when someone with home insurance decides to take the chance that a dying tree would fall on the garage, rather than spend the money to have the tree cut down.

Accepted Answer

A) True 
 B)False

Question 7

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

Accepted Answer

A) True 
 B)False

Question 8

Refer to the diagram. From society's perspective, if MB₂ and MC₁ are relevant,

Accepted Answer

A) Q₄ represents too little pollution abatement. 
B) Q₁ represents too little pollution abatement. 
C) Q₃ represents an optimal amount of pollution abatement. 
D) Q₂ represents too little pollution abatement. 
A) Q₄ represents too little pollution abatement. 
B) Q₁ represents too little pollution abatement. 
C) Q₃ represents an optimal amount of pollution abatement. 
D) Q₂ represents too little pollution abatement.

Question 9

Graphically, producer surplus is measured as the area

Accepted Answer

A) under the demand curve and below the actual price. 
B) under the demand curve and above the actual price. 
C) above the supply curve and above the actual price. 
D) above the supply curve and below the actual price. 
A) under the demand curve and below the actual price. 
B) under the demand curve and above the actual price. 
C) above the supply curve and above the actual price. 
D) above the supply curve and below the actual price.

Question 10

A negative externality or spillover cost occurs when

Accepted Answer

A) firms fail to achieve allocative efficiency. 
B) firms fail to achieve productive efficiency. 
C) the price of a good exceeds the marginal cost of producing it. 
D) the total cost of producing a good exceeds the costs borne by the producer. 
A) firms fail to achieve allocative efficiency. 
B) firms fail to achieve productive efficiency. 
C) the price of a good exceeds the marginal cost of producing it. 
D) the total cost of producing a good exceeds the costs borne by the producer.

Question 11

Refer to the diagram. 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 12

Other things equal, a fall in the market price caused by a change in supply will

Accepted Answer

A) increase consumer surplus. 
B) decrease consumer surplus. 
C) increase producer surplus while leaving consumer surplus unchanged. 
D) decrease producer surplus while leaving consumer surplus unchanged. 
A) increase consumer surplus. 
B) decrease consumer surplus. 
C) increase producer surplus while leaving consumer surplus unchanged. 
D) decrease producer surplus while leaving consumer surplus unchanged.

Question 13

How do economists determine the optimal amount of pollution control?

Accepted Answer

The optimal reduction of a negative exte

Question 14

Refer to the diagram. If actual production and consumption occur at Q3,

Accepted Answer

A) efficiency is achieved. 
B) an efficiency loss (or deadweight loss)of e + f occurs. 
C) an efficiency loss (or deadweight loss)of a + b + c + d occurs. 
D) an efficiency loss (or deadweight loss)of a + c occurs. 
A) efficiency is achieved. 
B) an efficiency loss (or deadweight loss)of e + f occurs. 
C) an efficiency loss (or deadweight loss)of a + b + c + d occurs. 
D) an efficiency loss (or deadweight loss)of a + c occurs.

Question 15

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the

Accepted Answer

A) free-rider problem. 
B) principal-agent problem. 
C) adverse selection problem. 
D) moral hazard problem. 
A) free-rider problem. 
B) principal-agent problem. 
C) adverse selection problem. 
D) moral hazard problem.

Question 16

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences

Accepted Answer

A) a consumer surplus of $10, and Tony experiences a producer surplus of $190. 
B) a producer surplus of $200, and Tony experiences a consumer surplus of $10. 
C) a consumer surplus of $670, and Tony experiences a producer surplus of $200. 
D) a producer surplus of $10, and Tony experiences a consumer surplus of $190. 
A) a consumer surplus of $10, and Tony experiences a producer surplus of $190. 
B) a producer surplus of $200, and Tony experiences a consumer surplus of $10. 
C) a consumer surplus of $670, and Tony experiences a producer surplus of $200. 
D) a producer surplus of $10, and Tony experiences a consumer surplus of $190.

Question 17

An example of an adverse selection problem is in insurance, where the people most likely to claim insurance payouts are the people who will seek to buy the most generous policies.

Accepted Answer

A) True 
 B)False

Question 18

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

Accepted Answer

A) True 
 B)False

Question 19

When economic efficiency is attained, it implies all of the following, except

Accepted Answer

A) per-unit cost of output produced is at minimum. 
B) allocative efficiency is achieved. 
C) total consumer and producer surplus is at a maximum. 
D) the gap between marginal benefits and marginal costs of production is at maximum. 
A) per-unit cost of output produced is at minimum. 
B) allocative efficiency is achieved. 
C) total consumer and producer surplus is at a maximum. 
D) the gap between marginal benefits and marginal costs of production is at maximum.

Question 20

Refer to the provided graph of a competitive market. If the output level is Q₁, then the sum of the consumer and producer surplus is

Accepted Answer

A) bce. 
B) ac0. 
C) 0 abe. 
D) 0 eQ₁. 
A) bce. 
B) ac0. 
C) 0 abe. 
D) 0 eQ₁.

Exam 4: Market Failures Caused by Externalities Asymmetric Information

At the output where the combined amounts of consumer and producer surplus are largest,

Refer to the provided supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be

The licensing and regulation of financial advisers is one way by which the government tries to deal with the problem of inadequate information that financial firms have about their customers.

List four ways to correct positive externalities.

There are no external costs with being on the roadways during peak driving hours; there are only private costs that include your gasoline and opportunity cost of time spent in traffic.

Adverse selection is when someone with home insurance decides to take the chance that a dying tree would fall on the garage, rather than spend the money to have the tree cut down.

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

Refer to the diagram. From society's perspective, if MB₂ and MC₁ are relevant,

Graphically, producer surplus is measured as the area

A negative externality or spillover cost occurs when

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

Other things equal, a fall in the market price caused by a change in supply will

How do economists determine the optimal amount of pollution control?

Refer to the diagram. If actual production and consumption occur at Q3,

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences

An example of an adverse selection problem is in insurance, where the people most likely to claim insurance payouts are the people who will seek to buy the most generous policies.

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

When economic efficiency is attained, it implies all of the following, except

Refer to the provided graph of a competitive market. If the output level is Q₁, then the sum of the consumer and producer surplus is

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Refer to the diagram. If actual production and consumption occur at Q₃,