Question 1

The Coase theorem is significant because it

Accepted Answer

A) implies that no transaction costs are associated with solving externalities. 
B) shows that property rights can be assigned. 
C) shows that under certain conditions externalities can be corrected in the market without resorting to nonmarket means. 
D) shows that property rights should never be assigned. 
A) implies that no transaction costs are associated with solving externalities. 
B) shows that property rights can be assigned. 
C) shows that under certain conditions externalities can be corrected in the market without resorting to nonmarket means. 
D) shows that property rights should never be assigned.

Question 2

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 3

Negative externalities arising from the production of a good

Accepted Answer

A) cause an increase in the demand for the good. 
B) cause a decrease in the demand for the good. 
C) impose costs on third parties. 
D) bring private costs into equality with social costs. 
A) cause an increase in the demand for the good. 
B) cause a decrease in the demand for the good. 
C) impose costs on third parties. 
D) bring private costs into equality with social costs.

Question 4

Exhibit 30-5 ​
 
Refer to Exhibit 30-5.  If a positive externality exists then the socially optimal output is

Accepted Answer

A) Q1. 
B) Q2. 
C) Q1 - Q2. 
D) Q2 - Q1. 
A) Q1. 
B) Q2. 
C) Q1 - Q2. 
D) Q2 - Q1.

Question 5

When a professor announces to the class that she will grade on a curve and that no one in the class will receive a grade lower than a "C"

Accepted Answer

A) a moral hazard problem for her students will likely arise. 
B) an adverse selection problem for her students will likely arise. 
C) the marginal social benefit will exceed the marginal social cost. 
D) the marginal social cost will exceed the marginal social benefit. 
A) a moral hazard problem for her students will likely arise. 
B) an adverse selection problem for her students will likely arise. 
C) the marginal social benefit will exceed the marginal social cost. 
D) the marginal social cost will exceed the marginal social benefit.

Question 6

A public good can be excludable or nonexcludable.

Accepted Answer

A) True 
 B)False

Question 7

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 8

According to the Coase theorem, under certain conditions the market can internalize externalities.

Accepted Answer

A) True 
 B)False

Question 9

For a good where network externalities are present, having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is false ?

Accepted Answer

A) Asymmetric information can exist both before and after a transaction takes place. 
B) Moral hazard occurs when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party. 
C) Adverse selection has the potential to eliminate some markets. 
D) Asymmetric information only exists after a transaction takes place. 
A) Asymmetric information can exist both before and after a transaction takes place. 
B) Moral hazard occurs when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party. 
C) Adverse selection has the potential to eliminate some markets. 
D) Asymmetric information only exists after a transaction takes place.

Question 11

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. 
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.

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

Generally, negative externalities result in

Accepted Answer

A) too much of a good being produced compared to the socially optimal level. 
B) the socially optimal output of a good being produced. 
C) too little of a good being produced compared to the socially optimal level. 
D) a higher price for a product compared to the price charged at the socially optimal level. 
A) too much of a good being produced compared to the socially optimal level. 
B) the socially optimal output of a good being produced. 
C) too little of a good being produced compared to the socially optimal level. 
D) a higher price for a product compared to the price charged at the socially optimal level.

Question 14

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 15

Suppose the production of a good results in negative externalities. If society produces the output consistent with the intersection of the demand curve and the marginal private cost curve, then

Accepted Answer

A) the socially optimal level of output will be produced. 
B) society will incur a net social cost. 
C) society will want more output produced, and producers will be willing to satisfy this desire at a price that society deems acceptable. 
D) There is not enough information provided to answer this question. 
A) the socially optimal level of output will be produced. 
B) society will incur a net social cost. 
C) society will want more output produced, and producers will be willing to satisfy this desire at a price that society deems acceptable. 
D) There is not enough information provided to answer this question.

Question 16

Insurance deductibles __________ the __________ problem of insurance coverage.

Accepted Answer

A) are meant to reduce; adverse selection 
B) are meant to reduce; moral hazard 
C) unintentionally worsen; adverse selection 
D) unintentionally worsen; moral hazard 
A) are meant to reduce; adverse selection 
B) are meant to reduce; moral hazard 
C) unintentionally worsen; adverse selection 
D) unintentionally worsen; moral hazard

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Market failure is a situation in which

Accepted Answer

A) negative economic profits persist in the long run. 
B) negative economic profits exist in the short run. 
C) the market does not provide the ideal or optimal amount of a particular good. 
D) the market provides the ideal or optimal amount of a particular good. 
A) negative economic profits persist in the long run. 
B) negative economic profits exist in the short run. 
C) the market does not provide the ideal or optimal amount of a particular good. 
D) the market provides the ideal or optimal amount of a particular good.

Question 19

Given a positive externality, the marginal social benefits curve lies to the __________ of the demand curve, with the market output __________ the socially optimal output.

Accepted Answer

A) right; greater than 
B) right; less than 
C) left; greater than 
D) left; less than 
A) right; greater than 
B) right; less than 
C) left; greater than 
D) left; less than

Question 20

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.

Exam 17: Market Failure: Externalities, Public Goods, and Asymmetric Information

The Coase theorem is significant because it

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

Negative externalities arising from the production of a good

Exhibit 30-5 ​ Refer to Exhibit 30-5. If a positive externality exists then the socially optimal output is

When a professor announces to the class that she will grade on a curve and that no one in the class will receive a grade lower than a "C"

A public good can be excludable or nonexcludable.

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.

According to the Coase theorem, under certain conditions the market can internalize externalities.

For a good where network externalities are present, having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Which of the following statements is false ?

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

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

Generally, negative externalities result in

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

Suppose the production of a good results in negative externalities. If society produces the output consistent with the intersection of the demand curve and the marginal private cost curve, then

Insurance deductibles __________ the __________ problem of insurance coverage.

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

Market failure is a situation in which

Given a positive externality, the marginal social benefits curve lies to the __________ of the demand curve, with the market output __________ the socially optimal output.

The Coase theorem

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility 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, Union, 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

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 the socially optimal output is

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

Insurance deductibles the problem of insurance coverage.

Given a positive externality, the marginal social benefits curve lies to the of the demand curve, with the market output the socially optimal output.