Question 1

Which of the following is not a method to internalize or adjust for externalities?

Accepted Answer

A) persuasion 
B) assignment of property rights 
C) unilateral transfers 
D) voluntary agreements 
A) persuasion 
B) assignment of property rights 
C) unilateral transfers 
D) voluntary agreements

Question 2

When a good is nonexcludable, then individuals

Accepted Answer

A) will purchase the good for less than it cost to produce. 
B) cannot obtain the benefits of the good without paying for it. 
C) have an incentive to become free riders. 
D) will purchase more than the optimum amount. 
A) will purchase the good for less than it cost to produce. 
B) cannot obtain the benefits of the good without paying for it. 
C) have an incentive to become free riders. 
D) will purchase more than the optimum amount.

Question 3

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

Accepted Answer

A) True 
 B)False

Question 4

Asymmetric information exists when

Accepted Answer

A) both parties to an exchange have all relevant facts about that exchange. 
B) a good that is either nonrivalrous or nonexcludable is being sold on a market. 
C) the two parties to an exchange differ in what they know about the good being exchanged. 
D) neither party to an exchange is knowledgeable about the quality of the good being exchanged. 
A) both parties to an exchange have all relevant facts about that exchange. 
B) a good that is either nonrivalrous or nonexcludable is being sold on a market. 
C) the two parties to an exchange differ in what they know about the good being exchanged. 
D) neither party to an exchange is knowledgeable about the quality of the good being exchanged.

Question 5

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 6

If an asymmetry of information is removed and laborers' preferences change against employment in a labor market, it would __________ employment and __________ the wage at the equilibrium in the market.

Accepted Answer

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

Question 7

A negative externality can be internalized

Accepted Answer

A) by persuasion, the imposition of a tax, the assignment of property rights, or a voluntary agreement. 
B) only by the imposition of a tax. 
C) only by persuasion or the assignment of property rights. 
D) only by a voluntary agreement. 
A) by persuasion, the imposition of a tax, the assignment of property rights, or a voluntary agreement. 
B) only by the imposition of a tax. 
C) only by persuasion or the assignment of property rights. 
D) only by a voluntary agreement.

Question 8

Exhibit 30-4 ​
 
Refer to Exhibit 30-4.  If a negative 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 9

Suppose the production of a good results in negative externalities. If all costs are taken into account, then

Accepted Answer

A) output will be at a lower level than if all costs are not taken into account. 
B) output will be at a lower level than the socially optimal level. 
C) the marginal private cost curve will lie above and to the left of the marginal social cost curve. 
D) output will be at a higher level than if all costs are not taken into account. 
A) output will be at a lower level than if all costs are not taken into account. 
B) output will be at a lower level than the socially optimal level. 
C) the marginal private cost curve will lie above and to the left of the marginal social cost curve. 
D) output will be at a higher level than if all costs are not taken into account.

Question 10

Market failure is a situation in which

Accepted Answer

A) the market does not provide the ideal or optimal amount of a particular good. 
B) there are too many buyers but not enough sellers. 
C) prices are too high for "average" people to buy necessities. 
D) there is a question over the quality of a product for sale. 
A) the market does not provide the ideal or optimal amount of a particular good. 
B) there are too many buyers but not enough sellers. 
C) prices are too high for "average" people to buy necessities. 
D) there is a question over the quality of a product for sale.

Question 11

A negative externality exists

Accepted Answer

A) when a person's or group's actions cause a benefit that is felt by others. 
B) when a person's or group's actions cause a cost that is felt by others. 
C) any time that the market output is less than the socially optimal output. 
D) when the socially optimal output equals the market output. 
A) when a person's or group's actions cause a benefit that is felt by others. 
B) when a person's or group's actions cause a cost that is felt by others. 
C) any time that the market output is less than the socially optimal output. 
D) when the socially optimal output equals the market output.

Question 12

Which of the following statements is true?

Accepted Answer

A) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will certainly be for the worse. 
B) When production of a good yields negative externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount greater than costs will increase. 
C) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount less than costs will increase. 
D) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will be a net change for the better. 
A) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will certainly be for the worse. 
B) When production of a good yields negative externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount greater than costs will increase. 
C) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount less than costs will increase. 
D) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will be a net change for the better.

Question 13

Maria lives next door to Alice. Alice regularly plays loud music, which often disturbs Maria. Maria went over to Alice's house yesterday and asked her to turn down her music because loud music adversely affects her. Alice has complied. Which of the following best describes the economists' view of what has happened?

Accepted Answer

A) The marginal social benefits of loud music were greater than the marginal private costs of loud music and the problem was solved by Maria persuading Alice to internalize her (Maria's)external costs. 
B) The marginal social costs of loud music were greater than the marginal private costs of loud music and the problem was solved by Maria persuading Alice to internalize her (Maria's)external costs. 
C) The marginal social costs of loud music were greater than the marginal private costs of loud music and the problem was solved through a reassignment of property rights. 
D) The marginal social costs of loud music were greater than the marginal social benefits of loud music and the problem was solved by Maria persuading Alice to internalize her (Maria's)external costs. 
A) The marginal social benefits of loud music were greater than the marginal private costs of loud music and the problem was solved by Maria persuading Alice to internalize her (Maria's)external costs. 
B) The marginal social costs of loud music were greater than the marginal private costs of loud music and the problem was solved by Maria persuading Alice to internalize her (Maria's)external costs. 
C) The marginal social costs of loud music were greater than the marginal private costs of loud music and the problem was solved through a reassignment of property rights. 
D) The marginal social costs of loud music were greater than the marginal social benefits of loud music and the problem was solved by Maria persuading Alice to internalize her (Maria's)external costs.

Question 14

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

Question 15

An externality is internalized

Accepted Answer

A) when 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) when 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) when 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) it creates negative spillovers to society. 
A) when 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) when 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) when 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) it creates negative spillovers to society.

Question 16

Exhibit 30-1 ​
 
Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, the triangle ABC is representative of

Accepted Answer

A) social failure. 
B) optimal failure. 
C) market failure. 
D) socially optimal output. 
A) social failure. 
B) optimal failure. 
C) market failure. 
D) socially optimal output.

Question 17

A positive externality exists when

Accepted Answer

A) a person's or group's actions cause a benefit that is felt by others. 
B) a person's or group's actions cause a cost that is felt by others. 
C) the market output is greater than the socially optimal output. 
D) the socially optimal level of output is equal to the market output. 
A) a person's or group's actions cause a benefit that is felt by others. 
B) a person's or group's actions cause a cost that is felt by others. 
C) the market output is greater than the socially optimal output. 
D) the socially optimal level of output is equal to the market output.

Question 18

When a negative externality exists,

Accepted Answer

A) external costs are necessarily greater than private costs. 
B) social costs equal private costs. 
C) social costs are less than private costs. 
D) social costs are greater than private costs. 
A) external costs are necessarily greater than private costs. 
B) social costs equal private costs. 
C) social costs are less than private costs. 
D) social costs are greater than private costs.

Question 19

Suppose the production of a good results in positive externalities. If output occurs at the intersection of the marginal social benefits curve and the supply curve, then

Accepted Answer

A) output will be at the socially optimal level. 
B) the price of the product will be the same as it was when all benefits were not taken into account. 
C) less output will be produced than if all benefits were not taken into account. 
D) output will be at the market level. 
A) output will be at the socially optimal level. 
B) the price of the product will be the same as it was when all benefits were not taken into account. 
C) less output will be produced than if all benefits were not taken into account. 
D) output will be at the market level.

Question 20

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

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

Which of the following is not a method to internalize or adjust for externalities?

When a good is nonexcludable, then individuals

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

Asymmetric information exists when

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

If an asymmetry of information is removed and laborers' preferences change against employment in a labor market, it would __________ employment and __________ the wage at the equilibrium in the market.

A negative externality can be internalized

Exhibit 30-4 ​ Refer to Exhibit 30-4. If a negative externality exists, then the socially optimal output is

Suppose the production of a good results in negative externalities. If all costs are taken into account, then

Market failure is a situation in which

A negative externality exists

Which of the following statements is true?

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

An externality is internalized

Exhibit 30-1 ​ Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, the triangle ABC is representative of

A positive externality exists when

When a negative externality exists,

Suppose the production of a good results in positive externalities. If output occurs at the intersection of the marginal social benefits curve and the supply curve, then

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.

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

If an asymmetry of information is removed and laborers' preferences change against employment in a labor market, it would employment and the wage at the equilibrium in the market.

Exhibit 30-4 Refer to Exhibit 30-4. If a negative externality exists, then the socially optimal output is

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

Exhibit 30-1 Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, the triangle ABC is representative of