Question 1

The buyer of a good has less information than the seller of the good. This is a case of

Accepted Answer

A) externality information. 
B) free ridership. 
C) asymmetric information. 
D) biased information. 
E) a public good not being a private good. 
A) externality information. 
B) free ridership. 
C) asymmetric information. 
D) biased information. 
E) a public good not being a private good.

Question 2

A positive 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. 
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.

Question 3

There is no market failure if

Accepted Answer

A) the marginal private cost curve is upward sloping. 
B) the demand curve (for a good or service)is downward sloping. 
C) the demand curve lies about the marginal private cost curve. 
D) marginal private costs are greater than the external costs associated with a negative externality. 
E) the market provides the idea or socially optimal amount of a good. 
A) the marginal private cost curve is upward sloping. 
B) the demand curve (for a good or service)is downward sloping. 
C) the demand curve lies about the marginal private cost curve. 
D) marginal private costs are greater than the external costs associated with a negative externality. 
E) the market provides the idea or socially optimal amount of a good.

Question 4

One consequence of a negative externality is that

Accepted Answer

A) social costs are greater than private costs. 
B) private costs are greater than social costs. 
C) the marginal private cost curve slopes upward. 
D) the market output is less than the socially optimal output. 
A) social costs are greater than private costs. 
B) private costs are greater than social costs. 
C) the marginal private cost curve slopes upward. 
D) the market output is less than the socially optimal output.

Question 5

If fewer cigarettes are consumed with symmetric information than asymmetric information, it follows that

Accepted Answer

A) with asymmetric information the demand for cigarettes is lower than with symmetric information. 
B) with symmetric information the demand for cigarettes is lower than with asymmetric information. 
C) the demand for cigarettes is the same with or without asymmetric information. 
D) there are more free riders with asymmetric information than symmetric information. 
E) There is not enough information to answer the question. 
A) with asymmetric information the demand for cigarettes is lower than with symmetric information. 
B) with symmetric information the demand for cigarettes is lower than with asymmetric information. 
C) the demand for cigarettes is the same with or without asymmetric information. 
D) there are more free riders with asymmetric information than symmetric information. 
E) There is not enough information to answer the question.

Question 6

Exhibit 30-4 ​
 
Refer to Exhibit 30-4. If a negative externality exists, then curve __________ represents the marginal social cost curve and the area __________ represents the market failure.

Accepted Answer

A) 1; ACB 
B) 3; BCD 
C) 2; BCD 
D) 3; ACB 
E) 2; ACB 
A) 1; ACB 
B) 3; BCD 
C) 2; BCD 
D) 3; ACB 
E) 2; ACB

Question 7

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. 
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.

Question 8

Damian is texting while driving and ends up slamming into the back end of the car in front of him, which then strikes the car in front of it.  By texting while driving, Damian has created a

Accepted Answer

A) negative externality. 
B) positive externality. 
C) nonexcludable public good. 
D) marginal social benefit. 
A) negative externality. 
B) positive externality. 
C) nonexcludable public good. 
D) marginal social benefit.

Question 9

If Jamal successfully and completely internalizes a negative externality, it follows that

Accepted Answer

A) transaction costs are zero. 
B) his marginal private costs are equal to marginal social costs. 
C) information is asymmetric. 
D) information is symmetric. 
A) transaction costs are zero. 
B) his marginal private costs are equal to marginal social costs. 
C) information is asymmetric. 
D) information is symmetric.

Question 10

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

Accepted Answer

A) output will not occur at the socially optimal level. 
B) the price of the product will be higher than if all costs are not taken into account. 
C) more output will be produced than if all costs are not taken into account. 
D) the price of the product will be the same as it would be if all costs are not taken into account. 
A) output will not occur at the socially optimal level. 
B) the price of the product will be higher than if all costs are not taken into account. 
C) more output will be produced than if all costs are not taken into account. 
D) the price of the product will be the same as it would be if all costs are not taken into account.

Question 11

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

Accepted Answer

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

Question 12

Which of the following statements is consistent with the Coase theorem?

Accepted Answer

A) In the case of positive transaction costs, a property rights assignment (made by a court)will be undone if it benefits the relevant parties to undo it. 
B) In the case of zero transaction costs, the resource allocative outcome will be the same no matter who is assigned the property right. 
C) Taxes can do what property rights assignments cannot. 
D) The market can solve all negative externality problems. 
A) In the case of positive transaction costs, a property rights assignment (made by a court)will be undone if it benefits the relevant parties to undo it. 
B) In the case of zero transaction costs, the resource allocative outcome will be the same no matter who is assigned the property right. 
C) Taxes can do what property rights assignments cannot. 
D) The market can solve all negative externality problems.

Question 13

If the government does not provide it, the quantity of a nonexcludable good that private firms will choose to produce is

Accepted Answer

A) zero. 
B) more than the optimal amount. 
C) the optimal amount. 
D) optimal only if property rights are assigned. 
E) optimal only if the industry is competitive. 
A) zero. 
B) more than the optimal amount. 
C) the optimal amount. 
D) optimal only if property rights are assigned. 
E) optimal only if the industry is competitive.

Question 14

Which of the following statements is true?

Accepted Answer

A) The lower transaction costs are, the more likely individuals will solve negative externality problems through a voluntary exchange. 
B) The higher transaction costs are, the more likely individuals will solve negative externality problems through a voluntary exchange. 
C) Coase agrees with Pigou that taxing those activities associated with negative externalities is a good idea. 
D) Coase agrees with Pigou that taxing those activities associated with positive externalities is a good idea. 
A) The lower transaction costs are, the more likely individuals will solve negative externality problems through a voluntary exchange. 
B) The higher transaction costs are, the more likely individuals will solve negative externality problems through a voluntary exchange. 
C) Coase agrees with Pigou that taxing those activities associated with negative externalities is a good idea. 
D) Coase agrees with Pigou that taxing those activities associated with positive externalities is a good idea.

Question 15

Exhibit 30-5 ​
 
Refer to Exhibit 30-5. If a positive externality exists, then curve 1 represents the __________, curve 2 represents the __________, curve 3 represents the __________ and Q1 represents the __________.

Accepted Answer

A) marginal private cost curve; demand curve; marginal social benefit curve; market output 
B) demand curve; marginal social benefit curve; supply curve; market output 
C) marginal social benefit curve; demand curve; marginal private cost curve; socially optimal output 
D) demand curve; marginal social benefit curve; supply curve; socially optimal output 
E) marginal social benefit curve; supply curve; marginal private cost curve; market output 
A) marginal private cost curve; demand curve; marginal social benefit curve; market output 
B) demand curve; marginal social benefit curve; supply curve; market output 
C) marginal social benefit curve; demand curve; marginal private cost curve; socially optimal output 
D) demand curve; marginal social benefit curve; supply curve; socially optimal output 
E) marginal social benefit curve; supply curve; marginal private cost curve; market output

Question 16

Marginal social benefits are equal to

Accepted Answer

A) marginal private benefits + marginal internal benefits. 
B) marginal private benefits - marginal internal benefits. 
C) marginal private benefits + marginal external benefits. 
D) marginal private benefits - marginal external benefits. 
A) marginal private benefits + marginal internal benefits. 
B) marginal private benefits - marginal internal benefits. 
C) marginal private benefits + marginal external benefits. 
D) marginal private benefits - marginal external benefits.

Question 17

In general, positive 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 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 compared to the price charged at the socially optimal level.

Question 18

To reduce pollution, economists generally prefer a corrective tax to a command-and-control policy because the same goals can be achieved but in an efficient manner with a corrective tax.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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 a higher level than if all benefits were not taken into account. 
B) output will be at a lower level than the socially optimal level. 
C) the marginal private benefit curve will lie above and to the right of the marginal social benefit curve. 
D) there will be underproduction. 
A) output will be at a higher level than if all benefits were not taken into account. 
B) output will be at a lower level than the socially optimal level. 
C) the marginal private benefit curve will lie above and to the right of the marginal social benefit curve. 
D) there will be underproduction.

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

The buyer of a good has less information than the seller of the good. This is a case of

A positive externality exists when

There is no market failure if

One consequence of a negative externality is that

If fewer cigarettes are consumed with symmetric information than asymmetric information, it follows that

Exhibit 30-4 ​ Refer to Exhibit 30-4. If a negative externality exists, then curve __________ represents the marginal social cost curve and the area __________ represents the market failure.

A negative externality exists when

Damian is texting while driving and ends up slamming into the back end of the car in front of him, which then strikes the car in front of it. By texting while driving, Damian has created a

If Jamal successfully and completely internalizes a negative externality, it follows that

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

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

Which of the following statements is consistent with the Coase theorem?

If the government does not provide it, the quantity of a nonexcludable good that private firms will choose to produce is

Which of the following statements is true?

Exhibit 30-5 ​ Refer to Exhibit 30-5. If a positive externality exists, then curve 1 represents the __________, curve 2 represents the __________, curve 3 represents the __________ and Q1 represents the __________.

Marginal social benefits are equal to

In general, positive externalities result in

To reduce pollution, economists generally prefer a corrective tax to a command-and-control policy because the same goals can be achieved but in an efficient manner with a corrective tax.

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

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

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Exhibit 30-4 Refer to Exhibit 30-4. If a negative externality exists, then curve represents the marginal social cost curve and the area represents the market failure.

Exhibit 30-1 Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, the net 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 1 represents the , curve 2 represents the , curve 3 represents the and Q₁ represents the .

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