Question 1

Some markets fail to generate an optimal quantity of public goods because

Accepted Answer

A)  free riders undermine the profitability of producing the goods 
B)  they are too expensive 
C)  they yield too few benefits 
D)  private enterprise cannot get access to the raw materials 
E)  there is insufficient demand for such goods 
A)  free riders undermine the profitability of producing the goods 
B)  they are too expensive 
C)  they yield too few benefits 
D)  private enterprise cannot get access to the raw materials 
E)  there is insufficient demand for such goods

Question 2

A national park is an example of a pure public good, since it is there for everyone to enjoy.

Accepted Answer

A) True 
 B)False

Question 3

Third parties can be unintentionally affected by the market activity of others.

Accepted Answer

A) True 
 B)False

Question 4

The possibility that someone can reap the benefits of being a free rider occurs

Accepted Answer

A)  when negative externalities exist in the market 
B)  only when the market is in equilibrium 
C)  when positive externalities exist in the market 
D)  only if government is willing to subsidize the market 
E)  only if government actually produces the good, such as a highway 
A)  when negative externalities exist in the market 
B)  only when the market is in equilibrium 
C)  when positive externalities exist in the market 
D)  only if government is willing to subsidize the market 
E)  only if government actually produces the good, such as a highway

Question 5

Suppose the government imposes a $2 per-unit tax on an item whose production creates a negative externality. Suppose the $2 is exactly the value of the external cost. If the government uses the tax revenue to clean up pollution created by this production,

Accepted Answer

A)  an optimal allocation of resources has been achieved 
B)  the market's equilibrium price is an efficient one 
C)  no externalities exist 
D)  there is no market failure 
E)  it is clear that obligatory controls have worked 
A)  an optimal allocation of resources has been achieved 
B)  the market's equilibrium price is an efficient one 
C)  no externalities exist 
D)  there is no market failure 
E)  it is clear that obligatory controls have worked

Question 6

A free rider attempts to receive benefits without paying for them.

Accepted Answer

A) True 
 B)False

Question 7

Are municipal tennis courts and municipal golf courses public goods? Why or why not?

Accepted Answer

It is possible to exclude peop

Question 8

The Yankee Candle Company, in Hatfield, Massachusetts, makes scented candles. When strawberry-scented candles are made, townspeople enjoy the scent that covers the town. When potpourri-scented candles are made, people stay indoors to avoid the scent. We can infer that if the scented-candle markets are in equilibrium

Accepted Answer

A)  neither strawberry nor potpourri scented candles will be produced 
B)  strawberry candles' prices are higher than the socially optimum 
C)  potpourri candles' prices are higher than the socially optimum 
D)  candle production generates only negative externalities 
E)  candle production technologies are inefficient 
A)  neither strawberry nor potpourri scented candles will be produced 
B)  strawberry candles' prices are higher than the socially optimum 
C)  potpourri candles' prices are higher than the socially optimum 
D)  candle production generates only negative externalities 
E)  candle production technologies are inefficient

Question 9

Markets without externalities create pollution.

Accepted Answer

A) True 
 B)False

Question 10

Show or explain the externality argument for government regulation of the environment. Describe a policy the government could adopt that would reduce pollution, but not require estimation of the optimal pollutiontax.

Accepted Answer

Private market solutions will fail to co

Question 11

A negative externality is the same thing as an external cost.

Accepted Answer

A) True 
 B)False

Question 12

A pollution compensation tax is chosen to

Accepted Answer

A)  keep output stable while reducing pollution 
B)  increase output in a cleaner manner 
C)  make all users pay the same amount of tax 
D)  drive the polluting firms out of business in the long run 
E)  create enough government revenue to clean up the environment 
A)  keep output stable while reducing pollution 
B)  increase output in a cleaner manner 
C)  make all users pay the same amount of tax 
D)  drive the polluting firms out of business in the long run 
E)  create enough government revenue to clean up the environment

Question 13

Externalities get their name from the fact that they are

Accepted Answer

A)  of no value 
B)  valued above the market price 
C)  short lived 
D)  outcomes created by markets that take no account of these outcomes 
E)  outcomes created by markets that take these outcomes into account 
A)  of no value 
B)  valued above the market price 
C)  short lived 
D)  outcomes created by markets that take no account of these outcomes 
E)  outcomes created by markets that take these outcomes into account

Question 14

The social cost of production, in cases where negative externalities exist, is equal to the

Accepted Answer

A)  sum of private and external costs minus social benefit 
B)  sum of private and external costs 
C)  sum of private cost and external cost minus social benefit 
D)  sum of private cost and external cost 
E)  current market price plus the external cost 
A)  sum of private and external costs minus social benefit 
B)  sum of private and external costs 
C)  sum of private cost and external cost minus social benefit 
D)  sum of private cost and external cost 
E)  current market price plus the external cost

Question 15

Moral hazard describes a situation in which

Accepted Answer

A)  buyers or sellers react to market signals by altering their behavior in ways that generate adverse market outcomes 
B)  an action by an individual that endangers others 
C)  an activity destroys all market outcomes 
D)  rational behavior is removed from market decision making 
E)  irrational behavior creates perverse market outcomes 
A)  buyers or sellers react to market signals by altering their behavior in ways that generate adverse market outcomes 
B)  an action by an individual that endangers others 
C)  an activity destroys all market outcomes 
D)  rational behavior is removed from market decision making 
E)  irrational behavior creates perverse market outcomes

Question 16

A local ordinance prohibiting leaf burning is an example of

Accepted Answer

A)  inefficient government 
B)  obligatory controls 
C)  a pollution compensation tax 
D)  the bubble concept 
E)  creating a new property form 
A)  inefficient government 
B)  obligatory controls 
C)  a pollution compensation tax 
D)  the bubble concept 
E)  creating a new property form

Question 17

Goods whose production is associated with positive externalities are

Accepted Answer

A)  under-priced and over-provided 
B)  under-priced and under-provided 
C)  over-priced and under-provided 
D)  over-priced and over-provided 
E)  not provided by private markets 
A)  under-priced and over-provided 
B)  under-priced and under-provided 
C)  over-priced and under-provided 
D)  over-priced and over-provided 
E)  not provided by private markets

Question 18

Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. Of course, when the weather is nice it is difficult to find parking, and the trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The park is not a pure public good because

Accepted Answer

A)  when trash cans overflow, a negative externality becomes a positive externality 
B)  it is not fenced to control access 
C)  weather is nice only in the summer, limiting optimal use 
D)  if too many people use it, one person's use can prevent others from using it as well 
E)  you have to drive to get there and the automobile is a private good 
A)  when trash cans overflow, a negative externality becomes a positive externality 
B)  it is not fenced to control access 
C)  weather is nice only in the summer, limiting optimal use 
D)  if too many people use it, one person's use can prevent others from using it as well 
E)  you have to drive to get there and the automobile is a private good

Question 19

In a society with market failure, there

Accepted Answer

A)  is no pollution 
B)  are no public goods 
C)  is an inefficient allocation of resources 
D)  are no markets 
E)  is no need for a government 
A)  is no pollution 
B)  are no public goods 
C)  is an inefficient allocation of resources 
D)  are no markets 
E)  is no need for a government

Question 20

Externalities are unintended costs or benefits imposed on third parties. Who creates these externalities?

Accepted Answer

A)  the government 
B)  the market 
C)  the third parties themselves 
D)  buyers create the costs, sellers create the benefits 
E)  the economic activity of others that affects third parties 
A)  the government 
B)  the market 
C)  the third parties themselves 
D)  buyers create the costs, sellers create the benefits 
E)  the economic activity of others that affects third parties

Some markets fail to generate an optimal quantity of public goods because

A national park is an example of a pure public good, since it is there for everyone to enjoy.

Third parties can be unintentionally affected by the market activity of others.

The possibility that someone can reap the benefits of being a free rider occurs

Suppose the government imposes a $2 per-unit tax on an item whose production creates a negative externality. Suppose the $2 is exactly the value of the external cost. If the government uses the tax revenue to clean up pollution created by this production,

A free rider attempts to receive benefits without paying for them.

Are municipal tennis courts and municipal golf courses public goods? Why or why not?

Markets without externalities create pollution.

Show or explain the externality argument for government regulation of the environment. Describe a policy the government could adopt that would reduce pollution, but not require estimation of the optimal pollutiontax.

A negative externality is the same thing as an external cost.

A pollution compensation tax is chosen to

Externalities get their name from the fact that they are

The social cost of production, in cases where negative externalities exist, is equal to the

Moral hazard describes a situation in which

A local ordinance prohibiting leaf burning is an example of

Goods whose production is associated with positive externalities are

In a society with market failure, there

Externalities are unintended costs or benefits imposed on third parties. Who creates these externalities?

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters

Exam 14: Externalities, Market Failure, and Public Choice

Some markets fail to generate an optimal quantity of public goods because

A national park is an example of a pure public good, since it is there for everyone to enjoy.

Third parties can be unintentionally affected by the market activity of others.

The possibility that someone can reap the benefits of being a free rider occurs

Suppose the government imposes a $2 per-unit tax on an item whose production creates a negative externality. Suppose the $2 is exactly the value of the external cost. If the government uses the tax revenue to clean up pollution created by this production,

A free rider attempts to receive benefits without paying for them.

Are municipal tennis courts and municipal golf courses public goods? Why or why not?

Markets without externalities create pollution.

Show or explain the externality argument for government regulation of the environment. Describe a policy the government could adopt that would reduce pollution, but not require estimation of the optimal pollutiontax.

A negative externality is the same thing as an external cost.

A pollution compensation tax is chosen to

Externalities get their name from the fact that they are

The social cost of production, in cases where negative externalities exist, is equal to the

Moral hazard describes a situation in which

A local ordinance prohibiting leaf burning is an example of

Goods whose production is associated with positive externalities are

In a society with market failure, there

Externalities are unintended costs or benefits imposed on third parties. Who creates these externalities?

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters