Question 1

-Exhibit N-5 depicts a market whose socially optimal price and quantity is

Accepted Answer

A)  $8, 65 
B)  $5, 65 
C)  $7, 80 
D)  $5, 80 
E)  $4, 80 
A)  $8, 65 
B)  $5, 65 
C)  $7, 80 
D)  $5, 80 
E)  $4, 80

Question 2

-In Exhibit N-4, it is clear that the industry creates

Accepted Answer

A)  external benefits (positive externalities) that exceed external costs (negative externalities) 
B)  external benefits (negative externalities) that exceed external costs (positive externalities) 
C)  external costs of production (negative externalities) and no external benefits (positive externalities) 
D)  external benefits of production (negative externalities) and no external costs (negative externalities) 
E)  both external benefits (positive externalities) and external costs (negative externalities) 
A)  external benefits (positive externalities) that exceed external costs (negative externalities) 
B)  external benefits (negative externalities) that exceed external costs (positive externalities) 
C)  external costs of production (negative externalities) and no external benefits (positive externalities) 
D)  external benefits of production (negative externalities) and no external costs (negative externalities) 
E)  both external benefits (positive externalities) and external costs (negative externalities)

Question 3

How does moral hazard affect market outcomes?

Accepted Answer

It's a matter of incentives. Buying a go

Question 4

If people voluntarily bring their recyclable materials to a recycling center, these materials reduce landfill space, reduce the need for virgin material extraction, and provide an inexpensive input in many production processes. This results in

Accepted Answer

A)  an increase in the externalities associated with producing goods 
B)  mandatory recycling 
C)  an increase in private costs of producing goods 
D)  a decrease in private costs of producing goods 
E)  a narrowing of the gap between private and social costs of producing goods 
A)  an increase in the externalities associated with producing goods 
B)  mandatory recycling 
C)  an increase in private costs of producing goods 
D)  a decrease in private costs of producing goods 
E)  a narrowing of the gap between private and social costs of producing goods

Question 5

-Smallville has decided to provide lawn cutting services for an $8 fee. Demand for lawn cutting services by Smallville's three resident groups are represented in Exhibit N-2. What is the economically efficient level of lawn cutting services toprovide?

Accepted Answer

A)  6 units 
B)  13 units 
C)  22 units 
D)  33 units 
E)  44 units 
A)  6 units 
B)  13 units 
C)  22 units 
D)  33 units 
E)  44 units

Question 6

The problem of special interests financing congressional campaigns and presidential elections is associated with

Accepted Answer

A)  government failure 
B)  public choice theory 
C)  market failure 
D)  negative externalities 
E)  government subsidies 
A)  government failure 
B)  public choice theory 
C)  market failure 
D)  negative externalities 
E)  government subsidies

Question 7

A person whose house has declined in value as a result of a nearby factory's fumes is a third party to the market associated with the factory.

Accepted Answer

A) True 
 B)False

Question 8

The creation of new property forms (such as privatizing a public beach) is one answer to __________ because it would reduce _________ .

Accepted Answer

A)  government failure; market failure 
B)  market failure; government failure 
C)  the creation of third parties; public choice 
D)  dealing with externalities; the number of third parties 
E)  the inefficiencies of the market; special interests 
A)  government failure; market failure 
B)  market failure; government failure 
C)  the creation of third parties; public choice 
D)  dealing with externalities; the number of third parties 
E)  the inefficiencies of the market; special interests

Question 9

Public choice refers to how

Accepted Answer

A)  much publicity a government-sponsored project receives 
B)  members of government make choices that promote their own self-interest (to keep their jobs) 
C)  the public makes choices about what types of goods to buy 
D)  private decisions often end up becoming public 
E)  supply and demand curves reflect public opinion 
A)  much publicity a government-sponsored project receives 
B)  members of government make choices that promote their own self-interest (to keep their jobs) 
C)  the public makes choices about what types of goods to buy 
D)  private decisions often end up becoming public 
E)  supply and demand curves reflect public opinion

Question 10

A market failure will occur when all benefits are internalized.

Accepted Answer

A) True 
 B)False

Question 11

If the value that consumers place on the 100th unit of chocolate is $5, and the value of the resources used to produce that 100th unit is $2, to achieve an efficient allocation of resources

Accepted Answer

A)  a $3 externality associated with chocolate production must be generated 
B)  a $3 externality associated with chocolate production must be eliminated 
C)  less resources should be allocated to chocolate production 
D)  more chocolate should be produced 
E)  less chocolate should be produced 
A)  a $3 externality associated with chocolate production must be generated 
B)  a $3 externality associated with chocolate production must be eliminated 
C)  less resources should be allocated to chocolate production 
D)  more chocolate should be produced 
E)  less chocolate should be produced

Question 12

The government has traditionally dealt with externalities by directive rather than by price.

Accepted Answer

A) True 
 B)False

Question 13

Can government provision of a good result in its overproduction? Explain.

Accepted Answer

Yes. Representatives may not be able to

Question 14

Consider leaf burning that generates negative externalities. The private cost is

Accepted Answer

A)  less than the external cost 
B)  greater than social benefit 
C)  understated by the amount of the social cost 
D)  less than the social cost 
E)  shared with third parties 
A)  less than the external cost 
B)  greater than social benefit 
C)  understated by the amount of the social cost 
D)  less than the social cost 
E)  shared with third parties

Question 15

The Environmental Protection Agency (EPA) administers all of the following acts exceptthe

Accepted Answer

A)  Clean Air Act 
B)  Water Pollution Control Act 
C)  Safe Drinking Water Act 
D)  Toxic Substances Act 
E)  Federal Reserve Act 
A)  Clean Air Act 
B)  Water Pollution Control Act 
C)  Safe Drinking Water Act 
D)  Toxic Substances Act 
E)  Federal Reserve Act

Question 16

The one characteristic that is not associated with a pure public good is

Accepted Answer

A)  consumption of the good by one person doesn't prevent its consumption by others 
B)  the market produces less than the socially optimal quantity 
C)  no one can be excluded from consuming the good 
D)  the good can only be produced by the government 
E)  that even if one consumes more of it, there is still the same amount for others to consume 
A)  consumption of the good by one person doesn't prevent its consumption by others 
B)  the market produces less than the socially optimal quantity 
C)  no one can be excluded from consuming the good 
D)  the good can only be produced by the government 
E)  that even if one consumes more of it, there is still the same amount for others to consume

Question 17

-Exhibit N-5 depicts a market

Accepted Answer

A)  with demand curves reflecting both government and private demands for the good 
B)  that cannot achieve market equilibrium 
C)  with negative externalities 
D)  whose market price is too low 
E)  with positive externalities 
A)  with demand curves reflecting both government and private demands for the good 
B)  that cannot achieve market equilibrium 
C)  with negative externalities 
D)  whose market price is too low 
E)  with positive externalities

Question 18

A couple refuses to mow their lawn. Their neighbors take them to court, using economic logic to argue that

Accepted Answer

A)  property rights are poorly defined because externalities exist 
B)  they are free riders and entitled to the value of the externalities 
C)  although there are no third parties because property rights are clear, the market still generates market failure 
D)  although property rights are clear, there are still externalities that should be considered 
E)  market failure can be avoided if the couple sells their property to any of the neighbors 
A)  property rights are poorly defined because externalities exist 
B)  they are free riders and entitled to the value of the externalities 
C)  although there are no third parties because property rights are clear, the market still generates market failure 
D)  although property rights are clear, there are still externalities that should be considered 
E)  market failure can be avoided if the couple sells their property to any of the neighbors

Question 19

a. What kind of market failure is associated with goods that have negative externalities?
 b. How can the government intervene in free markets to correct the market failure associated with negative externalities?

Accepted Answer

a. The market that produces more than is

Question 20

-Exhibit N-5 depicts a market whose market equilibrium price is ______ and market equilibrium quantity produced is _________.

Accepted Answer

A)  $8; 65 
B)  $5; 65 
C)  $7; 80 
D)  $5; 80 
E)  $4; 80 
A)  $8; 65 
B)  $5; 65 
C)  $7; 80 
D)  $5; 80 
E)  $4; 80

Exam 14: Externalities, Market Failure, and Public Choice

-Exhibit N-5 depicts a market whose socially optimal price and quantity is

-In Exhibit N-4, it is clear that the industry creates

How does moral hazard affect market outcomes?

If people voluntarily bring their recyclable materials to a recycling center, these materials reduce landfill space, reduce the need for virgin material extraction, and provide an inexpensive input in many production processes. This results in

-Smallville has decided to provide lawn cutting services for an $8 fee. Demand for lawn cutting services by Smallville's three resident groups are represented in Exhibit N-2. What is the economically efficient level of lawn cutting services toprovide?

The problem of special interests financing congressional campaigns and presidential elections is associated with

A person whose house has declined in value as a result of a nearby factory's fumes is a third party to the market associated with the factory.

The creation of new property forms (such as privatizing a public beach) is one answer to __________ because it would reduce _________ .

Public choice refers to how

A market failure will occur when all benefits are internalized.

If the value that consumers place on the 100th unit of chocolate is $5, and the value of the resources used to produce that 100th unit is $2, to achieve an efficient allocation of resources

The government has traditionally dealt with externalities by directive rather than by price.

Can government provision of a good result in its overproduction? Explain.

Consider leaf burning that generates negative externalities. The private cost is

The Environmental Protection Agency (EPA) administers all of the following acts exceptthe

The one characteristic that is not associated with a pure public good is

-Exhibit N-5 depicts a market

A couple refuses to mow their lawn. Their neighbors take them to court, using economic logic to argue that

a. What kind of market failure is associated with goods that have negative externalities? b. How can the government intervene in free markets to correct the market failure associated with negative externalities?

-Exhibit N-5 depicts a market whose market equilibrium price is ______ and market equilibrium quantity produced is _________.

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

The creation of new property forms (such as privatizing a public beach) is one answer to __ because it would reduce _ .

-Exhibit N-5 depicts a market whose market equilibrium price is and market equilibrium quantity produced is ___.