Question 1

Government failure occurs when

Accepted Answer

A)  intervention by the government in the market fails to provide the socially optimal quantity of goods produced 
B)  the government fails to intervene in a market that has sizable externalities 
C)  the government fails to protect the free market and is forced to nationalize 
D)  the government must intervene in a market to provide the socially optimal quantity of goods 
E)  the government imposes a tax when it should have used an obligatory control 
A)  intervention by the government in the market fails to provide the socially optimal quantity of goods produced 
B)  the government fails to intervene in a market that has sizable externalities 
C)  the government fails to protect the free market and is forced to nationalize 
D)  the government must intervene in a market to provide the socially optimal quantity of goods 
E)  the government imposes a tax when it should have used an obligatory control

Question 2

The most common way that the government deals with negative externalities is

Accepted Answer

A)  ignoring them 
B)  taxing the goods that cause the negative externalities 
C)  controlling the quantity produced of the good that causes the negative externalities 
D)  privatizing them 
E)  to make its production illegal 
A)  ignoring them 
B)  taxing the goods that cause the negative externalities 
C)  controlling the quantity produced of the good that causes the negative externalities 
D)  privatizing them 
E)  to make its production illegal

Question 3

To correct for market failure, the government could impose a tax on the producer.

Accepted Answer

A) True 
 B)False

Question 4

-In Exhibit N-4, if the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

Accepted Answer

A)  $1.30 
B)  $0.50 
C)  $1.80 
D)  $0.30 
E)  $0.60 
A)  $1.30 
B)  $0.50 
C)  $1.80 
D)  $0.30 
E)  $0.60

Question 5

The Exxon Valdez oil spill was an exception to the rule. It was the only major environmental disaster in the 1980s.

Accepted Answer

A) True 
 B)False

Question 6

According to public choice theorists, the primary concern of policy makers is

Accepted Answer

A)  the public interest 
B)  achieving a social optimum for the economy as a whole 
C)  to protect their jobs 
D)  the provision of public goods 
E)  market failure 
A)  the public interest 
B)  achieving a social optimum for the economy as a whole 
C)  to protect their jobs 
D)  the provision of public goods 
E)  market failure

Question 7

If the production of paper causes economic damage to a community, allowing the market to set the price of paper equal to the private marginal cost of producing paper will

Accepted Answer

A)  generate less than the optimal quantity of paper produced 
B)  generate more than the optimal quantity of paper produced 
C)  generate an equilibrium price that is higher than the price associated with the market's most efficient level of output 
D)  cause some but not all paper producers to go out of business 
E)  benefit society because of externalities generated by the production 
A)  generate less than the optimal quantity of paper produced 
B)  generate more than the optimal quantity of paper produced 
C)  generate an equilibrium price that is higher than the price associated with the market's most efficient level of output 
D)  cause some but not all paper producers to go out of business 
E)  benefit society because of externalities generated by the production

Question 8

The market's allocation of resources is

Accepted Answer

A)  inefficient whenever the government intervenes 
B)  efficient regardless of whether externalities exist 
C)  efficient only when externalities exist 
D)  inefficient whenever externalities are present 
E)  dependent upon externalities 
A)  inefficient whenever the government intervenes 
B)  efficient regardless of whether externalities exist 
C)  efficient only when externalities exist 
D)  inefficient whenever externalities are present 
E)  dependent upon externalities

Question 9

Althea is a student in your class. Althea wears a perfume called Essence of Efficiency. Bob really likes the scent of this perfume, and is disappointed on days when Althea doesn't wear it. Cathy is mildly allergic to this perfume. Her eyes water and her nose becomes runny when Althea comes to class wearing this perfume. Cathy is fineotherwise. This is a story about

Accepted Answer

A)  too much perfume being produced 
B)  too little perfume being produced 
C)  an incomplete market 
D)  inadequate allocation of responsibility 
E)  market failure 
A)  too much perfume being produced 
B)  too little perfume being produced 
C)  an incomplete market 
D)  inadequate allocation of responsibility 
E)  market failure

Question 10

-A negative externality such as air pollution created as a by-product of a firm's production activities is best represented by which panel in Exhibit N-1 on the previous page (whereS and D depict the initial private market outcome)?

Accepted Answer

A)  Panel 1 
B)  Panel 2 
C)  Panel 3 
D)  Panel 4 
E)  Panel 5 
A)  Panel 1 
B)  Panel 2 
C)  Panel 3 
D)  Panel 4 
E)  Panel 5

Question 11

Free riders consume or enjoy benefits that they do not pay for.

Accepted Answer

A) True 
 B)False

Question 12

A system of nonattenuated (uncompromised) property rights is compatible with the achievement of economic efficiency.

Accepted Answer

A) True 
 B)False

Question 13

The space program of the 1960s is a good example of an activity that generated significant external economies.

Accepted Answer

A) True 
 B)False

Question 14

Third-party beneficiaries are called

Accepted Answer

A)  polluters 
B)  indirect property owners 
C)  free riders 
D)  recipients of efficient market outcomes 
E)  consumer surplus losers 
A)  polluters 
B)  indirect property owners 
C)  free riders 
D)  recipients of efficient market outcomes 
E)  consumer surplus losers

Question 15

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without havingto carry her radio, get sand in her speakers, or buy new batteries). She's delighted. This isan example of

Accepted Answer

A)  private property abuse 
B)  an externality cost to the person who has the radio 
C)  a negative externality enjoyed by Cindy 
D)  a positive externality enjoyed by Cindy 
E)  a public good 
A)  private property abuse 
B)  an externality cost to the person who has the radio 
C)  a negative externality enjoyed by Cindy 
D)  a positive externality enjoyed by Cindy 
E)  a public good

Question 16

Sometimes the government deals with externalities by creating laws to regulate behavior, instead of using taxes to correct the market failure. For example, government requires automobile makers to install a catalytic converter to remove toxins from exhaust. This pollution-fighting alternative to a gas tax

Accepted Answer

A)  is illegal for you to remove even though you own it 
B)  requires less technological development than a gas tax 
C)  means that automobile owners don't pay for the pollution control 
D)  makes the cost of the externality easy to determine 
E)  equates the social cost to the private cost of driving 
A)  is illegal for you to remove even though you own it 
B)  requires less technological development than a gas tax 
C)  means that automobile owners don't pay for the pollution control 
D)  makes the cost of the externality easy to determine 
E)  equates the social cost to the private cost of driving

Question 17

Which of the following would be an external cost in the market for cigarettes?

Accepted Answer

A)  price of a pack of cigarettes 
B)  loss of income for the smoker resulting from extra missed days of work 
C)  higher life insurance premiums paid by the smoker due to smoking 
D)  loss in utility in smoking by the smoker because the smoker must stand outside her office building in the cold winter to smoke 
E)  increased risk of cancer to the nonsmoking passengers in the smoker's car pool 
A)  price of a pack of cigarettes 
B)  loss of income for the smoker resulting from extra missed days of work 
C)  higher life insurance premiums paid by the smoker due to smoking 
D)  loss in utility in smoking by the smoker because the smoker must stand outside her office building in the cold winter to smoke 
E)  increased risk of cancer to the nonsmoking passengers in the smoker's car pool

Question 18

Supply and demand curves can only reflect

Accepted Answer

A)  total social costs 
B)  private, or internal, costs and benefits 
C)  external costs and benefits 
D)  external benefits 
E)  external costs 
A)  total social costs 
B)  private, or internal, costs and benefits 
C)  external costs and benefits 
D)  external benefits 
E)  external costs

Question 19

Economic activity initiated by market participants imposes costs on free riders.

Accepted Answer

A) True 
 B)False

Question 20

The social (or true) cost of producing a good is derived by

Accepted Answer

A)  adding external cost to private cost 
B)  subtracting private cost from external cost 
C)  subtracting external cost from private cost 
D)  measuring private cost alone 
E)  measuring external cost alone 
A)  adding external cost to private cost 
B)  subtracting private cost from external cost 
C)  subtracting external cost from private cost 
D)  measuring private cost alone 
E)  measuring external cost alone

Government failure occurs when

The most common way that the government deals with negative externalities is

To correct for market failure, the government could impose a tax on the producer.

-In Exhibit N-4, if the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

The Exxon Valdez oil spill was an exception to the rule. It was the only major environmental disaster in the 1980s.

According to public choice theorists, the primary concern of policy makers is

If the production of paper causes economic damage to a community, allowing the market to set the price of paper equal to the private marginal cost of producing paper will

The market's allocation of resources is

-A negative externality such as air pollution created as a by-product of a firm's production activities is best represented by which panel in Exhibit N-1 on the previous page (whereS and D depict the initial private market outcome)?

Free riders consume or enjoy benefits that they do not pay for.

A system of nonattenuated (uncompromised) property rights is compatible with the achievement of economic efficiency.

The space program of the 1960s is a good example of an activity that generated significant external economies.

Third-party beneficiaries are called

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without havingto carry her radio, get sand in her speakers, or buy new batteries). She's delighted. This isan example of

Which of the following would be an external cost in the market for cigarettes?

Supply and demand curves can only reflect

Economic activity initiated by market participants imposes costs on free riders.

The social (or true) cost of producing a good is derived by

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

Government failure occurs when

The most common way that the government deals with negative externalities is

To correct for market failure, the government could impose a tax on the producer.

-In Exhibit N-4, if the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

The Exxon Valdez oil spill was an exception to the rule. It was the only major environmental disaster in the 1980s.

According to public choice theorists, the primary concern of policy makers is

If the production of paper causes economic damage to a community, allowing the market to set the price of paper equal to the private marginal cost of producing paper will

The market's allocation of resources is

-A negative externality such as air pollution created as a by-product of a firm's production activities is best represented by which panel in Exhibit N-1 on the previous page (whereS and D depict the initial private market outcome)?

Free riders consume or enjoy benefits that they do not pay for.

A system of nonattenuated (uncompromised) property rights is compatible with the achievement of economic efficiency.

The space program of the 1960s is a good example of an activity that generated significant external economies.

Third-party beneficiaries are called

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without havingto carry her radio, get sand in her speakers, or buy new batteries). She's delighted. This isan example of

Which of the following would be an external cost in the market for cigarettes?

Supply and demand curves can only reflect

Economic activity initiated by market participants imposes costs on free riders.

The social (or true) cost of producing a good is derived by

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