Question 1

-Exhibit N-5 depicts a market for which the government, in order to achieve the social optimal price and quantity, must

Accepted Answer

A)  tax producers of the good 
B)  tax consumers of the good 
C)  prohibit the production of the good 
D)  restrict the production of the good 
E)  grant a subsidy to consumers of the good 
A)  tax producers of the good 
B)  tax consumers of the good 
C)  prohibit the production of the good 
D)  restrict the production of the good 
E)  grant a subsidy to consumers of the good

Question 2

Requiring that all cars meet certain pollution emission standards is an example of

Accepted Answer

A)  the creation of a property right 
B)  taxation to pay for the pollution clean up 
C)  an obligatory control 
D)  nationalization 
E)  federalism 
A)  the creation of a property right 
B)  taxation to pay for the pollution clean up 
C)  an obligatory control 
D)  nationalization 
E)  federalism

Question 3

Nonsmoking sections in restaurants are designed to

Accepted Answer

A)  prevent third parties from causing a market failure 
B)  increase demand by achieving market equilibrium 
C)  prevent free riders from incurring a negative externality 
D)  prevent third parties from incurring a negative externality 
E)  achieve market equilibrium which cannot be achieved without the designated sections 
A)  prevent third parties from causing a market failure 
B)  increase demand by achieving market equilibrium 
C)  prevent free riders from incurring a negative externality 
D)  prevent third parties from incurring a negative externality 
E)  achieve market equilibrium which cannot be achieved without the designated sections

Question 4

When the criterion used by elected representatives of government who make choices about the production and allocation of public goods is whether the choices promote theirown self-interest (staying elected), this is an example of a

Accepted Answer

A)  free-rider problem 
B)  positive externality 
C)  public choice issue 
D)  government subsidy 
E)  market failure 
A)  free-rider problem 
B)  positive externality 
C)  public choice issue 
D)  government subsidy 
E)  market failure

Question 5

Which of the following would be an external cost associated with the production of coal-fired electricity?

Accepted Answer

A)  the cost of misleading advertising 
B)  the increase in labor costs as the firm pays its workers who are adversely affected by the coal-fired technology 
C)  the pollution generated by the firm's physical plant 
D)  the decrease in value consumers attach to this kind of electricity 
E)  the value people derive from turning off lights when they leave the room, that is cost-saving 
A)  the cost of misleading advertising 
B)  the increase in labor costs as the firm pays its workers who are adversely affected by the coal-fired technology 
C)  the pollution generated by the firm's physical plant 
D)  the decrease in value consumers attach to this kind of electricity 
E)  the value people derive from turning off lights when they leave the room, that is cost-saving

Question 6

-In Exhibit N-4, the market creates an equilibrium price of ________ and an equilibrium output of _______.

Accepted Answer

A)  $1.90; 42 
B)  $1.80; 35 
C)  $1.60; 42 
D)  $1.35; 58 
E)  $1.90; 35 
A)  $1.90; 42 
B)  $1.80; 35 
C)  $1.60; 42 
D)  $1.35; 58 
E)  $1.90; 35

Question 7

-Demand for lawn cutting services by Smallville's three resident groups are represented in Exhibit N-2. If Smallville has 68 units of lawn cutting services demanded, at what level did it set the price of its lawn cutting services?

Accepted Answer

A)  $2 
B)  $4 
C)  $6 
D)  $8 
E)  $10 
A)  $2 
B)  $4 
C)  $6 
D)  $8 
E)  $10

Question 8

Public goods, as defined in economics, are

Accepted Answer

A)  goods that are provided by the government 
B)  overprovided because of their public nature 
C)  provided efficiently in competitive markets but at too low a level 
D)  subject to free-rider problems 
E)  characterized by rivalry and nonexclusiveness 
A)  goods that are provided by the government 
B)  overprovided because of their public nature 
C)  provided efficiently in competitive markets but at too low a level 
D)  subject to free-rider problems 
E)  characterized by rivalry and nonexclusiveness

Question 9

It is not possible to exclude people from consuming pure public goods.

Accepted Answer

A) True 
 B)False

Question 10

Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The benefit she expects to receive is $1,800. In addition, neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100. Fromthis, we can conclude that

Accepted Answer

A)  butterflies are a negative externality for Billy and Sammy 
B)  Denise will set up the butterfly garden without any help from her free-rider neighbors 
C)  if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built 
D)  if Billy refuses to contribute to the butterfly garden, Denise will not have one 
E)  if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up. Otherwise, no garden. 
A)  butterflies are a negative externality for Billy and Sammy 
B)  Denise will set up the butterfly garden without any help from her free-rider neighbors 
C)  if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built 
D)  if Billy refuses to contribute to the butterfly garden, Denise will not have one 
E)  if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up. Otherwise, no garden.

Question 11

Positive externalities can be an example of market failure.

Accepted Answer

A) True 
 B)False

Question 12

Negative externalities, such as air pollution, pose a social problem because they

Accepted Answer

A)  benefit buyers but not sellers 
B)  are intended and are market derived 
C)  have a positive value for those who create them 
D)  have a negative value for those who create them 
E)  are difficult to internalize 
A)  benefit buyers but not sellers 
B)  are intended and are market derived 
C)  have a positive value for those who create them 
D)  have a negative value for those who create them 
E)  are difficult to internalize

Question 13

The most common method used by the government to control negative externalities is

Accepted Answer

A)  creation of private property rights 
B)  obligatory controls 
C)  taxation 
D)  subsidization 
E)  nationalization 
A)  creation of private property rights 
B)  obligatory controls 
C)  taxation 
D)  subsidization 
E)  nationalization

Question 14

Suppose that no externalities are generated by the production of chickens. If the price of chickens is equal to private marginal cost of producing chickens, then

Accepted Answer

A)  that price is lower than the price associated with an efficient allocation of resources 
B)  that price is higher than the price associated with an efficient allocation of resources 
C)  that price is precisely the price associated with an efficient allocation of resources 
D)  less than an efficient quantity is being produced 
E)  more than an efficient quantity is being produced 
A)  that price is lower than the price associated with an efficient allocation of resources 
B)  that price is higher than the price associated with an efficient allocation of resources 
C)  that price is precisely the price associated with an efficient allocation of resources 
D)  less than an efficient quantity is being produced 
E)  more than an efficient quantity is being produced

Question 15

Government failure refers to

Accepted Answer

A)  a mismatch between employer incentives and firm objectives 
B)  the failure of government to provide an efficient quantity of public goods 
C)  the inability of firms to produce output efficiently 
D)  the overabundance of competitors with government in production 
E)  the under-allocation of tax revenues 
A)  a mismatch between employer incentives and firm objectives 
B)  the failure of government to provide an efficient quantity of public goods 
C)  the inability of firms to produce output efficiently 
D)  the overabundance of competitors with government in production 
E)  the under-allocation of tax revenues

Question 16

The existence of positive externalities indicates that price is too low.

Accepted Answer

A) True 
 B)False

Question 17

Hank's Honey is a bee farm out in the country. Kid Kare Nursery School is next door. Fleurette's fruit orchard is located on the other side of the school. Hank's bees, searching for nectar, buzz by the nursery school to feed in Fleurette's orchard and in doing so,pollinate the fruit. The school children, however, fear the bees. Who benefits in thisstory?

Accepted Answer

A)  Hank and Fleurette 
B)  Kid Kare 
C)  Hank only 
D)  Fleurette only 
E)  no one benefits, but Kid Kare loses 
A)  Hank and Fleurette 
B)  Kid Kare 
C)  Hank only 
D)  Fleurette only 
E)  no one benefits, but Kid Kare loses

Question 18

Which of the following is an example of a positive externality?

Accepted Answer

A)  Nick spends $500 to landscape his yard and his property increases in value by $1,000. 
B)  Mick spends $500 on a stereo, which he plays so loudly that his neighbors are willing to pay him $1,000 not to play the stereo. 
C)  An increase in the demand for computers causes IBM to hire more workers. 
D)  Complaints of speeding cause police to increase surveillance. 
E)  Lisa puts new concrete on her driveway and now the neighboring kids use it for skateboarding. 
A)  Nick spends $500 to landscape his yard and his property increases in value by $1,000. 
B)  Mick spends $500 on a stereo, which he plays so loudly that his neighbors are willing to pay him $1,000 not to play the stereo. 
C)  An increase in the demand for computers causes IBM to hire more workers. 
D)  Complaints of speeding cause police to increase surveillance. 
E)  Lisa puts new concrete on her driveway and now the neighboring kids use it for skateboarding.

Question 19

-Exhibit N-4 represents the tobacco industry. Which of the following would be included in supply (private cost) curve?

Accepted Answer

A)  the cost of labor 
B)  the cost to the government of the hospital expenses of indigent smokers 
C)  the increased risk of cancer to the nonsmoking passengers in the smoker's car pool 
D)  the price of a pack of cigarettes 
E)  the loss in utility received because the smoker must stand outside her office building in the winter to smoke 
A)  the cost of labor 
B)  the cost to the government of the hospital expenses of indigent smokers 
C)  the increased risk of cancer to the nonsmoking passengers in the smoker's car pool 
D)  the price of a pack of cigarettes 
E)  the loss in utility received because the smoker must stand outside her office building in the winter to smoke

Question 20

If it costs $2,000 to pick up all the litter along a 100-mile stretch of highway, then the cost of the negative externality associated with the litter is

Accepted Answer

A)  $0 
B)  more than $0, but less than $2,000 
C)  $2,000 
D)  more than $2,000, but finite 
E)  infinite 
A)  $0 
B)  more than $0, but less than $2,000 
C)  $2,000 
D)  more than $2,000, but finite 
E)  infinite

-Exhibit N-5 depicts a market for which the government, in order to achieve the social optimal price and quantity, must

Requiring that all cars meet certain pollution emission standards is an example of

Nonsmoking sections in restaurants are designed to

When the criterion used by elected representatives of government who make choices about the production and allocation of public goods is whether the choices promote theirown self-interest (staying elected), this is an example of a

Which of the following would be an external cost associated with the production of coal-fired electricity?

-In Exhibit N-4, the market creates an equilibrium price of __ and an equilibrium output of _.

-Demand for lawn cutting services by Smallville's three resident groups are represented in Exhibit N-2. If Smallville has 68 units of lawn cutting services demanded, at what level did it set the price of its lawn cutting services?

Public goods, as defined in economics, are

It is not possible to exclude people from consuming pure public goods.

Positive externalities can be an example of market failure.

Negative externalities, such as air pollution, pose a social problem because they

The most common method used by the government to control negative externalities is

Suppose that no externalities are generated by the production of chickens. If the price of chickens is equal to private marginal cost of producing chickens, then

Government failure refers to

The existence of positive externalities indicates that price is too low.

Which of the following is an example of a positive externality?

-Exhibit N-4 represents the tobacco industry. Which of the following would be included in supply (private cost) curve?

If it costs $2,000 to pick up all the litter along a 100-mile stretch of highway, then the cost of the negative externality associated with the litter 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

Exam 14: Externalities, Market Failure, and Public Choice

-Exhibit N-5 depicts a market for which the government, in order to achieve the social optimal price and quantity, must

Requiring that all cars meet certain pollution emission standards is an example of

Nonsmoking sections in restaurants are designed to

When the criterion used by elected representatives of government who make choices about the production and allocation of public goods is whether the choices promote theirown self-interest (staying elected), this is an example of a

Which of the following would be an external cost associated with the production of coal-fired electricity?

-In Exhibit N-4, the market creates an equilibrium price of ________ and an equilibrium output of _______.

-Demand for lawn cutting services by Smallville's three resident groups are represented in Exhibit N-2. If Smallville has 68 units of lawn cutting services demanded, at what level did it set the price of its lawn cutting services?

Public goods, as defined in economics, are

It is not possible to exclude people from consuming pure public goods.

Positive externalities can be an example of market failure.

Negative externalities, such as air pollution, pose a social problem because they

The most common method used by the government to control negative externalities is

Suppose that no externalities are generated by the production of chickens. If the price of chickens is equal to private marginal cost of producing chickens, then

Government failure refers to

The existence of positive externalities indicates that price is too low.

Which of the following is an example of a positive externality?

-Exhibit N-4 represents the tobacco industry. Which of the following would be included in supply (private cost) curve?

If it costs $2,000 to pick up all the litter along a 100-mile stretch of highway, then the cost of the negative externality associated with the litter 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

-In Exhibit N-4, the market creates an equilibrium price of __ and an equilibrium output of _.