Question 1

In communities where more people carry property insurance you would expect people to be

Accepted Answer

A)  less careful about securing their possessions. 
B)  more careful about securing their possessions. 
C)  less likely to engage in behaviors that would be classified as moral hazard. 
D)  paying less for property insurance relative to communities where fewer people carry property insurance. 
A)  less careful about securing their possessions. 
B)  more careful about securing their possessions. 
C)  less likely to engage in behaviors that would be classified as moral hazard. 
D)  paying less for property insurance relative to communities where fewer people carry property insurance. A

Question 2

The free-rider problem occurs for

Accepted Answer

A)  private goods and public goods. 
B)  private goods but not public goods. 
C)  public goods but not private goods. 
D)  neither public nor private goods. 
A)  private goods and public goods. 
B)  private goods but not public goods. 
C)  public goods but not private goods. 
D)  neither public nor private goods. C

Question 3

Figure 9.6
-Figure 9.6 represents the market for health insurance. Suppose there are two types of consumers, low-cost consumers with $2,000 average medical expenses per year, and high-cost customers with $4,000 average medical expenses per year. The insurance companies estimate that 40% of its customers are high-cost type. If the insurance companies set the price equal to their average cost per customer, what is the insurance companies' average cost per customer ($Y)?

Accepted Answer

A)  $4,000 
B)  $3,400 
C)  $2,800 
D)  $2,000 
A)  $4,000 
B)  $3,400 
C)  $2,800 
D)  $2,000 C

Question 4

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₃ the firm's abatement choice will be

Accepted Answer

A)  A₁. 
B)  A₂. 
C)  A₃. 
D)  less than A₁. 
A)  A₁. 
B)  A₂. 
C)  A₃. 
D)  less than A₁.

Question 5

In the used car market, the adverse selection problem refers to the fact that a buyer must choose a used car from an undesirable selection of cars.

Accepted Answer

A) True 
 B)False

Question 6

If a pollution tax imposed on a firm is smaller than the external cost

Accepted Answer

A)  the externality is completely internalized. 
B)  the social production cost increases by the amount of the pollution tax. 
C)  the pollution tax transfers the full cost borne by people outside the firm back to the firm itself. 
D)  the firm is producing too much from society's point of view. 
A)  the externality is completely internalized. 
B)  the social production cost increases by the amount of the pollution tax. 
C)  the pollution tax transfers the full cost borne by people outside the firm back to the firm itself. 
D)  the firm is producing too much from society's point of view.

Question 7

A pollution tax

Accepted Answer

A)  is a method used to internalize external costs. 
B)  will not affect the price of the good being produced. 
C)  does not affect the quantity of a good demanded. 
D)  is a method used to externalize internal costs. 
A)  is a method used to internalize external costs. 
B)  will not affect the price of the good being produced. 
C)  does not affect the quantity of a good demanded. 
D)  is a method used to externalize internal costs.

Question 8

Health insurance companies face an asymmetric information problem because

Accepted Answer

A)  companies have superior information concerning the risk of illness or injury of those insured. 
B)  buyers have superior information concerning their risk of illness or injury. 
C)  the insurance companies and buyers both have equal information concerning the risk of illness or injury of those insured. 
D)  the probability of becoming ill or injured is unrelated to the insured person's occupation. 
A)  companies have superior information concerning the risk of illness or injury of those insured. 
B)  buyers have superior information concerning their risk of illness or injury. 
C)  the insurance companies and buyers both have equal information concerning the risk of illness or injury of those insured. 
D)  the probability of becoming ill or injured is unrelated to the insured person's occupation.

Question 9

A command-and-control policy is one in which

Accepted Answer

A)  the government commands each firm to produce no more than a certain level of pollution. 
B)  the government controls the firm's advertising policy. 
C)  the government forces the firm to use particular pollution-control technologies. 
D)  Both A and C are correct answers. 
A)  the government commands each firm to produce no more than a certain level of pollution. 
B)  the government controls the firm's advertising policy. 
C)  the government forces the firm to use particular pollution-control technologies. 
D)  Both A and C are correct answers.

Question 10

An external cost is the cost experienced by people who

Accepted Answer

A)  do not decide how much of a good to produce or consume. 
B)  did not know why they are experiencing the cost. 
C)  decide how much of a good to produce or consume. 
D)  consume a good. 
A)  do not decide how much of a good to produce or consume. 
B)  did not know why they are experiencing the cost. 
C)  decide how much of a good to produce or consume. 
D)  consume a good.

Question 11

Compared to a pollution tax, a policy of uniform abatement with permits is

Accepted Answer

A)  less efficient. 
B)  more efficient. 
C)  exactly as efficient. 
D)  either more or less efficient depending on the number of firms affected. 
A)  less efficient. 
B)  more efficient. 
C)  exactly as efficient. 
D)  either more or less efficient depending on the number of firms affected.

Question 12

In order to achieve an efficient result a pollution tax must

Accepted Answer

A)  be equal to the external cost generated. 
B)  not be passed through to the consumers of the produced good. 
C)  be equal to the social cost of production. 
D)  be shared equally by the producer and the consumer of the produced good. 
A)  be equal to the external cost generated. 
B)  not be passed through to the consumers of the produced good. 
C)  be equal to the social cost of production. 
D)  be shared equally by the producer and the consumer of the produced good.

Question 13

A good that is consumed by a single person or household is

Accepted Answer

A)  rival. 
B)  nonrival. 
C)  excludable. 
D)  nonexcludable. 
A)  rival. 
B)  nonrival. 
C)  excludable. 
D)  nonexcludable.

Question 14

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s).
-Recall the Application. Pitchers who switch teams ________ pitchers who do not switch teams.

Accepted Answer

A)  spend more time on the disabled list, on average, than 
B)  spend less time on the disabled list, on average, than 
C)  spend exactly the same amount of time on the disabled list as 
D)  are less injury-prone than 
A)  spend more time on the disabled list, on average, than 
B)  spend less time on the disabled list, on average, than 
C)  spend exactly the same amount of time on the disabled list as 
D)  are less injury-prone than

Question 15

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₁ the marginal benefit to the firm of abating A₂ is

Accepted Answer

A)  P₁. 
B)  P₂. 
C)  P₁ - P₂. 
D)  P₂ - P₃. 
A)  P₁. 
B)  P₂. 
C)  P₁ - P₂. 
D)  P₂ - P₃.

Question 16

If two firms pollute, and the increase in costs to Firm A from decreasing pollution is less than the decrease in costs to Firm B from increasing pollution

Accepted Answer

A)  the firms will not trade the right to pollute. 
B)  the firms can benefit by trading the right to pollute. 
C)  while both firms can benefit from trading, there is no way for them to determine an agreeable price. 
D)  both firms will stop polluting. 
A)  the firms will not trade the right to pollute. 
B)  the firms can benefit by trading the right to pollute. 
C)  while both firms can benefit from trading, there is no way for them to determine an agreeable price. 
D)  both firms will stop polluting.

Question 17

Which one of the following is an example of asymmetric information?

Accepted Answer

A)  A supermarket repackages packages of stale meat and sells them. 
B)  A homeowner knowingly sells a house that has hidden electrical problems. 
C)  A company hires an employee who has an addiction to sleeping pills. 
D)  all of the above 
A)  A supermarket repackages packages of stale meat and sells them. 
B)  A homeowner knowingly sells a house that has hidden electrical problems. 
C)  A company hires an employee who has an addiction to sleeping pills. 
D)  all of the above

Question 18

Sellers of high-quality used goods are ________ likely to offer money-back guarantees because ________.

Accepted Answer

A)  more; buyers will not ask for their money back 
B)  less; buyers will be willing to purchase high-quality goods even without a guarantee 
C)  more; they are wealthier and so can afford to give money back 
D)  less; buyers consider guarantees to be a sign of an inferior good 
A)  more; buyers will not ask for their money back 
B)  less; buyers will be willing to purchase high-quality goods even without a guarantee 
C)  more; they are wealthier and so can afford to give money back 
D)  less; buyers consider guarantees to be a sign of an inferior good

Question 19

Suppose that there are two firms, each generating three tons of SO₂. Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits the firm with the lower marginal abatement cost

Accepted Answer

A)  will abate exactly the same amount of SO₂ as the firm with the higher marginal abatement cost. 
B)  will abate less SO₂ than the firm with the higher marginal abatement cost. 
C)  will abate more SO₂ than the firm with the higher marginal abatement cost. 
D)  will sell its pollution permit to the firm with the higher marginal abatement cost. 
A)  will abate exactly the same amount of SO₂ as the firm with the higher marginal abatement cost. 
B)  will abate less SO₂ than the firm with the higher marginal abatement cost. 
C)  will abate more SO₂ than the firm with the higher marginal abatement cost. 
D)  will sell its pollution permit to the firm with the higher marginal abatement cost.

Question 20

Table 9.3
-Refer to Table 9.3. In which market do buyers underestimate the chance of getting a lemon?

Accepted Answer

A)  1 only 
B)  2 only 
C)  3 only 
D)  all of the above 
A)  1 only 
B)  2 only 
C)  3 only 
D)  all of the above

In communities where more people carry property insurance you would expect people to be

The free-rider problem occurs for

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₃ the firm's abatement choice will be

In the used car market, the adverse selection problem refers to the fact that a buyer must choose a used car from an undesirable selection of cars.

If a pollution tax imposed on a firm is smaller than the external cost

A pollution tax

Health insurance companies face an asymmetric information problem because

A command-and-control policy is one in which

An external cost is the cost experienced by people who

Compared to a pollution tax, a policy of uniform abatement with permits is

In order to achieve an efficient result a pollution tax must

A good that is consumed by a single person or household is

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s). -Recall the Application. Pitchers who switch teams ________ pitchers who do not switch teams.

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₁ the marginal benefit to the firm of abating A₂ is

If two firms pollute, and the increase in costs to Firm A from decreasing pollution is less than the decrease in costs to Firm B from increasing pollution

Which one of the following is an example of asymmetric information?

Sellers of high-quality used goods are likely to offer money-back guarantees because .

Suppose that there are two firms, each generating three tons of SO₂. Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits the firm with the lower marginal abatement cost

Table 9.3 -Refer to Table 9.3. In which market do buyers underestimate the chance of getting a lemon?

Introduction: What Is Economics

The Key Principles of Economics

Demand, Supply, and Market Equilibrium

Elasticity: A Measure of Responsiveness

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry, Monopolistic Competition, and Oligopoly

The Labor Market and the Distribution of Income

Measuring a Nations Production and Income

Unemployment and Inflation

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money and the Banking System

Monetary Policy and Inflation

International Trade and Finance

Filters

Exam 9: Imperfect Information, External Benefits, and External Costs

In communities where more people carry property insurance you would expect people to be

The free-rider problem occurs for

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₃ the firm's abatement choice will be

In the used car market, the adverse selection problem refers to the fact that a buyer must choose a used car from an undesirable selection of cars.

If a pollution tax imposed on a firm is smaller than the external cost

A pollution tax

Health insurance companies face an asymmetric information problem because

A command-and-control policy is one in which

An external cost is the cost experienced by people who

Compared to a pollution tax, a policy of uniform abatement with permits is

In order to achieve an efficient result a pollution tax must

A good that is consumed by a single person or household is

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s). -Recall the Application. Pitchers who switch teams ________ pitchers who do not switch teams.

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₁ the marginal benefit to the firm of abating A₂ is

If two firms pollute, and the increase in costs to Firm A from decreasing pollution is less than the decrease in costs to Firm B from increasing pollution

Which one of the following is an example of asymmetric information?

Sellers of high-quality used goods are ________ likely to offer money-back guarantees because ________.

Suppose that there are two firms, each generating three tons of SO₂. Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits the firm with the lower marginal abatement cost

Table 9.3 -Refer to Table 9.3. In which market do buyers underestimate the chance of getting a lemon?

Introduction: What Is Economics

The Key Principles of Economics

Demand, Supply, and Market Equilibrium

Elasticity: A Measure of Responsiveness

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry, Monopolistic Competition, and Oligopoly

The Labor Market and the Distribution of Income

Measuring a Nations Production and Income

Unemployment and Inflation

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money and the Banking System

Monetary Policy and Inflation

International Trade and Finance

Filters

Sellers of high-quality used goods are likely to offer money-back guarantees because .