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

Suppose Johnson's Rubber Factory belches black smoke into the air over the city of Bellowsville. If the city of Bellowsville attempts to internalize the external costs associated with the production of rubber with a pollution tax, we can expect

Tax revenues are an advantage of ________, which are not offered by command-and-control policies.

There exists asymmetric information in a market

If the government attempts to control pollution with a command-and-control policy

Table 9.1 -Table 9.1 represents 3 markets for used computers. Which of the markets in Table 14.1 are in equilibrium?

Reading Consumer Reports before buying a used car

Relative to a market with perfect information, in a market with imperfect information

During pledge week your local public television station asks viewers to contribute to the station. People who watch public television but do NOT contribute are

If a good is available only to those who pay for it, the good is

What is moral hazard?

Which of the following is the least likely example of asymmetric information?

Figure 9.2 -Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum (high-quality) used camera and $25 for a lemon (low-quality) used camera. If buyers believe that 50% of used cameras in the market are lemons (low quality), how many lemons (low quality) will be supplied by sellers?

Alissa is studying for her principles of economics exam. She tells her study partner that "Only a very small number of people ever get to become astronauts and go into space. Therefore space exploration is not a public good." Do you agree? Explain.

Table 9.7 -Table 9.7 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm and that Firm A has sold one permit to Firm B. If Firm B wants to purchase a second permit to be able to discharge 10 tons of sulfur dioxide, what is Firm B's willingness to pay?

Figure 9.3 -Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum (high-quality) used refrigerator and $100 for a lemon (low-quality) used refrigerator. If buyers believe that all of the used refrigerators in the market are lemons (low quality), what number of used refrigerators sold will actually be lemons (low quality)?

One way that insurance companies can reduce the moral hazard problem is to

A charity that used to offer contributors private goods such as coffee mugs, books, or magazine subscriptions, but no longer does, is likely to ________ the free-rider problem and lead to a ________ level of contribution to the public good.

Producers will take external costs into account when

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. If $Y is the price the insurance company would charge if it expected 40% of its customers to be high-cost, the price it would charge if it expected 50% of its customers to be high-cost would be

It is efficient to reduce pollution up until the marginal benefit from reducing the pollution equals the marginal cost of abatement.