Question 1

Provide an intuitive explanation of the free-rider problem.

Accepted Answer

Since a person's consumption of a public

Question 2

In order to identify their used cars as plums (high-quality), many used car dealers

Accepted Answer

A)  raise the minimum price of plums (high-quality). 
B)  advertise their prices. 
C)  offer money-back guarantees. 
D)  raise the minimum price of lemons (low-quality). 
A)  raise the minimum price of plums (high-quality). 
B)  advertise their prices. 
C)  offer money-back guarantees. 
D)  raise the minimum price of lemons (low-quality).

Question 3

Andy does not bother to lock the door to his house because he has theft insurance. This is an example of

Accepted Answer

A)  a positive spillover. 
B)  moral hazard. 
C)  adverse selection. 
D)  irrational behavior. 
A)  a positive spillover. 
B)  moral hazard. 
C)  adverse selection. 
D)  irrational behavior.

Question 4

Many large companies offer employees time off during the workday to attend seminars on how to improve their health. Some even give bonuses to people who show that they are adopting healthy lifestyles by, for example, weighing in before and after the holidays to show that they are following a sensible diet. Other than showing that they "care" about their employees and trying to minimize the number of days missed from work, why would a company adopt a program like this?

Accepted Answer

If the company is involved in an insuran

Question 5

If the marginal costs of water pollution abatement is increased, then the optimal amount of water pollution increases.

Accepted Answer

A) True 
 B)False

Question 6

An employer can find himself in an adverse selection problem if there are too

Accepted Answer

A)  many applicants for each job. 
B)  few applicants for each job. 
C)  many qualified applicants for each job. 
D)  many underqualified applicants for each job. 
A)  many applicants for each job. 
B)  few applicants for each job. 
C)  many qualified applicants for each job. 
D)  many underqualified applicants for each job.

Question 7

Figure 9.1
-Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike. If buyers believe that 50% of the used bikes are lemons (low quality), how much will they be willing to pay for a used bike?

Accepted Answer

A)  $50 
B)  $80 
C)  $125 
D)  $200 
A)  $50 
B)  $80 
C)  $125 
D)  $200

Question 8

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s).
-Recall the Application. The market for baseball pitchers suffers from an asymmetric information problem because

Accepted Answer

A)  the pitcher's current team has superior information concerning the health of the pitcher. 
B)  the potential new teams have superior information concerning the health of the pitcher. 
C)  baseball teams never sign injury-prone pitchers. 
D)  a physical exam ensures that both the player's current team and potential new teams have the same information concerning the player's health. 
A)  the pitcher's current team has superior information concerning the health of the pitcher. 
B)  the potential new teams have superior information concerning the health of the pitcher. 
C)  baseball teams never sign injury-prone pitchers. 
D)  a physical exam ensures that both the player's current team and potential new teams have the same information concerning the player's health.

Question 9

Shows on broadcast TV, like ABC or NBC, are ________ and shows on cable TV, like MTV or HBO, are ________.

Accepted Answer

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

Question 10

Deposit insurance creates a moral hazard that depositors have less incentive to monitor their bank.

Accepted Answer

A) True 
 B)False

Question 11

Recall the Application about federal quality standards in the market for kiwifruit to answer the following question(s).
-Recall the Application. California kiwifruit growers had an asymmetric information problem because potential buyers

Accepted Answer

A)  do not know how much kiwifruit they will need. 
B)  could not tell what the price of the kiwifruit will be. 
C)  could not tell if a kiwifruit was sweet or sour before tasting it. 
D)  all of the above 
A)  do not know how much kiwifruit they will need. 
B)  could not tell what the price of the kiwifruit will be. 
C)  could not tell if a kiwifruit was sweet or sour before tasting it. 
D)  all of the above

Question 12

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 50% of used refrigerators in the market are lemons (low quality), what fraction of used refrigerators sold will actually be plums (high quality)?

Accepted Answer

A)  50/250 
B)  50/300 
C)  250/300 
D)  None of the refrigerators sold will be plums. 
A)  50/250 
B)  50/300 
C)  250/300 
D)  None of the refrigerators sold will be plums.

Question 13

We expect firms with ________ to sell marketable pollution permits to firms with ________.

Accepted Answer

A)  low abatement costs; high abatement costs 
B)  high abatement costs; low abatement costs 
C)  high price goods; low price goods 
D)  high production capacity; low production capacity 
A)  low abatement costs; high abatement costs 
B)  high abatement costs; low abatement costs 
C)  high price goods; low price goods 
D)  high production capacity; low production capacity

Question 14

Suppose buyers in the used car market are willing to pay $6,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 75% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?

Accepted Answer

A)  $4,250 
B)  $4,000 
C)  $3,750 
D)  $3,500 
A)  $4,250 
B)  $4,000 
C)  $3,750 
D)  $3,500

Question 15

As compared to a pollution tax, a command-and-control policy will

Accepted Answer

A)  increase production costs by a smaller amount. 
B)  increase price by a smaller amount. 
C)  shift the supply curve to the left by a smaller amount. 
D)  shift the supply curve to the left by a larger amount. 
A)  increase production costs by a smaller amount. 
B)  increase price by a smaller amount. 
C)  shift the supply curve to the left by a smaller amount. 
D)  shift the supply curve to the left by a larger amount.

Question 16

Recall the Application about how to wash carbon out of the air to answer the following question(s).
-Recall the Application. Assume a firm that produces CO2 has a marginal cost of abatement of $90 per ton and faces a carbon tax of $70 per ton. If the cost of carbon washing is $50 per ton, the firm could save ________ per ton and emit ________ carbon into the atmosphere by using a carbon washing machine.

Accepted Answer

A)  $40; less 
B)  $40; more 
C)  $20; less 
D)  $20; more 
A)  $40; less 
B)  $40; more 
C)  $20; less 
D)  $20; more

Question 17

The problems of markets can be addressed by

Accepted Answer

A)  guaranteed price matching. 
B)  increasing the number of sellers in the market. 
C)  imposing price ceilings. 
D)  money back guarantees. 
A)  guaranteed price matching. 
B)  increasing the number of sellers in the market. 
C)  imposing price ceilings. 
D)  money back guarantees.

Question 18

Explain what is meant by "internalizing an externality," and describe three methods by which this can be done.

Accepted Answer

An externality occurs when the actions o

Question 19

Suppose buyers in the used car market are willing to pay $5,000 for a plum (high-quality) used car and $2,500 for a lemon (low-quality) used car. If buyers believe that 50% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?

Accepted Answer

A)  $2500 
B)  $3000 
C)  $3750 
D)  $5000 
A)  $2500 
B)  $3000 
C)  $3750 
D)  $5000

Question 20

In markets with imperfect information

Accepted Answer

A)  buyers and sellers will use resources to acquire information before making decisions. 
B)  buyers will use resources to acquire information before making a decision, but sellers do not need to acquire additional information before making a decision. 
C)  sellers will use resources to acquire information before making a decision, but buyers do not need to acquire additional information before making a decision. 
D)  neither buyers nor sellers will be able to acquire information in order to make decisions. 
A)  buyers and sellers will use resources to acquire information before making decisions. 
B)  buyers will use resources to acquire information before making a decision, but sellers do not need to acquire additional information before making a decision. 
C)  sellers will use resources to acquire information before making a decision, but buyers do not need to acquire additional information before making a decision. 
D)  neither buyers nor sellers will be able to acquire information in order to make decisions.

Provide an intuitive explanation of the free-rider problem.

In order to identify their used cars as plums (high-quality), many used car dealers

Andy does not bother to lock the door to his house because he has theft insurance. This is an example of

If the marginal costs of water pollution abatement is increased, then the optimal amount of water pollution increases.

An employer can find himself in an adverse selection problem if there are too

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s). -Recall the Application. The market for baseball pitchers suffers from an asymmetric information problem because

Shows on broadcast TV, like ABC or NBC, are and shows on cable TV, like MTV or HBO, are .

Deposit insurance creates a moral hazard that depositors have less incentive to monitor their bank.

Recall the Application about federal quality standards in the market for kiwifruit to answer the following question(s). -Recall the Application. California kiwifruit growers had an asymmetric information problem because potential buyers

We expect firms with to sell marketable pollution permits to firms with .

Suppose buyers in the used car market are willing to pay $6,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 75% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?

As compared to a pollution tax, a command-and-control policy will

The problems of markets can be addressed by

Explain what is meant by "internalizing an externality," and describe three methods by which this can be done.

Suppose buyers in the used car market are willing to pay $5,000 for a plum (high-quality) used car and $2,500 for a lemon (low-quality) used car. If buyers believe that 50% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?

In markets with imperfect information

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

Provide an intuitive explanation of the free-rider problem.

In order to identify their used cars as plums (high-quality), many used car dealers

Andy does not bother to lock the door to his house because he has theft insurance. This is an example of

If the marginal costs of water pollution abatement is increased, then the optimal amount of water pollution increases.

An employer can find himself in an adverse selection problem if there are too

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s). -Recall the Application. The market for baseball pitchers suffers from an asymmetric information problem because

Shows on broadcast TV, like ABC or NBC, are ________ and shows on cable TV, like MTV or HBO, are ________.

Deposit insurance creates a moral hazard that depositors have less incentive to monitor their bank.

Recall the Application about federal quality standards in the market for kiwifruit to answer the following question(s). -Recall the Application. California kiwifruit growers had an asymmetric information problem because potential buyers

We expect firms with ________ to sell marketable pollution permits to firms with ________.

Suppose buyers in the used car market are willing to pay $6,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 75% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?

As compared to a pollution tax, a command-and-control policy will

The problems of markets can be addressed by

Explain what is meant by "internalizing an externality," and describe three methods by which this can be done.

Suppose buyers in the used car market are willing to pay $5,000 for a plum (high-quality) used car and $2,500 for a lemon (low-quality) used car. If buyers believe that 50% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?

In markets with imperfect information

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

Shows on broadcast TV, like ABC or NBC, are and shows on cable TV, like MTV or HBO, are .

We expect firms with to sell marketable pollution permits to firms with .