Question 1

Under a system of marketable pollution permits

Accepted Answer

A)  firms with lower costs of reducing emissions are likely to sell permits to those with higher costs of reducing emissions. 
B)  environmentalists can decrease pollution by purchasing permits. 
C)  the government can decrease the amount of pollution to the desired level. 
D)  All of the above are correct. 
A)  firms with lower costs of reducing emissions are likely to sell permits to those with higher costs of reducing emissions. 
B)  environmentalists can decrease pollution by purchasing permits. 
C)  the government can decrease the amount of pollution to the desired level. 
D)  All of the above are correct.

Question 2

What are the main differences between adverse selection and moral hazard in the insurance market?

Accepted Answer

Adverse selection describes who is most

Question 3

A charity that used to make an appeal to peoples' sense of civic or moral responsibility, but no longer does, is likely to ________ the free-rider problem and lead to a ________ level of contribution to the public good.

Accepted Answer

A)  reduce; smaller 
B)  reduce; larger 
C)  increase; smaller 
D)  increase; larger 
A)  reduce; smaller 
B)  reduce; larger 
C)  increase; smaller 
D)  increase; larger

Question 4

Suppose an insurance company determines that the average annual malpractice cost is $10,000 for reckless lawyers and $500 for careful lawyers. If 10% of the lawyers insured by the company are reckless, the company will earn zero economic profit if the price of insurance is

Accepted Answer

A)  $500. 
B)  $1,450. 
C)  $5,250. 
D)  $10,000. 
A)  $500. 
B)  $1,450. 
C)  $5,250. 
D)  $10,000.

Question 5

What is the purpose of a pollution tax?

Accepted Answer

The purpose of a pollution tax

Question 6

There is asymmetric information in the used car market because sellers cannot distinguish between lemons (low-quality) and plums (high-quality) but buyers can.

Accepted Answer

A) True 
 B)False

Question 7

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. The government has chosen to impose a pollution tax equal to P₂. From the firm's point of view, the marginal benefit of abatement is

Accepted Answer

A)  avoiding the pollution tax imposed by the government. 
B)  the positive publicity the firm will receive by having a "green" production plant. 
C)  the reciprocal of the marginal cost of abatement. 
D)  zero because abatement benefits the general public, not the firm. 
A)  avoiding the pollution tax imposed by the government. 
B)  the positive publicity the firm will receive by having a "green" production plant. 
C)  the reciprocal of the marginal cost of abatement. 
D)  zero because abatement benefits the general public, not the firm.

Question 8

An example of a good that is rival in consumption is

Accepted Answer

A)  flowers planted on the side of the highway. 
B)  a floral display at a large university's graduation ceremony. 
C)  a scientific discovery that allows florists to grow flowers to which no one is allergic. 
D)  none of the above 
A)  flowers planted on the side of the highway. 
B)  a floral display at a large university's graduation ceremony. 
C)  a scientific discovery that allows florists to grow flowers to which no one is allergic. 
D)  none of the above

Question 9

A command-and-control policy

Accepted Answer

A)  is unlikely to have any impact on the amount of pollution emitted. 
B)  does not affect the production costs of firms. 
C)  usually finds the most efficient pollution abatement technology. 
D)  decreases the incentive for firms to develop efficient abatement technologies. 
A)  is unlikely to have any impact on the amount of pollution emitted. 
B)  does not affect the production costs of firms. 
C)  usually finds the most efficient pollution abatement technology. 
D)  decreases the incentive for firms to develop efficient abatement technologies.

Question 10

A mixed market is one in which

Accepted Answer

A)  consumers can be buyers and sellers and producers can be sellers and buyers. 
B)  there are different qualities of a good being sold in the market and there is imperfect information about the quality of each good. 
C)  a seller of a good requires that the purchase of one good be tied to the purchase of another. 
D)  demand is positively sloped and supply is negatively sloped. 
A)  consumers can be buyers and sellers and producers can be sellers and buyers. 
B)  there are different qualities of a good being sold in the market and there is imperfect information about the quality of each good. 
C)  a seller of a good requires that the purchase of one good be tied to the purchase of another. 
D)  demand is positively sloped and supply is negatively sloped.

Question 11

Recall the Application about the benefits generated when one country gathers information on global weather to answer the following question(s).
-Recall the Application. Weather monitoring is

Accepted Answer

A)  a public good. 
B)  a private good. 
C)  impossible because it requires international cooperation. 
D)  efficiently provided by private markets because it is profitable. 
A)  a public good. 
B)  a private good. 
C)  impossible because it requires international cooperation. 
D)  efficiently provided by private markets because it is profitable.

Question 12

If the marginal benefit of reducing water pollution is constant at $10 per ton, then it is efficient to reduce water pollution

Accepted Answer

A)  to zero. 
B)  until the marginal cost of reducing water pollution equals $10 per ton. 
C)  as long as the marginal cost of reducing water pollution is greater than $10 per ton. 
D)  to whatever level the market determines. 
A)  to zero. 
B)  until the marginal cost of reducing water pollution equals $10 per ton. 
C)  as long as the marginal cost of reducing water pollution is greater than $10 per ton. 
D)  to whatever level the market determines.

Question 13

What are some of the ways a private group can overcome a free rider problem?

Accepted Answer

Giving a private gift with a c

Question 14

The reason that air and water pollution impose external costs is that

Accepted Answer

A)  providers of goods and services ignore costs that they do not have to pay. 
B)  they affect the quality of the out-of-doors. 
C)  environmentalists object to the degradation of the earth. 
D)  the damage from pollution crosses international boundaries. 
A)  providers of goods and services ignore costs that they do not have to pay. 
B)  they affect the quality of the out-of-doors. 
C)  environmentalists object to the degradation of the earth. 
D)  the damage from pollution crosses international boundaries.

Question 15

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. If the government would like to induce this firm to abate, or reduce, its pollution by A₁ tons, it will impose a pollution tax equal to

Accepted Answer

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

Question 16

Experience rating systems for pricing insurance encourage firms to discriminate against older and disabled workers in their hiring practices.

Accepted Answer

A) True 
 B)False

Question 17

The marginal principle ________ to the determination of the optimal level of pollution abatement because ________.

Accepted Answer

A)  applies; there are tradeoffs in terms of the costs and benefits of pollution abatement 
B)  applies; pollution abatement causes greater harm than benefits 
C)  does not apply; it is immoral to trade a dirtier environment for material wealth 
D)  does not apply; the costs and benefits of pollution abatement cannot be measured 
A)  applies; there are tradeoffs in terms of the costs and benefits of pollution abatement 
B)  applies; pollution abatement causes greater harm than benefits 
C)  does not apply; it is immoral to trade a dirtier environment for material wealth 
D)  does not apply; the costs and benefits of pollution abatement cannot be measured

Question 18

Fireworks on the night on July 4th are neither rival nor excludable.

Accepted Answer

A) True 
 B)False

Question 19

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s).
-Recall the Application. Why is there adverse selection in the baseball pitcher free agent market?

Accepted Answer

The pitchers' old team knows m

Question 20

Quality information for goods that are sold online

Accepted Answer

A)  is available from ratings given by other buyers. 
B)  is of no value because anyone can write anything on the Internet. 
C)  is unavailable because online sellers cannot be identified with certainty. 
D)  is ineffective at reducing asymmetric information problems. 
A)  is available from ratings given by other buyers. 
B)  is of no value because anyone can write anything on the Internet. 
C)  is unavailable because online sellers cannot be identified with certainty. 
D)  is ineffective at reducing asymmetric information problems.

Under a system of marketable pollution permits

What are the main differences between adverse selection and moral hazard in the insurance market?

A charity that used to make an appeal to peoples' sense of civic or moral responsibility, but no longer does, is likely to the free-rider problem and lead to a level of contribution to the public good.

Suppose an insurance company determines that the average annual malpractice cost is $10,000 for reckless lawyers and $500 for careful lawyers. If 10% of the lawyers insured by the company are reckless, the company will earn zero economic profit if the price of insurance is

What is the purpose of a pollution tax?

There is asymmetric information in the used car market because sellers cannot distinguish between lemons (low-quality) and plums (high-quality) but buyers can.

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. The government has chosen to impose a pollution tax equal to P₂. From the firm's point of view, the marginal benefit of abatement is

An example of a good that is rival in consumption is

A command-and-control policy

A mixed market is one in which

Recall the Application about the benefits generated when one country gathers information on global weather to answer the following question(s). -Recall the Application. Weather monitoring is

If the marginal benefit of reducing water pollution is constant at $10 per ton, then it is efficient to reduce water pollution

What are some of the ways a private group can overcome a free rider problem?

The reason that air and water pollution impose external costs is that

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government would like to induce this firm to abate, or reduce, its pollution by A₁ tons, it will impose a pollution tax equal to

Experience rating systems for pricing insurance encourage firms to discriminate against older and disabled workers in their hiring practices.

The marginal principle to the determination of the optimal level of pollution abatement because .

Fireworks on the night on July 4th are neither rival nor excludable.

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s). -Recall the Application. Why is there adverse selection in the baseball pitcher free agent market?

Quality information for goods that are sold online

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

Under a system of marketable pollution permits

What are the main differences between adverse selection and moral hazard in the insurance market?

A charity that used to make an appeal to peoples' sense of civic or moral responsibility, but no longer does, is likely to ________ the free-rider problem and lead to a ________ level of contribution to the public good.

Suppose an insurance company determines that the average annual malpractice cost is $10,000 for reckless lawyers and $500 for careful lawyers. If 10% of the lawyers insured by the company are reckless, the company will earn zero economic profit if the price of insurance is

What is the purpose of a pollution tax?

There is asymmetric information in the used car market because sellers cannot distinguish between lemons (low-quality) and plums (high-quality) but buyers can.

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. The government has chosen to impose a pollution tax equal to P₂. From the firm's point of view, the marginal benefit of abatement is

An example of a good that is rival in consumption is

A command-and-control policy

A mixed market is one in which

Recall the Application about the benefits generated when one country gathers information on global weather to answer the following question(s). -Recall the Application. Weather monitoring is

If the marginal benefit of reducing water pollution is constant at $10 per ton, then it is efficient to reduce water pollution

What are some of the ways a private group can overcome a free rider problem?

The reason that air and water pollution impose external costs is that

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government would like to induce this firm to abate, or reduce, its pollution by A₁ tons, it will impose a pollution tax equal to

Experience rating systems for pricing insurance encourage firms to discriminate against older and disabled workers in their hiring practices.

The marginal principle ________ to the determination of the optimal level of pollution abatement because ________.

Fireworks on the night on July 4th are neither rival nor excludable.

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s). -Recall the Application. Why is there adverse selection in the baseball pitcher free agent market?

Quality information for goods that are sold online

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

A charity that used to make an appeal to peoples' sense of civic or moral responsibility, but no longer does, is likely to the free-rider problem and lead to a level of contribution to the public good.

The marginal principle to the determination of the optimal level of pollution abatement because .