Question 1

An example of a private good is

Accepted Answer

A)  national defense. 
B)  a bottle of perfume. 
C)  city streets and highways. 
D)  clean air. 
A)  national defense. 
B)  a bottle of perfume. 
C)  city streets and highways. 
D)  clean air.

Question 2

Recall the Application about federal quality standards in the market for kiwifruit to answer the following question(s).
-Recall the Application. The U.S. kiwifruit information asymmetry was reduced by advertising.

Accepted Answer

A) True 
 B)False

Question 3

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 plums (high quality) will be supplied by sellers?

Accepted Answer

A)  10 
B)  15 
C)  20 
D)  25 
A)  10 
B)  15 
C)  20 
D)  25

Question 4

Table 9.4
-In Table 9.4, Market 1 would be in equilibrium if buyers believed lemons accounted for

Accepted Answer

A)  about 90.91% of the market. 
B)  about 74.5% of the market. 
C)  about 63.25% of the market. 
D)  about 57.65% of the market. 
A)  about 90.91% of the market. 
B)  about 74.5% of the market. 
C)  about 63.25% of the market. 
D)  about 57.65% of the market.

Question 5

A switch to marketable pollution permits will decrease abatement costs because high-cost firms do most of the abating.

Accepted Answer

A) True 
 B)False

Question 6

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₂ and the firm's abatement level is A₃ the firm is

Accepted Answer

A)  abating more than is optimal for the firm. 
B)  abating less than is optimal for the firm. 
C)  choosing an abatement level that is optimal. 
D)  violating the environmental protection laws. 
A)  abating more than is optimal for the firm. 
B)  abating less than is optimal for the firm. 
C)  choosing an abatement level that is optimal. 
D)  violating the environmental protection laws.

Question 7

Command-and-control policies usually

Accepted Answer

A)  result in higher costs for firms when compared to pollution taxes. 
B)  don't raise prices as much to consumers as do pollution taxes. 
C)  result in less pollution being produced than when pollution taxes are used. 
D)  result in lower costs for firms when compared to pollution taxes. 
A)  result in higher costs for firms when compared to pollution taxes. 
B)  don't raise prices as much to consumers as do pollution taxes. 
C)  result in less pollution being produced than when pollution taxes are used. 
D)  result in lower costs for firms when compared to pollution taxes.

Question 8

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 the used refrigerators in the market are lemons (low quality), how much will they be willing to pay for a used refrigerator?

Accepted Answer

A)  $100 
B)  $200 
C)  $250 
D)  $300 
A)  $100 
B)  $200 
C)  $250 
D)  $300

Question 9

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. Suppose the government is considering changing the pollution tax from P₃ to P₂. That new policy would

Accepted Answer

A)  increase the marginal benefit to firms of abating, and thus encourage greater abatement. 
B)  increase the marginal benefit to firms of abating, causing them to generate more pollution. 
C)  reduce the marginal benefit to firms of abating, causing them to generate more pollution. 
D)  reduce the marginal benefit to firms of abating, and thus encourage greater abatement. 
A)  increase the marginal benefit to firms of abating, and thus encourage greater abatement. 
B)  increase the marginal benefit to firms of abating, causing them to generate more pollution. 
C)  reduce the marginal benefit to firms of abating, causing them to generate more pollution. 
D)  reduce the marginal benefit to firms of abating, and thus encourage greater abatement.

Question 10

Adverse selection occurs in the health insurance market because

Accepted Answer

A)  it is difficult for insurance companies to distinguish between high risk and low risk customers. 
B)  people cannot predict their future health status. 
C)  the least healthy people are the least likely to acquire insurance. 
D)  health care markets are unregulated. 
A)  it is difficult for insurance companies to distinguish between high risk and low risk customers. 
B)  people cannot predict their future health status. 
C)  the least healthy people are the least likely to acquire insurance. 
D)  health care markets are unregulated.

Question 11

Table 9.1
-In Table 9.1, Market 1 would be in equilibrium if buyers believed lemons accounted for

Accepted Answer

A)  60% of the market. 
B)  55% of the market. 
C)  45% of the market. 
D)  40% of the market. 
A)  60% of the market. 
B)  55% of the market. 
C)  45% of the market. 
D)  40% of the market.

Question 12

A carbon tax would increase the total volume of greenhouse gases.

Accepted Answer

A) True 
 B)False

Question 13

Recall the Application about how having car insurance affects driving behavior to answer the following
question(s).
-Recall the Application. The idea that an insured driver, who bears less than the full cost of a collision, will drive less carefully than an uninsured driver is an example of

Accepted Answer

A)  asymmetric information. 
B)  adverse selection. 
C)  moral hazard. 
D)  a thin market. 
A)  asymmetric information. 
B)  adverse selection. 
C)  moral hazard. 
D)  a thin market.

Question 14

Command-and-control policies are desirable because their tough pollution reduction targets force firms to develop new technologies to survive.

Accepted Answer

A) True 
 B)False

Question 15

Table 9.6
-Given the data in Table 9.6, if Firm A were to reduce pollution from 100 gallons of wastewater per day to 0 gallons per day, production costs

Accepted Answer

A)  would increase by $7. 
B)  would decrease by $7. 
C)  would not change. 
D)  cannot be calculated from the information above. 
A)  would increase by $7. 
B)  would decrease by $7. 
C)  would not change. 
D)  cannot be calculated from the information above.

Question 16

A uniform-abatement policy is

Accepted Answer

A)  inefficient because it does not exploit the differences in abatement costs among firms. 
B)  efficient because an equal amount of pollution is assigned to each firm. 
C)  inefficient because it incurs relatively low compliance costs. 
D)  efficient because it helps firms lower their production costs. 
A)  inefficient because it does not exploit the differences in abatement costs among firms. 
B)  efficient because an equal amount of pollution is assigned to each firm. 
C)  inefficient because it incurs relatively low compliance costs. 
D)  efficient because it helps firms lower their production costs.

Question 17

Suppose that everybody pays the same price for auto insurance. What should happen to the price of insurance if the law changes from a system where there is mandatory auto insurance to one where there is voluntary auto insurance?

Accepted Answer

When auto insurance becomes voluntary, m

Question 18

If the market for used computers has only lemons (low-quality computers) then the market

Accepted Answer

A)  is an example of a thick market. 
B)  suffers from an adverse selection problem. 
C)  is a type of monopoly. 
D)  must be monopolistically competitive. 
A)  is an example of a thick market. 
B)  suffers from an adverse selection problem. 
C)  is a type of monopoly. 
D)  must be monopolistically competitive.

Question 19

Command-and-control policies

Accepted Answer

A)  allow a low-cost firm to abate more pollution. 
B)  encourage firms to develop more efficient abatement technologies. 
C)  usually result in relatively low compliance costs. 
D)  allow us to predict the total amount of pollution that will be discharged. 
A)  allow a low-cost firm to abate more pollution. 
B)  encourage firms to develop more efficient abatement technologies. 
C)  usually result in relatively low compliance costs. 
D)  allow us to predict the total amount of pollution that will be discharged.

Question 20

Suppose 100 townspeople value a statue of the local hero at $1 each, and construction of the statue would cost $90. Which of the following is TRUE?

Accepted Answer

A)  It would be efficient to build the statue, but it may not be built because some of the townspeople who value the statue will not contribute to its construction. 
B)  It would be efficient to build the statue and it will be built because at least ninety of the townspeople will contribute to its construction. 
C)  The statue will not be built because it is not efficient to build a statue that costs $90 if the townspeople value it at only $1. 
D)  The statue will not be built because the local government does not have the power to tax only those who value it. 
A)  It would be efficient to build the statue, but it may not be built because some of the townspeople who value the statue will not contribute to its construction. 
B)  It would be efficient to build the statue and it will be built because at least ninety of the townspeople will contribute to its construction. 
C)  The statue will not be built because it is not efficient to build a statue that costs $90 if the townspeople value it at only $1. 
D)  The statue will not be built because the local government does not have the power to tax only those who value it.

An example of a private good is

Recall the Application about federal quality standards in the market for kiwifruit to answer the following question(s). -Recall the Application. The U.S. kiwifruit information asymmetry was reduced by advertising.

Table 9.4 -In Table 9.4, Market 1 would be in equilibrium if buyers believed lemons accounted for

A switch to marketable pollution permits will decrease abatement costs because high-cost firms do most of the abating.

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₂ and the firm's abatement level is A₃ the firm is

Command-and-control policies usually

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. Suppose the government is considering changing the pollution tax from P₃ to P₂. That new policy would

Adverse selection occurs in the health insurance market because

Table 9.1 -In Table 9.1, Market 1 would be in equilibrium if buyers believed lemons accounted for

A carbon tax would increase the total volume of greenhouse gases.

Recall the Application about how having car insurance affects driving behavior to answer the following question(s). -Recall the Application. The idea that an insured driver, who bears less than the full cost of a collision, will drive less carefully than an uninsured driver is an example of

Command-and-control policies are desirable because their tough pollution reduction targets force firms to develop new technologies to survive.

Table 9.6 -Given the data in Table 9.6, if Firm A were to reduce pollution from 100 gallons of wastewater per day to 0 gallons per day, production costs

A uniform-abatement policy is

Suppose that everybody pays the same price for auto insurance. What should happen to the price of insurance if the law changes from a system where there is mandatory auto insurance to one where there is voluntary auto insurance?

If the market for used computers has only lemons (low-quality computers) then the market

Command-and-control policies

Suppose 100 townspeople value a statue of the local hero at $1 each, and construction of the statue would cost $90. Which of the following is TRUE?

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

An example of a private good is

Recall the Application about federal quality standards in the market for kiwifruit to answer the following question(s). -Recall the Application. The U.S. kiwifruit information asymmetry was reduced by advertising.

Table 9.4 -In Table 9.4, Market 1 would be in equilibrium if buyers believed lemons accounted for

A switch to marketable pollution permits will decrease abatement costs because high-cost firms do most of the abating.

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₂ and the firm's abatement level is A₃ the firm is

Command-and-control policies usually

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. Suppose the government is considering changing the pollution tax from P₃ to P₂. That new policy would

Adverse selection occurs in the health insurance market because

Table 9.1 -In Table 9.1, Market 1 would be in equilibrium if buyers believed lemons accounted for

A carbon tax would increase the total volume of greenhouse gases.

Recall the Application about how having car insurance affects driving behavior to answer the following question(s). -Recall the Application. The idea that an insured driver, who bears less than the full cost of a collision, will drive less carefully than an uninsured driver is an example of

Command-and-control policies are desirable because their tough pollution reduction targets force firms to develop new technologies to survive.

Table 9.6 -Given the data in Table 9.6, if Firm A were to reduce pollution from 100 gallons of wastewater per day to 0 gallons per day, production costs

A uniform-abatement policy is

Suppose that everybody pays the same price for auto insurance. What should happen to the price of insurance if the law changes from a system where there is mandatory auto insurance to one where there is voluntary auto insurance?

If the market for used computers has only lemons (low-quality computers) then the market

Command-and-control policies

Suppose 100 townspeople value a statue of the local hero at $1 each, and construction of the statue would cost $90. Which of the following is TRUE?

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