Question 1

Figure 9.10
-The pollution tax in Figure 9.10

Accepted Answer

A)  reduces equilibrium output. 
B)  reduces pollution associated with the production of the good. 
C)  raises equilibrium price. 
D)  all of the above 
A)  reduces equilibrium output. 
B)  reduces pollution associated with the production of the good. 
C)  raises equilibrium price. 
D)  all of the above

Question 2

A carbon tax placed on coal

Accepted Answer

A)  would decrease the price of coal. 
B)  would cause some producers to switch to other forms of energy. 
C)  is unlikely to affect the demand for alternative forms of energy. 
D)  would increase the quantity of coal demanded at every price. 
A)  would decrease the price of coal. 
B)  would cause some producers to switch to other forms of energy. 
C)  is unlikely to affect the demand for alternative forms of energy. 
D)  would increase the quantity of coal demanded at every price.

Question 3

Suppose Smith's oil refinery and Jones' paper mill both pollute a river and both firms operate under a system of marketable pollution permits. If it costs Smith $45 to reduce pollution by 500 gallons per day, and Jones can reduce costs by $65 by increasing pollution by 500 units per day

Accepted Answer

A)  the firms cannot gain by trading the right to pollute. 
B)  both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $30. 
C)  both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $50. 
D)  both firms can benefit if Jones trades the right to increase pollution by 500 gallons to Smith for $30. 
A)  the firms cannot gain by trading the right to pollute. 
B)  both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $30. 
C)  both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $50. 
D)  both firms can benefit if Jones trades the right to increase pollution by 500 gallons to Smith for $30.

Question 4

If eight lemons (low quality) and two plums (high quality) are supplied and buyers assume that there is a 40% chance of getting a lemon, there is an equilibrium.

Accepted Answer

A) True 
 B)False

Question 5

In which of the following situations should a firm reduce its efforts to abate pollution?

Accepted Answer

A)  The marginal benefit of abatement is less than its marginal cost. 
B)  The marginal benefit of abatement is greater than its marginal cost. 
C)  The marginal benefit of abatement is equal to its marginal cost. 
D)  none of the above 
A)  The marginal benefit of abatement is less than its marginal cost. 
B)  The marginal benefit of abatement is greater than its marginal cost. 
C)  The marginal benefit of abatement is equal to its marginal cost. 
D)  none of the above

Question 6

The tendency for people who have good health insurance to take more risks with their health is called adverse selection.

Accepted Answer

A) True 
 B)False

Question 7

As long as two firms have different abatement costs, they

Accepted Answer

A)  can benefit under a system of marketable pollution permits by trading the right to pollute. 
B)  will prefer a pollution tax to a system of marketable pollution permits. 
C)  will decrease the price of their product if taxed on the amount of pollution they emit. 
D)  will not be able to benefit from trading the right to pollute under a system of marketable pollution permits. 
A)  can benefit under a system of marketable pollution permits by trading the right to pollute. 
B)  will prefer a pollution tax to a system of marketable pollution permits. 
C)  will decrease the price of their product if taxed on the amount of pollution they emit. 
D)  will not be able to benefit from trading the right to pollute under a system of marketable pollution permits.

Question 8

You do not worry about how your bank is investing your money because your deposits are federally insured. 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 9

People who buy used homes often insist on having a "home inspection" before they finalize the purchase. If the house fails the inspection the buyer has the right to refuse to buy the house unless the seller fixes whatever problems are found. Does this help or hurt the seller?

Accepted Answer

If the house is in good shape it will he

Question 10

Table 9.3
-Table 9.3 represents 3 markets for used stereos. Which of the markets in Table 9.3 are NOT in equilibrium?

Accepted Answer

A)  1 only 
B)  2 only 
C)  3 only 
D)  1, 2, and 3 
A)  1 only 
B)  2 only 
C)  3 only 
D)  1, 2, and 3

Question 11

Table 9.2
-In Table 9.2, Market 2 would be in equilibrium if buyers believed lemons account for

Accepted Answer

A)  55% of the market. 
B)  65% of the market. 
C)  70% of the market. 
D)  80% of the market. 
A)  55% of the market. 
B)  65% of the market. 
C)  70% of the market. 
D)  80% of the market.

Question 12

Suppose Jones' company and Smith's company both pollute. Under a system of marketable pollution permits, which of the following must be TRUE in order for Smith and Jones to benefit from trading the right to pollute?

Accepted Answer

A)  Smith and Jones must be able to reduce pollution at exactly the same cost. 
B)  Smith and Jones must have different abatement costs. 
C)  Smith and Jones must have a social conscience and must be devoted to pollution abatement. 
D)  The government must direct Smith and Jones toward beneficial trades. 
A)  Smith and Jones must be able to reduce pollution at exactly the same cost. 
B)  Smith and Jones must have different abatement costs. 
C)  Smith and Jones must have a social conscience and must be devoted to pollution abatement. 
D)  The government must direct Smith and Jones toward beneficial trades.

Question 13

Recall the Application about how having car insurance affects driving behavior to answer the following
question(s).
-Recall the Application. A study of the effect of automobile insurance and traffic fatalities conducted by Alma Cohen and Rajeev Dehejia estimates that a one percentage point decrease in the number of uninsured drivers

Accepted Answer

A)  decreases the number of traffic fatalities by 10 percent. 
B)  decreases the number of traffic fatalities by 0.5 percent. 
C)  has no measurable effect on the number of traffic fatalities. 
D)  increases the number of traffic fatalities by 2 percent. 
A)  decreases the number of traffic fatalities by 10 percent. 
B)  decreases the number of traffic fatalities by 0.5 percent. 
C)  has no measurable effect on the number of traffic fatalities. 
D)  increases the number of traffic fatalities by 2 percent.

Question 14

It is efficient to reduce pollution to zero.

Accepted Answer

A) True 
 B)False

Question 15

Marketable pollution permits increase the amount of pollution generated because firms that don't want to reduce pollution can buy the right to pollute.

Accepted Answer

A) True 
 B)False

Question 16

If you can consume a good at the same time that others consume the same good, the good is nonrival in consumption.

Accepted Answer

A) True 
 B)False

Question 17

Recall the Application about genetic discrimination to answer the following question(s).
-According to the Application, the information provided from genetic testing would ________ insurance prices for high-cost customers, ________ insurance prices for low-cost customers, and therefore ________ the adverse selection problem.

Accepted Answer

A)  increase; increase; increase 
B)  decrease; decrease; decrease 
C)  increase; decrease; increase 
D)  increase; decrease; decrease 
A)  increase; increase; increase 
B)  decrease; decrease; decrease 
C)  increase; decrease; increase 
D)  increase; decrease; decrease

Question 18

Figure 9.4
-Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons (low quality), how many lemons will be supplied by sellers?

Accepted Answer

A)  50 
B)  60 
C)  150 
D)  200 
A)  50 
B)  60 
C)  150 
D)  200

Question 19

A private good is a good that

Accepted Answer

A)  is nonrival. 
B)  is not excludable. 
C)  is provided only by private sectors. 
D)  is consumed by a single person or household. 
A)  is nonrival. 
B)  is not excludable. 
C)  is provided only by private sectors. 
D)  is consumed by a single person or household.

Question 20

The lemons model predicts that

Accepted Answer

A)  if there are low-quality goods in the market, there will be fewer or no high-quality items. 
B)  if there are high-quality goods in the market, there will be fewer or no low-quality items. 
C)  the more low-quality goods there are in the market, the more high-quality goods there will be in the market. 
D)  if buyers are pessimistic about the percentage of low-quality goods on the market sellers of low-quality goods will be able to charge higher prices than if buyers had neutral beliefs. 
A)  if there are low-quality goods in the market, there will be fewer or no high-quality items. 
B)  if there are high-quality goods in the market, there will be fewer or no low-quality items. 
C)  the more low-quality goods there are in the market, the more high-quality goods there will be in the market. 
D)  if buyers are pessimistic about the percentage of low-quality goods on the market sellers of low-quality goods will be able to charge higher prices than if buyers had neutral beliefs.

Figure 9.10 -The pollution tax in Figure 9.10

A carbon tax placed on coal

Suppose Smith's oil refinery and Jones' paper mill both pollute a river and both firms operate under a system of marketable pollution permits. If it costs Smith $45 to reduce pollution by 500 gallons per day, and Jones can reduce costs by $65 by increasing pollution by 500 units per day

If eight lemons (low quality) and two plums (high quality) are supplied and buyers assume that there is a 40% chance of getting a lemon, there is an equilibrium.

In which of the following situations should a firm reduce its efforts to abate pollution?

The tendency for people who have good health insurance to take more risks with their health is called adverse selection.

As long as two firms have different abatement costs, they

You do not worry about how your bank is investing your money because your deposits are federally insured. This is an example of

People who buy used homes often insist on having a "home inspection" before they finalize the purchase. If the house fails the inspection the buyer has the right to refuse to buy the house unless the seller fixes whatever problems are found. Does this help or hurt the seller?

Table 9.3 -Table 9.3 represents 3 markets for used stereos. Which of the markets in Table 9.3 are NOT in equilibrium?

Table 9.2 -In Table 9.2, Market 2 would be in equilibrium if buyers believed lemons account for

Suppose Jones' company and Smith's company both pollute. Under a system of marketable pollution permits, which of the following must be TRUE in order for Smith and Jones to benefit from trading the right to pollute?

It is efficient to reduce pollution to zero.

Marketable pollution permits increase the amount of pollution generated because firms that don't want to reduce pollution can buy the right to pollute.

If you can consume a good at the same time that others consume the same good, the good is nonrival in consumption.

Recall the Application about genetic discrimination to answer the following question(s). -According to the Application, the information provided from genetic testing would insurance prices for high-cost customers, insurance prices for low-cost customers, and therefore the adverse selection problem.

A private good is a good that

The lemons model predicts that

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

Figure 9.10 -The pollution tax in Figure 9.10

A carbon tax placed on coal

Suppose Smith's oil refinery and Jones' paper mill both pollute a river and both firms operate under a system of marketable pollution permits. If it costs Smith $45 to reduce pollution by 500 gallons per day, and Jones can reduce costs by $65 by increasing pollution by 500 units per day

If eight lemons (low quality) and two plums (high quality) are supplied and buyers assume that there is a 40% chance of getting a lemon, there is an equilibrium.

In which of the following situations should a firm reduce its efforts to abate pollution?

The tendency for people who have good health insurance to take more risks with their health is called adverse selection.

As long as two firms have different abatement costs, they

You do not worry about how your bank is investing your money because your deposits are federally insured. This is an example of

People who buy used homes often insist on having a "home inspection" before they finalize the purchase. If the house fails the inspection the buyer has the right to refuse to buy the house unless the seller fixes whatever problems are found. Does this help or hurt the seller?

Table 9.3 -Table 9.3 represents 3 markets for used stereos. Which of the markets in Table 9.3 are NOT in equilibrium?

Table 9.2 -In Table 9.2, Market 2 would be in equilibrium if buyers believed lemons account for

Suppose Jones' company and Smith's company both pollute. Under a system of marketable pollution permits, which of the following must be TRUE in order for Smith and Jones to benefit from trading the right to pollute?

It is efficient to reduce pollution to zero.

Marketable pollution permits increase the amount of pollution generated because firms that don't want to reduce pollution can buy the right to pollute.

If you can consume a good at the same time that others consume the same good, the good is nonrival in consumption.

A private good is a good that

The lemons model predicts that

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