Question 1

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 2

It is argued that the market will

Accepted Answer

A)  not produce a nonexcludable public good. 
B)  produce the socially optimal output of a nonexcludable public good. 
C)  produce too much of a nonexcludable public good. 
D)  produce a nonexcludable public good if marginal social benefits are equal to marginal private benefits. 
E)  b and d

Question 3

Which of the following situations is descriptive of the existence of a negative externality.

Accepted Answer

A)  Vernon studies for his biology test late into the night and oversleeps the next morning, thus missing the test. 
B)  Nancy is in the library looking for a book. She is talking to herself and consequently disturbs a few people in the library. 
C)  Bob learns later that he could have purchased a pair of shoes for less than he paid. 
D)  Jackie has had the flu and has stayed in bed for a week. 
E)  none of the above

Question 4

The Coase theorem

Accepted Answer

A)  shows that under certain conditions the market can internalize externalities. 
B)  states that economic units should specialize in the production of those goods in which they have a comparative advantage. 
C)  asserts that the firm should produce that output at which marginal cost is equal to marginal revenue. 
D)  holds that the firm should produce that output at which marginal factor cost is equal to marginal revenue product.

Question 5

The primary characteristic of a public good is that it is nonrivalrous in consumption.

Accepted Answer

A) True 
 B)False

Question 6

The Coase theorem is significant because it

Accepted Answer

A)  implies that no transaction costs are associated with solving externalities. 
B)  shows that property rights can be assigned. 
C)  shows that under certain conditions externalities can be corrected in the market without resorting to nonmarket means. 
D)  a and b

Question 7

Asymmetric information exists when

Accepted Answer

A)  both parties to an exchange have all relevant facts about that exchange. 
B)  a good that is either nonrivalrous or nonexcludable is being sold on a market. 
C)  the two parties to an exchange differ in what they know about the good being exchanged. 
D)  neither party to an exchange is knowledgeable about the quality of the good being exchanged.

Question 8

When marginal private benefit is equal to marginal private cost,

Accepted Answer

A)  the activity in question generates no negative externality. 
B)  all negative externalities have been internalized. 
C)  all positive externalities have been internalized. 
D)  all of the above 
E)  a or b

Question 9

Which of the following is an example of a negative externality?

Accepted Answer

A)  Bad weather reduces the size of the wheat crop. 
B)  A reduction in the size of the wheat crop causes the income of wheat farmers to fall. 
C)  Smoking harms the health of nonsmokers who are nearby. 
D)  Smoking harms the health of the smoker. 
E)  all of the above

Question 10

For a good where network externalities are present,having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 31-3
 
-Refer to Exhibit 31-3.What is the cost to Firm A of eliminating 2 tons of pollution?

Accepted Answer

A)  $100 
B)  $200 
C)  $700 
D)  $425 
E)  $1,500

Question 12

A good is nonrivalrous in consumption if

Accepted Answer

A)  its consumption by one person does not reduce its consumption by others. 
B)  its consumption by one person reduces its consumption by others. 
C)  it is possible, or not prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced. 
D)  it is impossible, or prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced. 
E)  a and d

Question 13

Which of these goods may be considered rivalrous in consumption and nonexcludable?

Accepted Answer

A)  wilderness areas 
B)  national defense 
C)  broadcast television reception 
D)  fire insurance

Question 14

From an economist's point of view,zero pollution is always preferable to some pollution.

Accepted Answer

A) True 
 B)False

Question 15

A public good can be excludable or nonexcludable.

Accepted Answer

A) True 
 B)False

Question 16

When marginal private cost is less than marginal social cost,

Accepted Answer

A)  a public good exists. 
B)  a negative externality exists. 
C)  a positive externality exists. 
D)  negative economic profits are made. 
E)  a and d

Question 17

Exhibit 31-5
 
-Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points __________,and the market output is __________.

Accepted Answer

A)  A and C; Q2 
B)  B and D; Q1 
C)  C and A; Q1 
D)  B and C; Q1 
E)  b and c

Question 18

The primary difference between private goods and public goods is that

Accepted Answer

A)  private goods are consumed by private individuals whereas public goods are not consumed by private individuals. 
B)  private goods often yield externalities but public goods do not. 
C)  property rights can be assigned to public goods but not to private goods. 
D)  public goods are nonrivalrous in consumption whereas private goods are rivalrous in consumption.

Question 19

Exhibit 31-1 -Refer to Exhibit 31-1.If the exhibit represents a negative externality situation,then what is Q₁? A) It is the quantity of output at which marginal social costs (MPC). b. It is the quantity of output at which MPC > MSC. c. It is the market output; it is the quantity of output that exists if the external costs associated with the negative externality are not taken into account. d. It is the socially optimal output; it is the quantity of output that exists if the external costs associated with the negative externality are taken into account. e. none of the above

Accepted Answer

The answer of Exhibit 31-1
 
-Refer to Exhibit 31-1.If the...

Question 20

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

Accepted Answer

A) True 
 B)False

Exam 31: Market Failure: Externalities, Public Goods, and Asymmetric Information

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be and cigarette sales to be than would have been the case under symmetric information.

It is argued that the market will

Which of the following situations is descriptive of the existence of a negative externality.

The Coase theorem

The primary characteristic of a public good is that it is nonrivalrous in consumption.

The Coase theorem is significant because it

Asymmetric information exists when

When marginal private benefit is equal to marginal private cost,

Which of the following is an example of a negative externality?

For a good where network externalities are present,having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Exhibit 31-3 -Refer to Exhibit 31-3.What is the cost to Firm A of eliminating 2 tons of pollution?

A good is nonrivalrous in consumption if

Which of these goods may be considered rivalrous in consumption and nonexcludable?

From an economist's point of view,zero pollution is always preferable to some pollution.

A public good can be excludable or nonexcludable.

When marginal private cost is less than marginal social cost,

Exhibit 31-5 -Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points ,and the market output is .

The primary difference between private goods and public goods is that

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

Exam 31: Market Failure: Externalities, Public Goods, and Asymmetric Information

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

It is argued that the market will

Which of the following situations is descriptive of the existence of a negative externality.

The Coase theorem

The primary characteristic of a public good is that it is nonrivalrous in consumption.

The Coase theorem is significant because it

Asymmetric information exists when

When marginal private benefit is equal to marginal private cost,

Which of the following is an example of a negative externality?

For a good where network externalities are present,having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Exhibit 31-3 -Refer to Exhibit 31-3.What is the cost to Firm A of eliminating 2 tons of pollution?

A good is nonrivalrous in consumption if

Which of these goods may be considered rivalrous in consumption and nonexcludable?

From an economist's point of view,zero pollution is always preferable to some pollution.

A public good can be excludable or nonexcludable.

When marginal private cost is less than marginal social cost,

Exhibit 31-5 -Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points __________,and the market output is __________.

The primary difference between private goods and public goods is that

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be and cigarette sales to be than would have been the case under symmetric information.

Exhibit 31-5 -Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points ,and the market output is .