Question 1

If there are external benefits associated with the consumption of a good or service,

Accepted Answer

A) the market demand curve will overestimate the true demand curve. 
B) the market demand curve will underestimate the true demand curve. 
C) consumers are paying for all these benefits. 
D) the market demand curve will be the vertical summation of the individual demand curves.

Question 2

The value that consumers get (from consuming a product)over and above what they actually paid for the product is called

Accepted Answer

A) consumer utility. 
B) consumption expenditures. 
C) consumer surplus. 
D) consumer demand.

Question 3

According to the Coase theorem,

Accepted Answer

A) government should levy excise taxes on firms that generate spillover or external costs. 
B) taxes should be levied such that they change private behavior as little as possible. 
C) private individuals can often negotiate their own resolution of externality problems, without the need for government intervention. 
D) private firms should not provide public goods.

Question 4

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

Accepted Answer

A) Consumers' maximum willingness to pay equals producers' minimum acceptable price for the last unit of output. 
B) The sum of producer and consumer surplus is maximized. 
C) The total revenue received by producers equals the total cost of production. 
D) The marginal benefit of the last unit produced equals the marginal cost of producing that unit.

Question 5

Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas

Accepted Answer

A) a + b. 
B) a + b + c + d. 
C) c + d. 
D) a + c.

Question 6

Asymmetric information always results in adverse selection.

Accepted Answer

A) True 
 B)False

Question 7

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Accepted Answer

A) True 
 B)False

Question 8

When there is overproduction of a good,

Accepted Answer

A) the marginal benefit of the good exceeds its marginal cost. 
B) the marginal cost of the good exceeds its marginal benefit. 
C) the net benefit of producing extra units of the good is positive. 
D) allocative efficiency is enhanced.

Question 9

The minimum acceptable price for a product that producer Sam is willing to receive is $15. The price he could get for the product in the market is $18. How much is Sam's producer surplus?

Accepted Answer

A) $3 
B) $33 
C) $45 
D) $270

Question 10

Describe how a cap-and-trade system works.

Accepted Answer

The answer of Describe how a cap-and-trade system works....

Question 11

Define positive externality, and explain how getting a vaccination is an example.

Accepted Answer

The answer of Define positive externality, and explain how getting...

Question 12

If the consumer is willing to pay a price higher than the actual price of a product, then the consumer will not buy the product because the consumer surplus will be negative.

Accepted Answer

A) True 
 B)False

Question 13

What is the moral hazard problem?

Accepted Answer

The answer of What is the moral hazard problem?...

Question 14

Refer to the provided table. If the equilibrium price increases, then the

Accepted Answer

A) producer surplus will decrease. 
B) consumer surplus will increase. 
C) producer surplus will increase. 
D) allocative efficiency will increase.

Question 15

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Accepted Answer

A) True 
 B)False

Question 16

A moral hazard problem occurs before a transaction-when people alter their behavior before they sign a contract, imposing costs on the other party.

Accepted Answer

A) True 
 B)False

Question 17

As it applies to insurance, the moral hazard problem is the tendency for

Accepted Answer

A) those most likely to collect on insurance to buy it. 
B) those who buy insurance to take less precaution in avoiding the insured risk. 
C) sellers to price discriminate. 
D) sellers to restrict output and charge high prices.

Question 18

All of these are solutions for traffic congestion except to

Accepted Answer

A) place a fee on people who use the roadway. 
B) charge a fee for each passenger in the car. 
C) use paid express lanes. 
D) use paid toll roads.

Question 19

If a good that generates negative externalities were priced to take these negative externalities into account, then its

Accepted Answer

A) price would decrease and its quantity would increase. 
B) quantity would increase, but its price would remain constant. 
C) price would increase and its quantity would decrease. 
D) price would increase, but its quantity would remain constant.

Question 20

According to the Coase theorem, externality problems

Accepted Answer

A) do not exist in reality, because all costs and benefits are internal to firms. 
B) can be solved through private negotiations without the need for government intervention. 
C) must only be resolved by government action, through either taxes or subsidies. 
D) can never be resolved adequately, because one party always gains while the other loses.

Exam 4: Market Failures Caused by Externalities Asymmetric Information

If there are external benefits associated with the consumption of a good or service,

The value that consumers get (from consuming a product) over and above what they actually paid for the product is called

According to the Coase theorem,

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

Refer to the diagram. Assuming equilibrium price P₁, producer surplus is represented by areas

Asymmetric information always results in adverse selection.

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

When there is overproduction of a good,

The minimum acceptable price for a product that producer Sam is willing to receive is $15. The price he could get for the product in the market is $18. How much is Sam's producer surplus?

Describe how a cap-and-trade system works.

Define positive externality, and explain how getting a vaccination is an example.

If the consumer is willing to pay a price higher than the actual price of a product, then the consumer will not buy the product because the consumer surplus will be negative.

What is the moral hazard problem?

Refer to the provided table. If the equilibrium price increases, then the

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

A moral hazard problem occurs before a transaction-when people alter their behavior before they sign a contract, imposing costs on the other party.

As it applies to insurance, the moral hazard problem is the tendency for

All of these are solutions for traffic congestion except to

If a good that generates negative externalities were priced to take these negative externalities into account, then its

According to the Coase theorem, externality problems