Question 1

An improvement in the technology of pollution control is likely to increase society's optimal amount of pollution abatement.

Accepted Answer

A) True 
 B)False

Question 2

What are some ways the private sector has found to overcome information difficulties without government intervention?

Accepted Answer

The answer of What are some ways the private sector...

Question 3

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₂ and S₂. If there are substantial external benefits associated with the production of Z, then

Accepted Answer

A) efficient resource allocation occurs at output G and price B because the market mechanism does not measure all benefits. 
B) an output smaller than G would improve resource allocation. 
C) government should levy a per-unit excise tax on Z to shift the demand curve toward D₁. 
D) an output greater than G would result in a more efficient allocation of resources.

Question 4

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of

Accepted Answer

A) increasing costs. 
B) diminishing returns. 
C) diminishing marginal utility. 
D) conservation of matter and energy.

Question 5

The minimum acceptable price for a product that producer Sam is willing to receive is 10. The price he could get for the product in the market is 15. How much is Sam's producer surplus?

Accepted Answer

A) 25 
B) 15 
C) more than $10 
D) 5 
E) 150

Question 6

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the total amount of spending that consumers would be paying for the product is represented by the area

Accepted Answer

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

Question 7

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

Accepted Answer

A) True 
 B)False

Question 8

The adverse selection problem is the tendency for insured drivers to drive recklessly.

Accepted Answer

A) True 
 B)False

Question 9

Describe what is meant by the adverse selection problem.

Accepted Answer

The answer of Describe what is meant by the adverse...

Question 10

Refer to the diagram of the market for product X. Curve Sₜ embodies all costs (including externalities), and Dₜ embodies all benefits (including externalities)associated with the production and consumption of X. Assuming the equilibrium output is Q₂, we can conclude that the existence of external

Accepted Answer

A) costs has resulted in an overallocation of resources to X. 
B) benefits has resulted in an overallocation of resources to X. 
C) costs has resulted in an underallocation of resources to X. 
D) benefits has resulted in an underallocation of resources to X.

Question 11

What are the limitations to government's role in the economy?

Accepted Answer

The answer of What are the limitations to government's role...

Question 12

TripAdvisor provides online reviews of hotels, restaurants, and attractions at tourist destinations around the world. When a traveler is planning a vacation, TripAdvisor helps the traveler avoid

Accepted Answer

A) adverse selection. 
B) moral hazard. 
C) positive externalities. 
D) negative externalities.

Question 13

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

Accepted Answer

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

Question 14

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

Accepted Answer

A) the moral hazard problem. 
B) a spillover cost. 
C) a positive externality. 
D) asymmetric information.

Question 15

In terms of consumer and producer surplus, when is economic efficiency achieved?

Accepted Answer

The answer of In terms of consumer and producer surplus,...

Question 16

Allocative efficiency occurs where (for the last unit)maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

Accepted Answer

A) True 
 B)False

Question 17

The government should choose pollution abatement for all sources of pollution where the marginal benefit exceeds the marginal cost of that action.

Accepted Answer

A) True 
 B)False

Question 18

Refer to the diagram. With MB₁ and MC₁, society's optimal amount of pollution abatement is

Accepted Answer

A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Q₄.

Question 19

Market failure is said to occur whenever

Accepted Answer

A) competitive markets do not allocate resources in the most economically desirable way. 
B) prices rise. 
C) some consumers who want a good do not obtain it because the price is higher than they are willing to pay. 
D) government intervenes in the functioning of competitive markets.

Question 20

Which of the following would be considered an example of adverse selection?

Accepted Answer

A) Malpractice insurance may increase the amount of malpractice. 
B) Drivers may be less cautious because they have airbags installed in a car. 
C) Those individuals who most need insurance are the ones most likely to buy it. 
D) Work contracts that give a set number of sick-days may encourage more workers to call in sick.

Exam 4: Market Failures Caused by Externalities Asymmetric Information

An improvement in the technology of pollution control is likely to increase society's optimal amount of pollution abatement.

What are some ways the private sector has found to overcome information difficulties without government intervention?

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₂ and S₂. If there are substantial external benefits associated with the production of Z, then

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of

The minimum acceptable price for a product that producer Sam is willing to receive is 10. The price he could get for the product in the market is 15. How much is Sam's producer surplus?

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the total amount of spending that consumers would be paying for the product is represented by the area

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

The adverse selection problem is the tendency for insured drivers to drive recklessly.

Describe what is meant by the adverse selection problem.

What are the limitations to government's role in the economy?

TripAdvisor provides online reviews of hotels, restaurants, and attractions at tourist destinations around the world. When a traveler is planning a vacation, TripAdvisor helps the traveler avoid

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

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

In terms of consumer and producer surplus, when is economic efficiency achieved?

Allocative efficiency occurs where (for the last unit)maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

The government should choose pollution abatement for all sources of pollution where the marginal benefit exceeds the marginal cost of that action.

Refer to the diagram. With MB₁ and MC₁, society's optimal amount of pollution abatement is

Market failure is said to occur whenever

Which of the following would be considered an example of adverse selection?