Question 1

Table 9.4
-Refer to Table 9.4. In which market do buyers underestimate the chance of getting a lemon?

Accepted Answer

A)  1 and 2 only 
B)  1 and 3 only 
C)  2 and 3 only 
D)  none of the above

Question 2

Recall the Application about how the price of pollution permits is determined to answer the following question(s).
-Recall the Application. The ________ is a market for carbon dioxide allowances issued to EU countries under the EU cap-and-trade system.

Accepted Answer

A)  Eurozone 
B)  Continental Pollution Abatement League 
C)  European Climate Exchange 
D)  Paris Emissions Agency

Question 3

An example of a good that is nonrival in consumption is

Accepted Answer

A)  a campsite at Yellowstone National Park. 
B)  a ticket to an Omnimax movie at the Smithsonian. 
C)  the Lincoln Memorial in Washington, D.C. 
D)  All of the above are nonrival in consumption.

Question 4

Asymmetric information in the health insurance market causes prices to ________ and the mix of insured customers to become ________ healthy on average.

Accepted Answer

A)  rise; less 
B)  fall; more 
C)  rise; more 
D)  fall; less

Question 5

Figure 9.5
-Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 80% of used cameras in the market are lemons (low quality), how many plums will be supplied in the market?

Accepted Answer

A)  30 
B)  40 
C)  70 
D)  120

Question 6

Experience ratings provide firms with an incentive to

Accepted Answer

A)  hire older workers. 
B)  invest in health and safety programs. 
C)  hire disabled workers. 
D)  none of the above

Question 7

A good that is available for everyone, regardless of who pays and who doesn't, is

Accepted Answer

A)  rival. 
B)  nonrival. 
C)  excludable. 
D)  nonexcludable.

Question 8

Recall the Application about the benefits generated when one country gathers information on global weather to answer the following question(s).
-Recall the Application. When the U.S. acquires and then shares weather data with organizations in other countries

Accepted Answer

A)  both the U.S. economy and the economies of other countries benefit. 
B)  the U.S. does not benefit and other countries free ride. 
C)  the information is excludable and rival. 
D)  the information is incomplete because no country can monitor oceans outside its own borders.

Question 9

A pollution tax will

Accepted Answer

A)  always be paid entirely by producers. 
B)  not change the price buyers pay for a good. 
C)  be shared between buyers and sellers. 
D)  always be paid entirely by buyers in the form of a price increase equal to the amount of the tax.

Question 10

If Tom drives a car more recklessly after he purchases a comprehensive insurance plan, the change in his behavior is an adverse selection problem.

Accepted Answer

A) True 
 B)False

Question 11

Table 9.8
-Table 9.8 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If Firm B would like to purchase one permit to be able to discharge 9 tons of sulfur dioxide, what is Firm B's willingness to pay?

Accepted Answer

A)  $2,000 
B)  $3,000 
C)  $4,000 
D)  $5,000

Question 12

Relative to people who are eligible for group health insurance, individuals who are not covered by a group health insurance plan tend to pay

Accepted Answer

A)  more for health insurance regardless of their health condition. 
B)  more for health insurance if they are unhealthy and less for health insurance if they are healthy. 
C)  less for health insurance regardless of their health condition. 
D)  less for health insurance if they are unhealthy and more for health insurance if they are healthy.

Question 13

Recall the Application about determining the optimal level of methane abatement to answer the following question(s).
-Recall the Application. Applying the marginal principle to methane reduction suggests that efforts at reduction should

Accepted Answer

A)  target the sources of methane that are cheapest to abate, or recover, first. 
B)  target the most costly to recover sources of methane first. 
C)  continue until methane is reduced to zero metric tons because the harm from methane is so high. 
D)  not be undertaken because livestock is one of the major sources of methane, and livestock is not an industrial source of pollution.

Question 14

Figure 9.1
-Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike. Initially buyers believe that 50% of used bikes in the market are lemons (low quality). Compared to the outcome with neutral expectations, how many fewer bikes are sold in equilibrium?

Accepted Answer

A)  8 
B)  12 
C)  18 
D)  22

Question 15

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

Accepted Answer

A)  reducing the price of U.S. kiwifruit. 
B)  advertising. 
C)  a federal government marketing order. 
D)  all of the above

Question 16

Figure 9.5
-Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 80% of used cameras in the market are lemons (low quality), what percent of used cars sold will actually be plums?

Accepted Answer

A)  20% 
B)  25% 
C)  33.33% 
D)  75%

Question 17

Table 9.1
-Table 9.1 represents 3 markets for used computers. Which of the markets in Table 14.1 are NOT in equilibrium?

Accepted Answer

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

Question 18

Figure 9.6
-Figure 9.6 represents the market for health insurance. Suppose there are two types of consumers, low-cost consumers with $2,000 average medical expenses per year, and high-cost customers with $4,000 average medical expenses per year. Initially the insurance companies estimate that 40% of its customers are high-cost type. Compared to the outcome with pessimistic expectations, how many more customers buy health insurance?

Accepted Answer

A)  500 
B)  1,300 
C)  1,500 
D)  1,600

Question 19

Under a system of marketable pollution permits the government

Accepted Answer

A)  chooses a level of pollution. 
B)  distributes permits to polluting firms. 
C)  allows firms to trade permits. 
D)  all of the above

Question 20

Figure 9.1
-Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike. If buyers believe that 50% of used bikes are lemons (low quality), how many plums (high quality) will be supplied by sellers?

Accepted Answer

A)  8 
B)  12 
C)  16 
D)  22

Exam 9: Imperfect Information, External Benefits, and External Costs

Table 9.4 -Refer to Table 9.4. In which market do buyers underestimate the chance of getting a lemon?

Recall the Application about how the price of pollution permits is determined to answer the following question(s) . -Recall the Application. The ________ is a market for carbon dioxide allowances issued to EU countries under the EU cap-and-trade system.

An example of a good that is nonrival in consumption is

Asymmetric information in the health insurance market causes prices to and the mix of insured customers to become healthy on average.

Experience ratings provide firms with an incentive to

A good that is available for everyone, regardless of who pays and who doesn't, is

Recall the Application about the benefits generated when one country gathers information on global weather to answer the following question(s) . -Recall the Application. When the U.S. acquires and then shares weather data with organizations in other countries

A pollution tax will

If Tom drives a car more recklessly after he purchases a comprehensive insurance plan, the change in his behavior is an adverse selection problem.

Relative to people who are eligible for group health insurance, individuals who are not covered by a group health insurance plan tend to pay

Recall the Application about determining the optimal level of methane abatement to answer the following question(s) . -Recall the Application. Applying the marginal principle to methane reduction suggests that efforts at reduction should

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

Table 9.1 -Table 9.1 represents 3 markets for used computers. Which of the markets in Table 14.1 are NOT in equilibrium?

Under a system of marketable pollution permits the government