Question 1

If quality-detection costs are very low,

Accepted Answer

A)  low quality products will tend to be withdrawn from the market, and the average quality will rise.
B)  low quality products will tend to be withdrawn from the market, but the average quality will fall.
C)  high quality products will tend to be withdrawn from the market, and the average quality will rise.
D)  high quality products will tend to be withdrawn from the market, and the average quality will fall. A

Question 2

If a good that features a positive externality is produced in an unregulated free market, the good will be:

Accepted Answer

A)  over-produced and over-valued.
B)  over-produced and under-valued.
C)  under-produced and over-valued.
D)  under-produced and under-valued.
E)  none of the above D

Question 3

In the absence of government action, the private market would probably not provide as much police protection as is socially desirable because:

Accepted Answer

A)  individuals are too poorly informed about the value of police protection.
B)  the private benefits are greater than the private costs of providing police protection.
C)  it is difficult to prevent free riders from benefiting from some police protection services.
D)  the use of police services by one person will significantly reduce the police protection available to others. C

Question 4

Which of the following describes an external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

A)  A flu shot is less expensive than the cost of treatment when you get the flu.
B)  The income of doctors increases when you get a flu shot.
C)  A flu shot reduces the likelihood that others will catch the flu from you.
D)  A flu shot reduces the likelihood that you will miss work as a result of sickness, and, therefore, you will earn more income.

Question 5

The tendency of those who are insured to take more risks is a problem of:

Accepted Answer

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

Question 6

Nonrivalry in consumption and the inability to exclude nonpaying consumers from using the goods are characteristics of what kinds of goods?

Accepted Answer

A)  durable
B)  nondurable
C)  public
D)  private

Question 7

The free rider problem suggests that an individual will tend to:

Accepted Answer

A)  produce more than the optimal quantity of a public good.
B)  produce less than the optimal quantity of a public good.
C)  produce the optimal quantity of a public good if it is funded out of tax revenue.
D)  do none of the above.

Question 8

Why might voters tend to be relatively uninformed about political issues?

Accepted Answer

The answer of Why might voters tend to be relatively...

Question 9

Moving along an elastic portion of a demand curve, the change in price will always be proportionately less than the change in the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 10

A corrective tax equal to the external cost imposed on third parties levied on polluters will:

Accepted Answer

A)  eliminate all pollution.
B)  increase the level of pollution.
C)  force polluters to internalize the external cost resulting from their actions.
D)  usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government.

Question 11

Figure 6-F 
-When positive externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable.

Accepted Answer

A) True 
 B)False

Question 12

A family friend is shopping for an exclusive Vera Wang wedding gown for $8,000 but feels that the price is excessive.She argues that the company should lower prices not only to benefit customers but also to increase the company's revenues and profits.What has she assumed about the price elasticity of demand for these gowns? Is her assumption likely to be correct or incorrect? Why?

Accepted Answer

The answer of A family friend is shopping for an...

Question 13

If James is willing to sell an extra concert ticket for $40 and actually sells it for $100, his consumer surplus is $60.

Accepted Answer

A) True 
 B)False

Question 14

If unregulated, the market for cigarettes would produce a quantity that is too ____ at a price that is too ____ when compared to the socially optimal results.

Accepted Answer

A)  low; low
B)  high; low
C)  low; high
D)  high; high

Question 15

The reason why national defense is commonly provided by the government, while food is not, is that food:

Accepted Answer

A)  is too essential to survival to be provided by a bureaucratic organization.
B)  manufacturers have successfully lobbied the government to stay out of the food industry.
C)  can easily be withheld from those who refuse to pay for it.
D)  provision is subject to a free-rider problem.

Question 16

A perfectly inelastic supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 17

If the world supply of diamonds decreases, diamonds become more valuable, and therefore, the consumer surplus derived from diamonds increases.

Accepted Answer

A) True 
 B)False

Question 18

The median voter model predicts a strong tendency for both candidates to choose a position away from the middle of distribution.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following would be an example of a nongovernmental solution to a problem associated with externalities?

Accepted Answer

A)  society's preference to drive large cars and SUVs
B)  a tax credit for the purchase of a hybrid auto
C)  a moral code against using sprinklers during a drought
D)  tax credits for the purchase of hybrid autos

Question 20

Figure 5-C 
-Refer to Figure 5-C.Market equilibrium and efficient equilibrium are denoted by points ____ respectively.

Accepted Answer

A)  a and b
B)  c and a
C)  a and c
D)  c and b

Exam 5: Market Failure and Public Choice

If quality-detection costs are very low,

If a good that features a positive externality is produced in an unregulated free market, the good will be:

In the absence of government action, the private market would probably not provide as much police protection as is socially desirable because:

Which of the following describes an external benefit resulting from an individual's purchase of a winter flu shot?

The tendency of those who are insured to take more risks is a problem of:

Nonrivalry in consumption and the inability to exclude nonpaying consumers from using the goods are characteristics of what kinds of goods?

The free rider problem suggests that an individual will tend to:

Why might voters tend to be relatively uninformed about political issues?

Moving along an elastic portion of a demand curve, the change in price will always be proportionately less than the change in the quantity demanded.

A corrective tax equal to the external cost imposed on third parties levied on polluters will:

Figure 6-F -When positive externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable.

If James is willing to sell an extra concert ticket for $40 and actually sells it for $100, his consumer surplus is $60.

If unregulated, the market for cigarettes would produce a quantity that is too at a price that is too when compared to the socially optimal results.

The reason why national defense is commonly provided by the government, while food is not, is that food:

A perfectly inelastic supply curve is vertical.

If the world supply of diamonds decreases, diamonds become more valuable, and therefore, the consumer surplus derived from diamonds increases.

The median voter model predicts a strong tendency for both candidates to choose a position away from the middle of distribution.

Which of the following would be an example of a nongovernmental solution to a problem associated with externalities?

Figure 5-C -Refer to Figure 5-C.Market equilibrium and efficient equilibrium are denoted by points ____ respectively.