Question 1

The presence of negative externalities leads to a misallocation of societal resources because:

Accepted Answer

A)  whenever external costs are imposed on outside parties, the good should not be produced at all.
B)  less of the good than is ideal for society is produced.
C)  there are some costs associated with production that the producer fails to take into consideration.
D)  the government always intervenes in markets when negative externalities are present, and the government is inherently inefficient.E) B) and C)
F) A) and D)

Question 2

The self-interest assumption is central to the analysis of behavior in both private and public sectors.

Accepted Answer

A) True 
 B)False

Question 3

Either a price floor or a price ceiling above the equilibrium price would cause a surplus.

Accepted Answer

A) True 
 B)False

Question 4

In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will not happen?

Accepted Answer

A)  Inefficiencies will occur.
B)  Negative externalities will be observed.
C)  The market prices of products produced by firms will be too low relative to the social optimum.
D)  Output of the good being produced will be too low.E) All of the above
F) A) and C)

Question 5

A warranty offered by a seller is one way to overcome:

Accepted Answer

A)  a positive externality problem.
B)  a negative externality problem.
C)  an adverse selection problem.
D)  a free-rider problem.E) None of the above
F) C) and D)

Question 6

Assume that production of a good generates external benefits for others.The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.

Accepted Answer

A)  too high; too high.
B)  too high; too low.
C)  too low; too high.
D)  too low, too low.E) None of the above
F) B) and D)

Question 7

Figure 5-C 
-Refer to Figure 5-C.Which of the following will help shift the supply curve from S private to S social?

Accepted Answer

A)  New technology that increases output
B)  Steps to externalize the costs involved
C)  Technology that reduces labor
D)  Regulation to internalize the costs involvedE) B) and C)
F) A) and C)

Question 8

Figure 5-C 
-Refer to Figure 5-C.The supply curve S private includes the following costs.

Accepted Answer

A)  Costs that production imposes on others
B)  Private costs and external costs
C)  External costs and spillover costs
D)  Costs of capital, entrepreneurship, land, and laborE) B) and D)
F) A) and B)

Question 9

If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.

Accepted Answer

A)  overstates; increase
B)  understates; increase
C)  overstates; decrease
D)  understates; decrease
E)  overstates; remain the sameF) B) and D)
G) A) and C)

Question 10

When demand is relatively more elastic than supply, the largest portion of a tax is paid by the consumer.

Accepted Answer

A) True 
 B)False

Question 11

Assume that production of a good imposes external costs on others.The equilibrium price will be ____ and the equilibrium quantity ____ for efficient resource allocation.

Accepted Answer

A)  too high; too high.
B)  too high; too low.
C)  too low; too high.
D)  too low, too low.E) A) and D)
F) B) and C)

Question 12

Which of the following is a valid reason for the government rather than the market to finance the provision of certain economic goods and services?

Accepted Answer

A)  When the government provides economic goods, they are free; costs are incurred when such goods are provided by private firms.
B)  Voters tend to be better informed than market consumers are.
C)  Decision makers in the market sector are motivated by self-interest, whereas political decision makers are primarily motivated by altruism (the desire to help others) .
D)  Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers; the government can use taxes to overcome this problem of nonpayment.E) C) and D)
F) B) and D)

Question 13

What distinguishes public goods from private goods?

Accepted Answer

Public goods are both nonrival in consum...

Question 14

Which of the following will most likely generate positive externalities?

Accepted Answer

A)  a hot dog vendor
B)  public education
C)  an automobile
D)  a city bus
E)  a polluting factoryF) A) and D)
G) A) and B)

Question 15

Which of the following is not true of adverse selection?

Accepted Answer

A)  It can result when both parties to a transaction have little information about the quality of the goods involved.
B)  It can cause the quality of goods traded to fall, if quality detection costs are high.
C)  It can be a difficult problem to overcome, because it is not individually rational for the transactor with the superior information to provide a truthful and complete disclosure.
D)  All of the above are true.E) A) and B)
F) All of the above

Question 16

Which of the following is an example of a public good?

Accepted Answer

A)  telephone service
B)  national defense
C)  a city-owned bus
D)  electricity generated by a city-owned public utilityE) A) and B)
F) All of the above

Question 17

An example of a negative externality is:

Accepted Answer

A)  the benefit you receive when your neighbor installs a smoke detector.
B)  the reduction in profits for your company that occurs when there is a decrease in consumer demand for the product you manufacture.
C)  the sleep you lose when your neighbor throws a loud party next door that keeps you awake.
D)  the change in the property values of your neighbors' homes when you paint your house and landscape your front yardE) A) and B)
F) B) and C)

Question 18

Individual citizens are unlikely to spend time and effort resisting actions of special interest groups because

Accepted Answer

A)  the costs of such actions are focused on a relatively small number of taxpayers.
B)  the costs of such actions are spread over a large number of taxpayers.
C)  the benefits of such actions accrue to a relatively small number of taxpayers.
D)  the benefits of such actions accrue to a large number of taxpayers.E) None of the above
F) A) and B)

Question 19

A special interest issue is one that:

Accepted Answer

A)  provides large private benefits and large social benefits.
B)  provides small private benefits and large social benefits.
C)  provides large benefits to each of a small number of people and small costs to each of a large number of people.
D)  provides small benefits to each of a small number of people and large costs to each of a large number of people.E) A) and C)
F) C) and D)

Question 20

Figure 6-F 
-Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defined.

Accepted Answer

A) True 
 B)False

Exam 5: Market Failure and Public Choice

What distinguishes public goods from private goods?

Correct AnswerverifiedPublic goods are both nonrival in consum...View AnswerShow Answer

Either a price floor or a price ceiling above the equilibrium price would cause a surplus.

Correct AnswerverifiedShow Answer

In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will not happen?

Correct AnswerverifiedShow Answer

The self-interest assumption is central to the analysis of behavior in both private and public sectors.

Correct AnswerverifiedShow Answer

Figure 5-C -Refer to Figure 5-C.The supply curve S private includes the following costs.

Correct AnswerverifiedShow Answer

Which of the following is a valid reason for the government rather than the market to finance the provision of certain economic goods and services?

Correct AnswerverifiedShow Answer

Which of the following will most likely generate positive externalities?

Correct AnswerverifiedShow Answer

Individual citizens are unlikely to spend time and effort resisting actions of special interest groups because

Correct AnswerverifiedShow Answer

Figure 5-C -Refer to Figure 5-C.Which of the following will help shift the supply curve from S private to S social?

Correct AnswerverifiedShow Answer

Which of the following is an example of a public good?

Correct AnswerverifiedShow Answer

An example of a negative externality is:

Correct AnswerverifiedShow Answer

When demand is relatively more elastic than supply, the largest portion of a tax is paid by the consumer.

Correct AnswerverifiedShow Answer

Assume that production of a good generates external benefits for others.The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.

Correct AnswerverifiedShow Answer

If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.

Correct AnswerverifiedShow Answer

A special interest issue is one that:

Correct AnswerverifiedShow Answer

The presence of negative externalities leads to a misallocation of societal resources because:

Correct AnswerverifiedShow Answer

A warranty offered by a seller is one way to overcome:

Correct AnswerverifiedShow Answer

Which of the following is not true of adverse selection?

Correct AnswerverifiedShow Answer

Assume that production of a good imposes external costs on others.The equilibrium price will be ____ and the equilibrium quantity ____ for efficient resource allocation.

Correct AnswerverifiedShow Answer

Figure 6-F -Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defined.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Public goods are both nonrival in consum...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Assume that production of a good generates external benefits for others.The equilibrium price of the good will be and the equilibrium quantity for efficient resource allocation.

Correct Answer
verified

If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm the cost to society associated with this product and output should to move toward the efficient situation.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Assume that production of a good imposes external costs on others.The equilibrium price will be and the equilibrium quantity for efficient resource allocation.

Correct Answer
verified

Correct Answer
verified