Question 1

The greater the magnitude of the external costs of production,

Accepted Answer

A)  ​The larger is the deadweight loss from overproduction.
B)  ​The greater would be the optimal pollution tax.
C)  ​The further the private market solution ignoring those costs would deviate from the socially efficient level of output.
D)  ​All of the above are true.E) B) and D)
F) B) and C)

Question 2

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

Accepted Answer

A)  ​does not include the external cost.
B)  ​includes the external cost.
C)  ​does not include the external benefit.
D)  ​includes the external benefit.E) B) and D)
F) None of the above

Question 3

The optimal quantity of pollution control occurs where:

Accepted Answer

A)  ​pollution equals zero.
B)  ​the total benefit of pollution control equals the total cost.
C)  ​the marginal social benefit of pollution control just equals the marginal social cost.
D)  ​the marginal external cost of pollution equals zero.E) A) and B)
F) None of the above

Question 4

An example of a public good is a flood control project that protects all the homes and properties near a river.

Accepted Answer

A) True 
 B)False

Question 5

A pollution tax:

Accepted Answer

A)  ​increases the price of the good taxed.
B)  ​decreases the price of the good taxed.
C)  ​increases the production of the good taxed.
D)  ​increases the quantity of the taxed good demanded.E) All of the above
F) None of the above

Question 6

Which of the following provides an example of an externality?

Accepted Answer

A)  ​The air pollution generated when you drive your car.
B)  ​The view that passersby and neighbors enjoy when observing your rose garden.
C)  ​The free concerts neighbors hear when an accomplished musician practices at home.
D)  ​All of the above.E) A) and D)
F) A) and B)

Question 7

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

Accepted Answer

A)  ​free riding.
B)  ​moral hazard.
C)  ​adverse selection.
D)  ​positive externalities.E) B) and C)
F) All of the above

Question 8

A technology spillover occurs when one firm's research and production increase another firm's access to technological advances.

Accepted Answer

A) True 
 B)False

Question 9

The imposition of a per-unit tax on polluting firms will result in the socially efficient level of production only if the tax equals:

Accepted Answer

A)  ​the marginal social cost plus the marginal private cost.
B)  ​the marginal social cost plus the marginal external cost.
C)  ​the marginal social cost minus the marginal private cost.
D)  ​the average total cost minus the average variable cost.E) All of the above
F) B) and D)

Question 10

A free-rider problem arises whenever:

Accepted Answer

A)  ​goods cannot be provided exclusively to those who pay for them.
B)  ​the price of a good is very low.
C)  ​the government provides goods or services.
D)  ​goods cease to be scarce.E) A) and B)
F) A) and C)

Question 11

If the government tried to implement a total ban on pollution:

Accepted Answer

A)  ​output prices would decrease.
B)  ​output prices would increase.
C)  ​production would increase.
D)  ​production would be unchanged.E) A) and B)
F) B) and C)

Question 12

A public good is nonrivalrous and excludable.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. If this is the case in a competitive market, how will the price and output of the chemical products compare with their values under conditions of ideal economic efficiency?

Accepted Answer

A)  ​Price is too low; output is too large.
B)  ​Price is too high; output is too large.
C)  ​Price is too low; output is too small.
D)  ​Price is too high; output is too small.E) A) and D)
F) A) and C)

Question 14

Which of the following is true?

Accepted Answer

A)  ​The private market provides too much of goods that generate external benefits.
B)  ​In the case of external benefits, if we could add the benefits that are derived by non-paying consumers, the supply curve would shift to the right, increasing output.
C)  ​In the case of external benefits, a tax equal to external benefits would result in an efficient level of output.
D)  ​In the case of public goods, when people act as free-riders, some goods having benefits greater than costs will not be produced.E) A) and D)
F) None of the above

Question 15

Global warming, which causes unfavorable climatic changes due to the burning of fossil fuels, would be an example of a(n) :

Accepted Answer

A)  ​positive externality.
B)  ​negative externality.
C)  ​internalized externality.
D)  ​Coase externality.E) All of the above
F) None of the above

Question 16

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; decreaseE) A) and B)
F) None of the above

Question 17

The greater the magnitude of the external costs of production,

Accepted Answer

A)  ​The larger is the deadweight loss from overproduction.
B)  ​The greater would be the optimal pollution tax.
C)  ​The further the private market solution ignoring those costs would deviate from the socially efficient level of output.
D)  ​All of the above are true.E) A) and B)
F) All of the above

Question 18

Exhibit 8-2 ​ 
-Refer to Exhibit 8-2. The 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 bE) A) and D)
F) B) and C)

Question 19

When one more car enters a crowded highway it increases the travel times of all other drivers on the highway creating a negative externality.

Accepted Answer

A) True 
 B)False

Question 20

Nick owns a dog whose barking annoys his neighbor Jane. Suppose that the benefit of owning the dog is worth $500 to Nick, and that Jane bears a cost of $700 from the barking. Assume that the city has no ordinance against barking dogs. A possible private solution that would benefit both parties is for:

Accepted Answer

A)  ​Jane to pay Nick $450 to get rid of the dog.
B)  ​Nick to pay Jane $650 for her inconvenience.
C)  ​Jane to pay Nick $650 to get rid of the dog.
D)  ​There is no private solution that would improve this situation for both parties.E) A) and D)
F) All of the above

Exam 8: Market Failure

Which of the following is true?

Correct Answer
verified

Suppose that firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. If this is the case in a competitive market, how will the price and output of the chemical products compare with their values under conditions of ideal economic efficiency?

Correct Answer
verified

The optimal quantity of pollution control occurs where:

Correct Answer
verified

A technology spillover occurs when one firm's research and production increase another firm's access to technological advances.

Correct Answer
verified

Which of the following provides an example of an externality?

Correct Answer
verified

The imposition of a per-unit tax on polluting firms will result in the socially efficient level of production only if the tax equals:

Correct Answer
verified

When one more car enters a crowded highway it increases the travel times of all other drivers on the highway creating a negative externality.

Correct Answer
verified

A public good is nonrivalrous and excludable.

Correct Answer
verified

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

Correct Answer
verified

Global warming, which causes unfavorable climatic changes due to the burning of fossil fuels, would be an example of a(n) :

Correct Answer
verified

An example of a public good is a flood control project that protects all the homes and properties near a river.

Correct Answer
verified

The greater the magnitude of the external costs of production,

Correct Answer
verified

Correct Answer
verified

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

Correct Answer
verified

A pollution tax:

Correct Answer
verified

A free-rider problem arises whenever:

Correct Answer
verified

The greater the magnitude of the external costs of production,

Correct Answer
verified

If the government tried to implement a total ban on pollution:

Correct Answer
verified

Exhibit 8-2 -Refer to Exhibit 8-2. The market equilibrium and efficient equilibrium are denoted by points ____ respectively.

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

Exam 8: Market Failure

Which of the following is true?

Correct AnswerverifiedShow Answer

Suppose that firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. If this is the case in a competitive market, how will the price and output of the chemical products compare with their values under conditions of ideal economic efficiency?

Correct AnswerverifiedShow Answer

The optimal quantity of pollution control occurs where:

Correct AnswerverifiedShow Answer

A technology spillover occurs when one firm's research and production increase another firm's access to technological advances.

Correct AnswerverifiedShow Answer

Which of the following provides an example of an externality?

Correct AnswerverifiedShow Answer

The imposition of a per-unit tax on polluting firms will result in the socially efficient level of production only if the tax equals:

Correct AnswerverifiedShow Answer

When one more car enters a crowded highway it increases the travel times of all other drivers on the highway creating a negative externality.

Correct AnswerverifiedShow Answer

A public good is nonrivalrous and excludable.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Global warming, which causes unfavorable climatic changes due to the burning of fossil fuels, would be an example of a(n) :

Correct AnswerverifiedShow Answer

An example of a public good is a flood control project that protects all the homes and properties near a river.

Correct AnswerverifiedShow Answer

The greater the magnitude of the external costs of production,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

Correct AnswerverifiedShow Answer

A pollution tax:

Correct AnswerverifiedShow Answer

A free-rider problem arises whenever:

Correct AnswerverifiedShow Answer

The greater the magnitude of the external costs of production,

Correct AnswerverifiedShow Answer

If the government tried to implement a total ban on pollution:

Correct AnswerverifiedShow Answer

Exhibit 8-2 ​ -Refer to Exhibit 8-2. The market equilibrium and efficient equilibrium are denoted by points ____ respectively.

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

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exhibit 8-2 -Refer to Exhibit 8-2. The market equilibrium and efficient equilibrium are denoted by points ____ respectively.

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