Question 1

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically

Accepted Answer

A)   generates more of a benefit than it costs to produce.
B)   produces a benefit exactly equal to the cost of producing the last unit.
C)   maximizes the net benefit to society.
D)   costs more to produce than it provides in benefits.E) A) and D)
F) A) and C)

Question 2

It has been proposed that a government agency be charged with the task of determining the amount of pollution that the atmosphere (or a body of water)  can safely absorb, establish "rights" to this limited amount of pollution, and sell those limited amount of rights to firms. The firms can then buy and sell these rights among themselves later. This approach is known as the

Accepted Answer

A)   taxes and subsidies system.
B)   cap-and-trade system.
C)   property rights system.
D)   market and command system.E) A) and D)
F) All of the above

Question 3

Market failure is said to occur whenever

Accepted Answer

A)   private 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 private markets.E) None of the above
F) A) and B)

Question 4

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

Accepted Answer

A)   the third unit should not be produced.
B)   the third unit should be produced.
C)   zero units should be produced.
D)   4 units should be produced.E) All of the above
F) B) and C)

Question 5

A government is considering undertaking a construction project of an increasing scale (ranging from 1, 2, 3, to 4) . The estimated marginal costs and marginal benefits of each successive scale of the project are given in the table below. What is the total amount that the government should spend on the construction project to attain maximum net benefits for the society?

Accepted Answer

A)   $8 million
B)   $14 million
C)   $19 million
D)   $37 millionE) All of the above
F) B) and C)

Question 6

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Accepted Answer

A) True 
 B)False

Question 7

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.  The data indicate that

Accepted Answer

A)   there is no highway program that is economically justifiable on the basis of cost-benefit analysis.
B)   the marginal cost and marginal benefit of Program A are $2 and $9, respectively.
C)   the marginal cost and marginal benefit of Program C are $12 and $21, respectively.
D)   program D is optimal because it maximizes the total benefit.E) A) and B)
F) A) and C)

Question 8

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25. If the marginal cost of producing the third unit is $100, what is the minimum amount that Susie must be willing to pay for it to be efficient for government to produce the third unit?pay for it to be efficient for government to produce the third unit?

Accepted Answer

A)   $35
B)   $100
C)   $65
D)   The amount cannot be determined with the information provided.E) B) and D)
F) A) and D)

Question 9

Producer surplus is the difference between

Accepted Answer

A)   the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
B)   the quantity supplied and quantity demanded at an above equilibrium price.
C)   the minimum prices producers are willing to accept for a product and the higher equilibrium price.
D)   the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.E) A) and D)
F) A) and B)

Question 10

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings

Accepted Answer

A)   can be resolved by the owners themselves through private bargaining.
B)   has to be resolved by city government officials.
C)   can only be resolved by a zoning ordinance restricting high-rise buildings.
D)   should be resolved by a government fine for the builder of the high-rise.E) A) and D)
F) B) and D)

Question 11

The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of

Accepted Answer

A)   moral hazard.
B)   externalities.
C)   adverse selection.
D)   public goods.E) B) and D)
F) All of the above

Question 12

Production subsidies are a way of internalizing external costs among polluting firms.

Accepted Answer

A) True 
 B)False

Question 13

The minimum acceptable price for a product that producer Sam is willing to receive is $15. The price he could get for the product in the market is $18. How much is Sam's producer surplus?

Accepted Answer

A)   $3
B)   $33
C)   $45
D)   $270E) A) and B)
F) None of the above

Question 14

Which of the following statements about market failure is not true?

Accepted Answer

A)   Market failure causes an inefficient allocation of resources, even in a competitive market.
B)   Market failure can come from causes on the demand side or the supply side of a market.
C)   Market failure always results from some government action or policy in a market.
D)   Market failure can result from the number of sellers in a market being too few to ensure competition.E) A) and B)
F) A) and C)

Question 15

If one person's consumption of a good does not preclude another's consumption, the good is said to be

Accepted Answer

A)   nonrival in consumption.
B)   rival in consumption.
C)   nonexcludable.
D)   excludable.E) All of the above
F) A) and C)

Question 16

The two main characteristics of a public good are

Accepted Answer

A)   production at constant marginal cost and rising demand.
B)   nonexcludability and production at rising marginal cost.
C)   nonrivalry and nonexcludability.
D)   nonrivalry and large negative externalities.E) A) and C)
F) None of the above

Question 17

A public good

Accepted Answer

A)   can be profitably produced by private firms.
B)   is characterized by rivalry and excludability.
C)   produces no positive or negative externalities.
D)   is available to all and cannot be denied to anyone.E) A) and B)
F) None of the above

Question 18

The socially optimal amount of pollution abatement occurs where society's marginal

Accepted Answer

A)   benefit of abatement exceeds its marginal cost of abatement by the greatest amount.
B)   benefit of abatement equals its marginal cost of abatement.
C)   benefit of abatement is zero.
D)   cost of abatement is at its maximum.E) A) and B)
F) All of the above

Question 19

(Last Word)  Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists

Accepted Answer

A)   prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions.
B)   prefer cap-and-trade to a carbon tax for reducing carbon dioxide emissions.
C)   believe that cap-and-trade and a carbon tax are both costly but should be implemented to reduce carbon dioxide emissions.
D)   believe that neither cap-and-trade nor carbon taxes can effectively reduce carbon dioxide emissions.E) B) and C)
F) None of the above

Question 20

Because of the free-rider problem,

Accepted Answer

A)   the market demand for a public good is overstated.
B)   the market demand for a public good is nonexistent or understated.
C)   government has increasingly yielded to the private sector in producing public goods.
D)   public goods often create serious negative externalities.E) A) and C)
F) C) and D)

Exam 4: Market Failures: Public Goods and Externalities

If one person's consumption of a good does not preclude another's consumption, the good is said to be

Correct Answer
verified

Market failure is said to occur whenever

Correct Answer
verified

Production subsidies are a way of internalizing external costs among polluting firms.

Correct Answer
verified

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically

Correct Answer
verified

The socially optimal amount of pollution abatement occurs where society's marginal

Correct Answer
verified

Which of the following statements about market failure is not true?

Correct Answer
verified

The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of

Correct Answer
verified

Because of the free-rider problem,

Correct Answer
verified

Correct Answer
verified

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Correct Answer
verified

(Last Word) Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists

Correct Answer
verified

The two main characteristics of a public good are

Correct Answer
verified

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars. The data indicate that

Correct Answer
verified

Correct Answer
verified

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

Correct Answer
verified

Correct Answer
verified

A public good

Correct Answer
verified

Producer surplus is the difference between

Correct Answer
verified

The minimum acceptable price for a product that producer Sam is willing to receive is $15. The price he could get for the product in the market is $18. How much is Sam's producer surplus?

Correct Answer
verified

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

If one person's consumption of a good does not preclude another's consumption, the good is said to be

Correct AnswerverifiedShow Answer

Market failure is said to occur whenever

Correct AnswerverifiedShow Answer

Production subsidies are a way of internalizing external costs among polluting firms.

Correct AnswerverifiedShow Answer

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically

Correct AnswerverifiedShow Answer

The socially optimal amount of pollution abatement occurs where society's marginal

Correct AnswerverifiedShow Answer

Which of the following statements about market failure is not true?

Correct AnswerverifiedShow Answer

The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of

Correct AnswerverifiedShow Answer

Because of the free-rider problem,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Correct AnswerverifiedShow Answer

(Last Word) Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists

Correct AnswerverifiedShow Answer

The two main characteristics of a public good are

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars. The data indicate that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A public good

Correct AnswerverifiedShow Answer

Producer surplus is the difference between

Correct AnswerverifiedShow Answer

The minimum acceptable price for a product that producer Sam is willing to receive is $15. The price he could get for the product in the market is $18. How much is Sam's producer surplus?

Correct AnswerverifiedShow Answer

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings

Correct AnswerverifiedShow Answer

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