Question 1

When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is an example of market failure?

Accepted Answer

A)  negative externalities
B)  positive externalities
C)  public goods
D)  all of these

Question 3

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Accepted Answer

A) True 
 B)False

Question 4

The government receives all of the benefits associated with the production of a public good.

Accepted Answer

A) True 
 B)False

Question 5

Non excludability describes a condition where

Accepted Answer

A)  one person's consumption of a good does not prevent consumption of the good by others.
B)  there is no effective way to keep people from using a good once it comes into being.
C)  sellers can withhold the benefits of a good from those unwilling to pay for it.
D)  there is no potential for free-riding behavior.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Accepted Answer

A) True 
 B)False

Question 8

Consumer surplus arises in a market because

Accepted Answer

A)  the quantity supplied is greater than quantity demanded at the current market price.
B)  the quantity demanded is greater than quantity supplied at the current market price.
C)  the market price is below what some consumers are willing to pay for the product.
D)  the market price is higher than what some consumers are willing to pay for the product.

Question 9

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because

Accepted Answer

A)  too few resources will be allocated toward producing the good.
B)  firms will shut down until costs are reduced.
C)  costs of production will, on average, be too high.
D)  too many resources will be allocated toward producing the good.

Question 10

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display.Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

Accepted Answer

A)  the display creates negative externalities.
B)  government should tax the producers of holiday lighting.
C)  resources are currently overallocated to the provision of holiday lighting in Anytown.
D)  resources are currently underallocated to the provision of holiday lighting in Anytown.

Question 12

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero.This is because completely eliminating the externality would involve

Accepted Answer

A)  a much greater marginal benefit than marginal cost.
B)  a much greater marginal cost than marginal benefit.
C)  having shortages in the market.
D)  having surpluses in the market.

Question 13

(Consider This)  According to the Coase theorem,

Accepted Answer

A)  government should levy excise taxes on firms that generate spillover or external costs.
B)  taxes should be levied such that they change private behavior as little as possible.
C)  private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.
D)  private firms should not provide public goods.

Question 14

Deadweight losses occur when the quantity of an output produced is

Accepted Answer

A)  less than, but not when it is greater than, the competitive equilibrium quantity.
B)  greater than, but not when it is less than, the competitive equilibrium quantity.
C)  less than or greater than the competitive equilibrium quantity.
D)  such that the marginal benefit of the output is just equal to the marginal cost.

Question 15

Buyers will opt out of markets in which

Accepted Answer

A)  there are significant negative externalities.
B)  standardized products are being produced.
C)  there is inadequate information about sellers and their products.
D)  there are only foreign sellers.

Exam 4: Market Failures: Public Goods and Externalities

(Consider This) According to the Coase theorem,

Correct Answer
verified

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Correct Answer
verified

Buyers will opt out of markets in which

Correct Answer
verified

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

Correct Answer
verified

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero.This is because completely eliminating the externality would involve

Correct Answer
verified

When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

Correct Answer
verified

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Correct Answer
verified

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Correct Answer
verified

Non excludability describes a condition where

Correct Answer
verified

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because

Correct Answer
verified

Consumer surplus arises in a market because

Correct Answer
verified

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display.Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

Correct Answer
verified

The government receives all of the benefits associated with the production of a public good.

Correct Answer
verified

Which of the following is an example of market failure?

Correct Answer
verified

Deadweight losses occur when the quantity of an output produced is

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

(Consider This) According to the Coase theorem,

Correct AnswerverifiedShow Answer

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Correct AnswerverifiedShow Answer

Buyers will opt out of markets in which

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero.This is because completely eliminating the externality would involve

Correct AnswerverifiedShow Answer

When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

Correct AnswerverifiedShow Answer

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Correct AnswerverifiedShow Answer

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Correct AnswerverifiedShow Answer

Non excludability describes a condition where

Correct AnswerverifiedShow Answer

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because

Correct AnswerverifiedShow Answer

Consumer surplus arises in a market because

Correct AnswerverifiedShow Answer

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display.Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

Correct AnswerverifiedShow Answer

The government receives all of the benefits associated with the production of a public good.

Correct AnswerverifiedShow Answer

Which of the following is an example of market failure?

Correct AnswerverifiedShow Answer

Deadweight losses occur when the quantity of an output produced is

Correct AnswerverifiedShow Answer

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