Question 1

Private firms cannot profitably produce a public good because of:

Accepted Answer

A)   liability rules and lawsuits.
B)   inflation and unemployment.
C)   nonrivalry and nonexcludability.
D)   positive and negative externalities.

Question 2

A producer's minimum acceptable price for a particular unit of a good:

Accepted Answer

A)   is the same for all units of the good.
B)   will,for most units produced,equal the maximum that consumers are willing to pay for the good.
C)   equals the marginal cost of producing that particular unit.
D)   must cover the wages,rent,and interest payments necessary to produce the good,but need not include profit.

Question 3

Refer to the above supply and demand graph for a public good.Which line segment indicates the amount by which the marginal benefit of this public good is greater than the marginal cost?

Accepted Answer

A)   de
B)   da
C)   ef
D)   ab

Question 4

Refer to the above diagram illustrating a market for pollution rights in which government has fixed the supply of rights at 1,000 tons.If there were no market for pollution rights in this case,the volume of pollutants discharged would be:

Accepted Answer

A)   zero.
B)   1,000 tons.
C)   1,500 tons.
D)   2,000 tons.

Question 5

Amanda buys a ruby for $330 for which she was willing to pay $340.The minimum acceptable price to the seller,Tony,was $140.Amanda experiences a:

Accepted Answer

A)   consumer surplus of $10 and Tony experiences a producer surplus of $190.
B)   producer surplus of $200 and Tony experiences a consumer surplus of $10.
C)   consumer surplus of $670 and Tony experiences a producer surplus of $200.
D)   producer surplus of $10 and Tony experiences a consumer surplus of $190.

Question 6

Refer to the above diagram.The area that identifies the maximum sum of consumer surplus and producer surplus is:

Accepted Answer

A)   a + b + c + d + e + f.
B)   c + d + f.
C)   a + b + e.
D)   a + b + c + d.

Question 7

Private goods are characterized by:

Accepted Answer

A)   rivalry and excludability.
B)   rivalry and nonexcludability.
C)   nonrivalry and excludability.
D)   nonrivalry and nonexcludability.

Question 8

When producing a good generates negative externalities,the private market for that good tends to produce too:

Accepted Answer

A)   much of the product at too low a price.
B)   much of the product at too high a price.
C)   little of the product at too low a price.
D)   little of the product at too high a price.

Question 9

If the demand curve reflects consumers' full willingness to pay,and the supply curve reflects all costs of production,then which of the following is true?

Accepted Answer

A)   The benefit surpluses shared between consumers and producers will be maximized.
B)   The benefit surpluses received by consumers and producers will be equal.
C)   There will be no consumer or producer surplus.
D)   Consumer surplus will be maximized,and producer surplus will be minimized.

Question 10

Excludability means that buyers who are willing and able to pay the market price for the product do not obtain its benefits,but those unable or unwilling to pay that price do obtain the benefits.

Accepted Answer

A) True 
 B)False

Question 11

One condition for individual bargaining to occur,according to the Coase theorem,is that there must be:

Accepted Answer

A)   clearly defined property rights.
B)   many people affected and involved.
C)   government intervention to establish bargaining.
D)   government creation of a market for externalities.

Question 12

Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects.The marginal cost and the marginal benefit of each of the four projects is provided in the table.  Refer to the above table and information.What project should the government select to achieve the maximum net benefit?

Accepted Answer

A)   A
B)   B
C)   C
D)   D

Question 13

Which is an example of a negative externality?

Accepted Answer

A)   An increase in the value of land you own when a nearby development is completed
B)   The costs paid by a company to build an automated factory
C)   Decreased property values in a neighborhood where several houses are burglarized
D)   The higher price you pay when you buy a heavily advertised product

Question 14

Allocative efficiency occurs only at that output where:

Accepted Answer

A)   marginal benefit exceeds marginal cost by the greatest amount.
B)   consumer surplus exceeds producer surplus by the greatest amount.
C)   the combined amounts of consumer surplus and producer surplus are maximized.
D)   the areas of consumer and producer surplus are equal.

Question 15

Waybelow Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism.The university is now considering several alternative levels of crime control.This table shows the expected annual costs and benefits of these alternatives.  Refer to the above information.If Waybelow undertakes Level Three:

Accepted Answer

A)   total benefits will be less than total costs.
B)   marginal costs will exceed marginal benefits.
C)   there would be an underallocation of resources to crime control.
D)   there would be an overallocation of resources to crime control.

Question 16

Assume that there is no way to prevent someone from using an interstate highway,regardless of whether or not she helps pay for it.This characteristic is associated with:

Accepted Answer

A)   rival goods.
B)   complementary goods.
C)   public goods.
D)   capital goods. C

Question 17

An efficiency loss (or deadweight loss) :

Accepted Answer

A)   is measured as the combined loss of consumer surplus and producer surplus.
B)   results from producing a unit of output for which the maximum willingness to pay exceeds the minimum acceptable price.
C)   can result from underproduction,but not from overproduction.
D)   can result from overproduction,but not from underproduction.

Question 18

1 by which the: A)  marginal benefit of this public good is less than the marginal cost. B)  total benefit of this public good is less than the total cost. C)  marginal benefit of this public good is greater than the marginal cost. D)  total benefit of this public good is greater than the total cost." class="answers-bank-image d-inline" rel="preload" > Refer to the above supply and demand graph for a public good.Line segment ad represents the amount at Q1 by which the:

Accepted Answer

A)   marginal benefit of this public good is less than the marginal cost.
B)   total benefit of this public good is less than the total cost.
C)   marginal benefit of this public good is greater than the marginal cost.
D)   total benefit of this public good is greater than the total cost. C

Question 19

Graphically,producer surplus is measured as the area:

Accepted Answer

A)   above the demand curve and below the actual price.
B)   under the demand curve and above the actual price.
C)   above the supply curve and above the actual price.
D)   above the supply curve and below the actual price. D

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 5: Market Failures: Public Goods and Externalities

Private firms cannot profitably produce a public good because of:

Correct Answer
verified

A producer's minimum acceptable price for a particular unit of a good:

Correct Answer
verified

Refer to the above supply and demand graph for a public good.Which line segment indicates the amount by which the marginal benefit of this public good is greater than the marginal cost?

Correct Answer
verified

Refer to the above diagram illustrating a market for pollution rights in which government has fixed the supply of rights at 1,000 tons.If there were no market for pollution rights in this case,the volume of pollutants discharged would be:

Correct Answer
verified

Amanda buys a ruby for $330 for which she was willing to pay $340.The minimum acceptable price to the seller,Tony,was $140.Amanda experiences a:

Correct Answer
verified

Refer to the above diagram.The area that identifies the maximum sum of consumer surplus and producer surplus is:

Correct Answer
verified

Private goods are characterized by:

Correct Answer
verified

When producing a good generates negative externalities,the private market for that good tends to produce too:

Correct Answer
verified

If the demand curve reflects consumers' full willingness to pay,and the supply curve reflects all costs of production,then which of the following is true?

Correct Answer
verified

Excludability means that buyers who are willing and able to pay the market price for the product do not obtain its benefits,but those unable or unwilling to pay that price do obtain the benefits.

Correct Answer
verified

One condition for individual bargaining to occur,according to the Coase theorem,is that there must be:

Correct Answer
verified

Correct Answer
verified

Which is an example of a negative externality?

Correct Answer
verified

Allocative efficiency occurs only at that output where:

Correct Answer
verified

Correct Answer
verified

Assume that there is no way to prevent someone from using an interstate highway,regardless of whether or not she helps pay for it.This characteristic is associated with:

Correct Answer
verified
C

An efficiency loss (or deadweight loss) :

Correct Answer
verified

Refer to the above supply and demand graph for a public good.Line segment ad represents the amount at Q₁ by which the:

Correct Answer
verified
C

Graphically,producer surplus is measured as the area:

Correct Answer
verified
D

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

Correct Answer
verified

Exam 5: Market Failures: Public Goods and Externalities

Private firms cannot profitably produce a public good because of:

Correct AnswerverifiedShow Answer

A producer's minimum acceptable price for a particular unit of a good:

Correct AnswerverifiedShow Answer

Refer to the above supply and demand graph for a public good.Which line segment indicates the amount by which the marginal benefit of this public good is greater than the marginal cost?

Correct AnswerverifiedShow Answer

Refer to the above diagram illustrating a market for pollution rights in which government has fixed the supply of rights at 1,000 tons.If there were no market for pollution rights in this case,the volume of pollutants discharged would be:

Correct AnswerverifiedShow Answer

Amanda buys a ruby for $330 for which she was willing to pay $340.The minimum acceptable price to the seller,Tony,was $140.Amanda experiences a:

Correct AnswerverifiedShow Answer

Refer to the above diagram.The area that identifies the maximum sum of consumer surplus and producer surplus is:

Correct AnswerverifiedShow Answer

Private goods are characterized by:

Correct AnswerverifiedShow Answer

When producing a good generates negative externalities,the private market for that good tends to produce too:

Correct AnswerverifiedShow Answer

If the demand curve reflects consumers' full willingness to pay,and the supply curve reflects all costs of production,then which of the following is true?

Correct AnswerverifiedShow Answer

Excludability means that buyers who are willing and able to pay the market price for the product do not obtain its benefits,but those unable or unwilling to pay that price do obtain the benefits.

Correct AnswerverifiedShow Answer

One condition for individual bargaining to occur,according to the Coase theorem,is that there must be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which is an example of a negative externality?

Correct AnswerverifiedShow Answer

Allocative efficiency occurs only at that output where:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that there is no way to prevent someone from using an interstate highway,regardless of whether or not she helps pay for it.This characteristic is associated with:

Correct AnswerverifiedC

An efficiency loss (or deadweight loss) :

Correct AnswerverifiedShow Answer

Refer to the above supply and demand graph for a public good.Line segment ad represents the amount at Q1 by which the:

Correct AnswerverifiedC

Graphically,producer surplus is measured as the area:

Correct AnswerverifiedD

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

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Refer to the above supply and demand graph for a public good.Line segment ad represents the amount at Q₁ by which the:

Correct Answer
verified
C

Correct Answer
verified
D

Correct Answer
verified