Question 1

Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers?

Accepted Answer

A)   Providing unemployment compensation insurance
B)   Sponsoring legislation to reduce pollution
C)   Licensing of medical doctors and surgeons
D)   Requiring all car drivers to buy auto insuranceE) B) and C)
F) A) and B)

Question 2

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

Accepted Answer

A) True 
 B)False

Question 3

If a good that generates negative externalities were priced to take these negative externalities into account, then its:

Accepted Answer

A)   Price would decrease and its output would increase
B)   Output would increase but its price would remain constant
C)   Price would increase and its output would decrease
D)   Price would increase but its output would remain constantE) None of the above
F) All of the above

Question 4

Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed, the supply of "pollution rights" in a cap-and-trade system will be perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 5

1 is the optimal supply from the society's perspective. One solution to this externality problem is to: A)  Give consumers a subsidy of the amount FG per unit B)  Give producers a subsidy of the amount AB per unit C)  Tax producers by the amount DE per unit D)  Tax consumers by the amount EF per unit" class="answers-bank-image d-inline" rel="preload" > Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. One solution to this externality problem is to:

Accepted Answer

A)   Give consumers a subsidy of the amount FG per unit
B)   Give producers a subsidy of the amount AB per unit
C)   Tax producers by the amount DE per unit
D)   Tax consumers by the amount EF per unitE) A) and B)
F) C) and D)

Question 6

2, then there will be: A)  Allocative efficiency B)  Maximum deadweight losses C)  Maximum consumer surplus D)  Greater marginal benefits than marginal costs of the product" class="answers-bank-image d-inline" rel="preload" > Refer to the above graph. If the output level is Q2, then there will be:

Accepted Answer

A)   Allocative efficiency
B)   Maximum deadweight losses
C)   Maximum consumer surplus
D)   Greater marginal benefits than marginal costs of the productE) All of the above
F) C) and D)

Question 7

For the music industry, the rise of Internet file-sharing of music has:

Accepted Answer

A)   Worsened the free-rider problem
B)   Diminished or alleviated the free-rider problem
C)   Reduced the options for musicians to have their music heard
D)   Eliminated the problem of digital piracyE) B) and C)
F) A) and B)

Question 8

Refer to the above table. If the equilibrium price increases, then the:

Accepted Answer

A)   Producer surplus will decrease
B)   Consumer surplus will increase
C)   Producer surplus will increase
D)   Allocative efficiency will increaseE) A) and B)
F) A) and C)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Refer to the above supply and demand graph for a public good. Point c on the graph shows where the:

Accepted Answer

A)   Total benefit equals the total cost of the public good
B)   Marginal benefit equals the marginal cost of the public good
C)   Average benefit equals the average cost of the public good
D)   Total benefit of the public good is at the maximumE) C) and D)
F) B) and D)

Question 11

1, then there are efficiency losses indicated by the area: A)  0abe B)  bce C)  0eQ1 D)  ecf" class="answers-bank-image d-inline" rel="preload" > Refer to the above graph. If the output level is Q1, then there are efficiency losses indicated by the area:

Accepted Answer

A)   0abe
B)   bce
C)   0eQ1
D)   ecfE) B) and C)
F) All of the above

Question 12

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

Accepted Answer

A)   Taxed
B)   Prohibited
C)   Subsidized
D)   Left aloneE) A) and C)
F) A) and B)

Question 13

Market failures refer to those situations where the sellers are not producing as much as the buyers are wanting to buy.

Accepted Answer

A) True 
 B)False

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 competitionE) None of the above
F) A) and B)

Question 15

Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?

Accepted Answer

A)   Supply would increase
B)   Demand would decrease
C)   Supply would decrease
D)   Price would increaseE) A) and C)
F) B) and C)

Exam 4: Market Failures: Public Goods and Externalities

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

Correct Answer
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Refer to the above graph. If the output level is Q₂, then there will be:

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

Correct Answer
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Refer to the above table. If the equilibrium price increases, then the:

Correct Answer
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Which of the following statements about market failure is not true:

Correct Answer
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Refer to the above supply and demand graph for a public good. Point c on the graph shows where the:

Correct Answer
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Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

Correct Answer
verified

Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed, the supply of "pollution rights" in a cap-and-trade system will be perfectly elastic.

Correct Answer
verified

If a good that generates negative externalities were priced to take these negative externalities into account, then its:

Correct Answer
verified

For the music industry, the rise of Internet file-sharing of music has:

Correct Answer
verified

Refer to the above graph. If the output level is Q₁, then there are efficiency losses indicated by the area:

Correct Answer
verified

Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers?

Correct Answer
verified

Market failures refer to those situations where the sellers are not producing as much as the buyers are wanting to buy.

Correct Answer
verified

Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?

Correct Answer
verified

Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S₁ is the optimal supply from the society's perspective. One solution to this externality problem is to:

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

Correct AnswerverifiedShow Answer

Refer to the above graph. If the output level is Q2, then there will be:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the above table. If the equilibrium price increases, then the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the above supply and demand graph for a public good. Point c on the graph shows where the:

Correct AnswerverifiedShow Answer

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

Correct AnswerverifiedShow Answer

Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed, the supply of "pollution rights" in a cap-and-trade system will be perfectly elastic.

Correct AnswerverifiedShow Answer

If a good that generates negative externalities were priced to take these negative externalities into account, then its:

Correct AnswerverifiedShow Answer

For the music industry, the rise of Internet file-sharing of music has:

Correct AnswerverifiedShow Answer

Refer to the above graph. If the output level is Q1, then there are efficiency losses indicated by the area:

Correct AnswerverifiedShow Answer

Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers?

Correct AnswerverifiedShow Answer

Market failures refer to those situations where the sellers are not producing as much as the buyers are wanting to buy.

Correct AnswerverifiedShow Answer

Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?

Correct AnswerverifiedShow Answer

Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. One solution to this externality problem is to:

Correct AnswerverifiedShow Answer

Correct Answer
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Refer to the above graph. If the output level is Q₂, then there will be:

Correct Answer
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Refer to the above graph. If the output level is Q₁, then there are efficiency losses indicated by the area:

Correct Answer
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Correct Answer
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Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S₁ is the optimal supply from the society's perspective. One solution to this externality problem is to:

Correct Answer
verified