Question 1

The Coase Theorem states that:

Accepted Answer

A)  government should levy excise taxes on firms which generate spillover or external costs.
B)  taxes should be levied such that they change private behavior as little as possible.
C)  under the right conditions, bargaining between private parties will remedy externality problems without the need for government intervention.
D)  trading of votes to secure favorable voting outcomes may increase efficiency.E) A) and B)
F) All of the above

Question 2

The major difficulty in asking people to pay voluntarily what a government program is worth to them is:

Accepted Answer

A)  the free-rider problem.
B)  people have poor judgment.
C)  the fact that people don't know what programs they want.
D)  we would increase government expenditures too much.E) None of the above
F) B) and C)

Question 3

Why does pollution continue to be an issue?

Accepted Answer

A)  The marginal benefits stop before all pollution is abated.
B)  Diminishing marginal utility.
C)  Increasing marginal benefit.
D)  Diminishing marginal costs.E) B) and D)
F) A) and B)

Question 4

Government must provide economically desirable public goods because:

Accepted Answer

A)  private production of these goods would entail unacceptably high levels of external costs.
B)  the availability of such goods yields no benefits to individual consumers.
C)  the benefits yielded by such goods cannot be withheld from those who refuse to pay for them.
D)  their provision is necessary if we are to reduce unemployment and inflation.E) C) and D)
F) All of the above

Question 5

Which method for correcting externalities is common to both negative and positive externalities?

Accepted Answer

A)  Private bargaining
B)  Lawsuits
C)  Government provision
D)  Direct controlsE) A) and D)
F) C) and D)

Question 6

The creation of markets for pollution rights would provide:

Accepted Answer

A)  neither an incentive not to pollute nor revenue for environmental improvement.
B)  funds for environmental improvement, but would not provide an incentive to refrain from polluting.
C)  an incentive not to pollute, but would not provide funds for environmental improvement.
D)  both an incentive not to pollute and revenue which could be devoted to environmental improvement.E) All of the above
F) A) and D)

Question 7

Refer to the diagram.The area of consumer surplus would be represented by triangular area:

Accepted Answer

A)  a.
B)  b.
C)  c.
D)  d.E) A) and B)
F) A) and C)

Question 8

Refer to the graph given below. 1. D) There will be an underallocation of resources at output level Q3." class="answers-bank-image d-inline" rel="preload" > The graph above shows the supply of and the demand for a public good.Which of the following statements is correct?

Accepted Answer

A)  The supply curve reflects the marginal cost of producing each unit of the good, and the demand curve reflects the marginal benefit of consuming each unit of the good.
B)  The demand curve reflects the marginal cost of producing each unit of the good, and the supply curve reflects the marginal benefit of consuming each unit of the good.
C)  There will be an overallocation of resources at output level Q1.
D)  There will be an underallocation of resources at output level Q3.E) A) and D)
F) B) and D)

Question 9

If there are external benefits or positive externalities associated with the consumption of a good or service:

Accepted Answer

A)  the private demand curve will overestimate the true demand curve.
B)  the private demand curve will underestimate the true demand curve.
C)  consumers will be willing to pay for all these benefits in private markets.
D)  the market demand curve will be the vertical summation of the individual demand costs.E) None of the above
F) B) and C)

Question 10

Which of the following is a private good?

Accepted Answer

A)  a ballpoint pen
B)  national defence
C)  a highway
D)  a lighthouseE) C) and D)
F) B) and C)

Question 11

The term "allocative efficiency" refers to:

Accepted Answer

A)  the production of the product-mix most desired by society.
B)  the allocation of resources to the production of a particular product.
C)  the production of the product-mix most desired by producers.
D)  the production of a good at the lowest average total cost.E) None of the above
F) A) and C)

Question 12

Negative externalities are likely to cause:

Accepted Answer

A)  underproduction of goods.
B)  overallocation of resources.
C)  an increase in social welfare.
D)  demand-side market failures.E) A) and B)
F) A) and C)

Question 13

The following data are for a series of increasingly extensive flood control projects: For Plan D marginal costs and marginal benefits are:

Accepted Answer

A)  $72,000 and $64,000 respectively.
B)  $28,000 and $12,000 respectively.
C)  $24,000 and $18,000 respectively.
D)  $16,000 and $28,000 respectively.E) A) and B)
F) A) and C)

Question 14

The production of economically desirable public goods must be sponsored by government because:

Accepted Answer

A)  the existence of large external costs precludes their production in the private sector.
B)  public goods have characteristics which make it difficult or impossible for private firms to produce them profitably.
C)  the benefits derived from their production exceed the costs of producing them.
D)  the law of increasing marginal opportunity costs does not apply to public goods.E) A) and B)
F) A) and C)

Question 15

Which of the following is a characteristic of a private good:

Accepted Answer

A)  free-rider problem
B)  external benefits
C)  external costs
D)  excludabilityE) A) and C)
F) A) and B)

Question 16

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

Accepted Answer

A)  providing a subsidy to correct for an over-allocation of resources.
B)  providing a subsidy to correct for an under-allocation of resources.
C)  imposing a corrective tax to correct for an over-allocation of resources.
D)  imposing a corrective tax to correct for an under-allocation of resources.E) B) and C)
F) None of the above

Question 17

Consumer surplus and producer surplus can:

Accepted Answer

A)  occur simultaneously.
B)  are independent.
C)  If there is a consumer surplus, there will be no producer surplus.
D)  If there is a producer surplus, there will be no consumer surplus.E) C) and D)
F) A) and C)

Question 18

Which one of the following might shift the marginal benefit curve from MB1 to MB2? 1 to MB2?   A) major new studies strongly linking cancer to pollution B) improved technology for reducing pollution C) a change in consumer tastes from manufacturing goods to services D) a decrease in the price of recycled goods" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  major new studies strongly linking cancer to pollution
B)  improved technology for reducing pollution
C)  a change in consumer tastes from manufacturing goods to services
D)  a decrease in the price of recycled goodsE) A) and B)
F) A) and C)

Question 19

Refer to the diagram.The area of producer surplus would be represented by triangular area:

Accepted Answer

A)  a.
B)  b.
C)  c.
D)  d.E) A) and B)
F) A) and C)

Question 20

When the full willingness to pay for a good or service is not reflected in the resultant curve this is referred to as what type of failure?

Accepted Answer

A)  Supply side
B)  Demand side
C)  Market side
D)  Demand-supply sideE) All of the above
F) C) and D)

Exam 4: B: Market Failures: Public Goods and Externalities

Refer to the graph given below. The graph above shows the supply of and the demand for a public good.Which of the following statements is correct?

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The creation of markets for pollution rights would provide:

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The production of economically desirable public goods must be sponsored by government because:

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Which method for correcting externalities is common to both negative and positive externalities?

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Negative externalities are likely to cause:

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Refer to the diagram.The area of consumer surplus would be represented by triangular area:

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Consumer surplus and producer surplus can:

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If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

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The following data are for a series of increasingly extensive flood control projects: For Plan D marginal costs and marginal benefits are:

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The Coase Theorem states that:

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Refer to the diagram.The area of producer surplus would be represented by triangular area:

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Which of the following is a characteristic of a private good:

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The term "allocative efficiency" refers to:

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Which one of the following might shift the marginal benefit curve from MB1 to MB2?

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If there are external benefits or positive externalities associated with the consumption of a good or service:

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Which of the following is a private good?

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The major difficulty in asking people to pay voluntarily what a government program is worth to them is:

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Government must provide economically desirable public goods because:

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When the full willingness to pay for a good or service is not reflected in the resultant curve this is referred to as what type of failure?

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Why does pollution continue to be an issue?

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Which one of the following might shift the marginal benefit curve from MB₁ to MB₂?

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