Question 1

A demand-side market failure occurs when demand curves do not reflect consumers' full willingness to pay for a good or service.

Accepted Answer

A) True 
 B)False

Question 2

In which of the following ways does the government of a nation estimate the true demand for a public good?

Accepted Answer

A)  Surveys
B)  Government elections
C)  Voting in parliament
D)  Legislation

Question 3

Positive externalities are likely to cause:

Accepted Answer

A)  underallocation of resources.
B)  overallocation of resources.
C)  a scarcity of goods and services in society.
D)  a surplus of goods and services in society.

Question 4

The marginal benefit to society of reducing pollution declines with increases in pollution moderation because of the law of:

Accepted Answer

A)  increasing costs.
B)  diminishing returns.
C)  diminishing marginal utility.
D)  conservation of matter and energy.

Question 5

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 alone.

Question 6

Answer the question based on the following information.Way-Below 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.The marginal benefits of crime control for Level Two are:

Accepted Answer

A)  $20000
B)  $40000
C)  $60000
D)  $140000

Question 7

There is a positive relationship between equilibrium price and the amount of producer surplus.

Accepted Answer

A) True 
 B)False

Question 8

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 controls

Question 9

Productive efficiency means that the society is producing the combination of the output most desirable by consumers.

Accepted Answer

A) True 
 B)False

Question 10

Market failures

Accepted Answer

A)  fall only on the demand-side.
B)  fall only on the supply-side.
C)  can fall on either the demand-side or the supply-side.
D)  fall on non-competitive markets only.

Question 11

It has been proposed that a government agency be charged with the responsibility for determining the amount of pollution which the atmosphere or a body of water can safely recycle, and sell these limited rights to polluters.What would be the advantage of such a market for pollution rights?

Accepted Answer

A)  Government agencies can make a great deal of money.
B)  Pollution would be eliminated because nobody would want to pay for such a right.
C)  The quality of water or air can be maintained at some acceptable standard through economic incentives.
D)  The social consciousness of people would be raised as they obtain more appreciation for the importance of conservation.

Question 12

Which of these is an example of an external cost?

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 neighbourhood where several houses are burglarized.
D)  the higher price you pay when you buy a heavily advertised product.

Question 13

The graphs below refer to two separate product markets.Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a)  and from S to S2 in diagram (b) .The shift of the supply curve from S to S1 in diagram (a)  might be caused by a per unit: 0 and that government purposely shifts the market supply curve from S to S1 in diagram (a)  and from S to S2 in diagram (b) .The shift of the supply curve from S to S1 in diagram (a)  might be caused by a per unit:   A) subsidy paid to the producers of this product. B) tax on the producers of this product. C) subsidy paid to the buyers of this product. D) tax on the buyers of this product." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  subsidy paid to the producers of this product.
B)  tax on the producers of this product.
C)  subsidy paid to the buyers of this product.
D)  tax on the buyers of this product.

Question 14

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.If the government wishes to establish an optimal allocation of resources in this market, it should: 1 is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.If the government wishes to establish an optimal allocation of resources in this market, it should:   A) not intervene because the market outcome is optimal. B) subsidize consumers so that the market demand curve shifts leftward. C) subsidize producers so that the market supply curve shifts leftward (upward) . D) tax producers so that the market supply curve shifts leftward (upward) ." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  not intervene because the market outcome is optimal.
B)  subsidize consumers so that the market demand curve shifts leftward.
C)  subsidize producers so that the market supply curve shifts leftward (upward) .
D)  tax producers so that the market supply curve shifts leftward (upward) .

Question 15

When the full cost of producing 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 side

Question 16

Quasi-public goods are:

Accepted Answer

A)  government produced goods that can be produced so that exclusion is possible.
B)  government produced goods that can be produced so that exclusion is not possible.
C)  privately produced goods that can be produced so that exclusion is possible.
D)  privately produced goods that can be produced so that exclusion is not possible.

Question 17

The graphs below refer to two separate product markets.Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a)  and from S to S2 in diagram (b) .The shift of the supply curve from S to S2 in diagram (b)  might be caused by a per unit: 0 and that government purposely shifts the market supply curve from S to S1 in diagram (a)  and from S to S2 in diagram (b) .The shift of the supply curve from S to S2 in diagram (b)  might be caused by a per unit:   A) subsidy paid to the producers of this product. B) tax on the producers of this product. C) subsidy paid to the buyers of this product. D) tax on the buyers of this product." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  subsidy paid to the producers of this product.
B)  tax on the producers of this product.
C)  subsidy paid to the buyers of this product.
D)  tax on the buyers of this product.

Question 18

Efficiency loss refers to:

Accepted Answer

A)  the situation where the maximum willingness to pay for a product is less than minimum acceptable price.
B)  the situation where the maximum willingness to pay for a product is equal to the minimum acceptable price.
C)  the difference between consumer and producer surplus.
D)  the sum of consumer and producer surplus.

Question 19

For which one of the following would we need to sum individual demand curves vertically to obtain the total demand curve?

Accepted Answer

A)  frozen yogurt
B)  bubble gum
C)  microwave popcorn
D)  courts of law

Question 20

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.

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

Positive externalities are likely to cause:

Correct Answer
verified

Productive efficiency means that the society is producing the combination of the output most desirable by consumers.

Correct Answer
verified

The marginal benefit to society of reducing pollution declines with increases in pollution moderation because of the law of:

Correct Answer
verified

For which one of the following would we need to sum individual demand curves vertically to obtain the total demand curve?

Correct Answer
verified

Correct Answer
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Quasi-public goods are:

Correct Answer
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Which of these is an example of an external cost?

Correct Answer
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Market failures

Correct Answer
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There is a positive relationship between equilibrium price and the amount of producer surplus.

Correct Answer
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Correct Answer
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When the full cost of producing a good or service is not reflected in the resultant curve this is referred to as what type of failure?

Correct Answer
verified

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

Correct Answer
verified

Efficiency loss refers to:

Correct Answer
verified

In which of the following ways does the government of a nation estimate the true demand for a public good?

Correct Answer
verified

It has been proposed that a government agency be charged with the responsibility for determining the amount of pollution which the atmosphere or a body of water can safely recycle, and sell these limited rights to polluters.What would be the advantage of such a market for pollution rights?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

A demand-side market failure occurs when demand curves do not reflect consumers' full willingness to pay for a good or service.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Positive externalities are likely to cause:

Correct AnswerverifiedShow Answer

Productive efficiency means that the society is producing the combination of the output most desirable by consumers.

Correct AnswerverifiedShow Answer

The marginal benefit to society of reducing pollution declines with increases in pollution moderation because of the law of:

Correct AnswerverifiedShow Answer

For which one of the following would we need to sum individual demand curves vertically to obtain the total demand curve?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Quasi-public goods are:

Correct AnswerverifiedShow Answer

Which of these is an example of an external cost?

Correct AnswerverifiedShow Answer

Market failures

Correct AnswerverifiedShow Answer

There is a positive relationship between equilibrium price and the amount of producer surplus.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Efficiency loss refers to:

Correct AnswerverifiedShow Answer

In which of the following ways does the government of a nation estimate the true demand for a public good?

Correct AnswerverifiedShow Answer

It has been proposed that a government agency be charged with the responsibility for determining the amount of pollution which the atmosphere or a body of water can safely recycle, and sell these limited rights to polluters.What would be the advantage of such a market for pollution rights?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A demand-side market failure occurs when demand curves do not reflect consumers' full willingness to pay for a good or service.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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