Question 1

Refer to the diagram. If actual production and consumption occur at Q3,

Accepted Answer

A)   eﬃciency is achieved.
B)   an eﬃciency loss (or deadweight loss)  of e + f occurs.
C)   an eﬃciency loss (or deadweight loss)  of a + b + c + d occurs.
D)   an eﬃciency loss (or deadweight loss)  of a + c occurs.E) All of the above
F) B) and D)

Question 2

The market supply curve indicates the

Accepted Answer

A)   minimum acceptable prices that sellers are willing to accept for the product.
B)   maximum prices that buyers are willing and able to pay for the product.
C)   total revenues that sellers would receive from selling various quantities of the product.
D)   total amount that buyers will pay in buying a given quantity of the product.E) None of the above
F) A) and B)

Question 3

List four ways to correct positive externalities.

Accepted Answer

The four ways listed in the te...

Question 4

Society's optimal amount of pollution abatement is where society's marginal beneﬁt of abatement is
zero.

Accepted Answer

A) True 
 B)False

Question 5

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the

Accepted Answer

A)   principal-agent problem.
B)   adverse selection problem.
C)   moral hazard problem.
D)   free-rider problem.E) A) and D)
F) A) and C)

Question 6

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.E) A) and C)
F) B) and C)

Question 7

Suppose a ﬁrm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe beneﬁt money toward speciﬁc insurance. Mary, who has ﬁve kids needing braces, selects
The family dental coverage. This is an example of the

Accepted Answer

A)   free-rider problem.
B)   principal-agent problem.
C)   adverse selection problem.
D)   moral hazard problem.E) A) and D)
F) B) and D)

Question 8

Producer  Minimum  Acceptable Price  Actual Price  (Equilibrium Price)  A$6$13B713C913D1113\begin{array} { | c | c | c | } \hline 	ext { Producer } & \begin{array} { c } 	ext { Minimum } \	ext { Acceptable Price }\end{array} & \begin{array} { c } 	ext { Actual Price } \	ext { (Equilibrium Price)  }\end{array} \\hline A & \$ 6 & \$ 13 \\hline B & 7 & 13 \\hline C & 9 & 13 \\hline D & 11 & 13 \\hline\end{array} Producer ABCD​ Minimum  Acceptable Price ​$67911​ Actual Price  (Equilibrium Price)  ​$13131313​​  Refer to the provided 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 e?ciency will increase. E) A) and B)
F) B) and C)

Question 9

In the insurance business, the moral hazard problem arises when

Accepted Answer

A)   not-so-healthy people are the ones more eager to buy insurance.
B)   people with unhealthy lifestyles buy more insurance coverage.
C)   people who have car-insurance coverage drive less carefully.
D)   people do not get suﬃcient car-insurance coverage.E) A) and D)
F) A) and B)

Question 10

When the total consumer and producer surplus is at a maximum, the deadweight loss in the market
is zero.

Accepted Answer

A) True 
 B)False

Question 11

A moral hazard problem occurs before a transaction-when people alter their behavior before they
sign a contract, imposing costs on the other party.

Accepted Answer

A) True 
 B)False

Question 12

If the lumber companies are required to internalize the negative externalities of deforestation, then
we should expect the equilibrium price of wooden furniture to decrease.

Accepted Answer

A) True 
 B)False

Question 13

(Consider This) Discuss how congestion pricing works to eliminate crowded roadways.

Accepted Answer

When traﬃc is moderate or heavy, drivers...

Question 14

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

Accepted Answer

A)   under 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.E) A) and D)
F) All of the above

Question 15

In a well-functioning cap-and-trade system for pollution rights, society beneﬁts because pollution
will be brought down to insigniﬁcant levels.

Accepted Answer

A) True 
 B)False

Question 16

In terms of consumer and producer surplus, when is economic eﬃciency achieved?

Accepted Answer

Economic eﬃciency is achieved when consu...

Question 17

(Consider This)  Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel ﬁnds the music annoying. A Coase theorem
Solution for this problem would be for

Accepted Answer

A)   Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
B)   the director of housing to impose a ﬁne on Darcy whenever she plays her music too loud.
C)   the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume.
D)   the college to ban the playing of music in dorms.E) A) and D)
F) B) and C)

Question 18

As it applies to insurance, the moral hazard problem is the tendency for

Accepted Answer

A)   those most likely to collect on insurance to buy it.
B)   those who buy insurance to take less precaution in avoiding the insured risk.
C)   sellers to price discriminate.
D)   sellers to restrict output and charge high prices.E) C) and D)
F) A) and B)

Question 19

Antipollution policies can be severe in their design and implementation, resulting in

Accepted Answer

A)   the social costs of pollution reduction becoming greater than the beneﬁts.
B)   the social beneﬁts of pollution reduction becoming zero.
C)   too few resources being devoted toward reducing pollution.
D)   the social costs of pollution reduction becoming less than the beneﬁts.E) All of the above
F) B) and C)

Question 20

Suppose an insurance company decided to offer divorce insurance. Based on the concept of moral hazard, economists would expect

Accepted Answer

A)   all married couples to purchase divorce insurance.
B)   no married couples to purchase divorce insurance.
C)   mostly the couples with marital problems to purchase divorce insurance.
D)   the divorce rate to decrease.E) B) and C)
F) All of the above

Exam 4: Market Failures Caused by Externalities Asymmetric Information

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

A moral hazard problem occurs before a transaction-when people alter their behavior before they sign a contract, imposing costs on the other party.

Correct Answer
verified

Suppose an insurance company decided to offer divorce insurance. Based on the concept of moral hazard, economists would expect

Correct Answer
verified

In terms of consumer and producer surplus, when is economic eﬃciency achieved?

Correct Answer
verified
Economic eﬃciency is achieved when consu...
View Answer

Correct Answer
verified

Society's optimal amount of pollution abatement is where society's marginal beneﬁt of abatement is zero.

Correct Answer
verified

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel ﬁnds the music annoying. A Coase theorem Solution for this problem would be for

Correct Answer
verified

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

Correct Answer
verified

In a well-functioning cap-and-trade system for pollution rights, society beneﬁts because pollution will be brought down to insigniﬁcant levels.

Correct Answer
verified

The market supply curve indicates the

Correct Answer
verified

List four ways to correct positive externalities.

Correct Answer
verified
The four ways listed in the te...
View Answer

When the total consumer and producer surplus is at a maximum, the deadweight loss in the market is zero.

Correct Answer
verified

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the

Correct Answer
verified

(Consider This) Discuss how congestion pricing works to eliminate crowded roadways.

Correct Answer
verified
When traﬃc is moderate or heavy, drivers...
View Answer

Antipollution policies can be severe in their design and implementation, resulting in

Correct Answer
verified

In the insurance business, the moral hazard problem arises when

Correct Answer
verified

Refer to the diagram. If actual production and consumption occur at Q3,

Correct Answer
verified

As it applies to insurance, the moral hazard problem is the tendency for

Correct Answer
verified

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

Correct Answer
verified

Suppose a ﬁrm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe beneﬁt money toward speciﬁc insurance. Mary, who has ﬁve kids needing braces, selects The family dental coverage. This is an example of the

Correct Answer
verified

Exam 4: Market Failures Caused by Externalities Asymmetric Information

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

A moral hazard problem occurs before a transaction-when people alter their behavior before they sign a contract, imposing costs on the other party.

Correct AnswerverifiedShow Answer

Suppose an insurance company decided to offer divorce insurance. Based on the concept of moral hazard, economists would expect

Correct AnswerverifiedShow Answer

In terms of consumer and producer surplus, when is economic eﬃciency achieved?

Correct AnswerverifiedEconomic eﬃciency is achieved when consu...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Society's optimal amount of pollution abatement is where society's marginal beneﬁt of abatement is zero.

Correct AnswerverifiedShow Answer

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel ﬁnds the music annoying. A Coase theorem Solution for this problem would be for

Correct AnswerverifiedShow Answer

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

Correct AnswerverifiedShow Answer

In a well-functioning cap-and-trade system for pollution rights, society beneﬁts because pollution will be brought down to insigniﬁcant levels.

Correct AnswerverifiedShow Answer

The market supply curve indicates the

Correct AnswerverifiedShow Answer

List four ways to correct positive externalities.

Correct AnswerverifiedThe four ways listed in the te...View AnswerShow Answer

When the total consumer and producer surplus is at a maximum, the deadweight loss in the market is zero.

Correct AnswerverifiedShow Answer

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the

Correct AnswerverifiedShow Answer

(Consider This) Discuss how congestion pricing works to eliminate crowded roadways.

Correct AnswerverifiedWhen traﬃc is moderate or heavy, drivers...View AnswerShow Answer

Antipollution policies can be severe in their design and implementation, resulting in

Correct AnswerverifiedShow Answer

In the insurance business, the moral hazard problem arises when

Correct AnswerverifiedShow Answer

Refer to the diagram. If actual production and consumption occur at Q3,

Correct AnswerverifiedShow Answer

As it applies to insurance, the moral hazard problem is the tendency for

Correct AnswerverifiedShow Answer

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

Correct AnswerverifiedShow Answer

Suppose a ﬁrm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe beneﬁt money toward speciﬁc insurance. Mary, who has ﬁve kids needing braces, selects The family dental coverage. This is an example of the

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Economic eﬃciency is achieved when consu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The four ways listed in the te...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When traﬃc is moderate or heavy, drivers...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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