Question 1

Adverse selection is when someone with home insurance decides to take the chance that a dying tree would fall on the garage, rather than spend the money to have the tree cut down.

Accepted Answer

A) True 
 B)False

Question 2

Other things equal, a fall in the market price caused by a change in supply will

Accepted Answer

A)  increase consumer surplus.
B)  decrease consumer surplus.
C)  increase producer surplus while leaving consumer surplus unchanged.
D)  decrease producer surplus while leaving consumer surplus unchanged.E) B) and D)
F) A) and B)

Question 3

When economic efficiency is attained, it implies all of the following, except

Accepted Answer

A)  per-unit cost of output produced is at minimum.
B)  allocative efficiency is achieved.
C)  total consumer and producer surplus is at a maximum.
D)  the gap between marginal benefits and marginal costs of production is at maximum.E) B) and C)
F) All of the above

Question 4

How do economists determine the optimal amount of pollution control?

Accepted Answer

The optimal reduction of a negative exte...

Question 5

3, 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." class="answers-bank-image d-inline" rel="preload" > 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 C)

Question 6

A negative externality or spillover cost occurs when

Accepted Answer

A)  firms fail to achieve allocative efficiency.
B)  firms fail to achieve productive efficiency.
C)  the price of a good exceeds the marginal cost of producing it.
D)  the total cost of producing a good exceeds the costs borne by the producer.E) A) and B)
F) B) and C)

Question 7

List four ways to correct positive externalities.

Accepted Answer

The four ways listed in the te...

Question 8

An example of an adverse selection problem is in insurance, where the people most likely to claim insurance payouts are the people who will seek to buy the most generous policies.

Accepted Answer

A) True 
 B)False

Question 9

There are no external costs with being on the roadways during peak driving hours; there are only private costs that include your gasoline and opportunity cost of time spent in traffic.

Accepted Answer

A) True 
 B)False

Question 10

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) B) and C)
F) A) and B)

Question 11

Refer to the provided supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be

Accepted Answer

A)  to the left of the D curve on the graph.
B)  to the right of the D curve on the graph.
C)  at the position of the D curve on the graph.
D)  an upward-sloping line.E) B) and C)
F) A) and B) B

Question 12

Refer to the provided graph of a competitive market. If the output level is Q₁, then the sum of the consumer and producer surplus is

Accepted Answer

A)  bce.
B)  ac0.
C)  0 abe.
D)  0 eQ₁.E) All of the above
F) A) and B)

Question 13

At the output where the combined amounts of consumer and producer surplus are largest,

Accepted Answer

A)  the areas of consumer and producer surplus necessarily are equal.
B)  the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
C)  consumer surplus exceeds producer surplus by the greatest amount.
D)  marginal benefit exceeds marginal cost by the greatest amount.E) A) and B)
F) A) and C) B

Question 14

Refer to the diagram. From society's perspective, if MB₂ and MC₁ are relevant,

Accepted Answer

A)  Q₄ represents too little pollution abatement.
B)  Q₁ represents too little pollution abatement.
C)  Q₃ represents an optimal amount of pollution abatement.
D)  Q₂ represents too little pollution abatement.E) B) and C)
F) All of the above

Question 15

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

Accepted Answer

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

Question 16

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 17

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

Accepted Answer

A) True 
 B)False

Question 18

Graphically, producer surplus is measured as the area

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 B)
F) All of the above

Question 19

Refer to the diagram. Which one of the following might shift the marginal cost curve from MC₁ to MC₂?

Accepted Answer

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

Question 20

The licensing and regulation of financial advisers is one way by which the government tries to deal with the problem of inadequate information that financial firms have about their customers.

Accepted Answer

A) True 
 B)False  False

Exam 4: Market Failures Caused by Externalities Asymmetric Information

Adverse selection is when someone with home insurance decides to take the chance that a dying tree would fall on the garage, rather than spend the money to have the tree cut down.

Correct AnswerverifiedShow Answer

Other things equal, a fall in the market price caused by a change in supply will

Correct AnswerverifiedShow Answer

When economic efficiency is attained, it implies all of the following, except

Correct AnswerverifiedShow Answer

How do economists determine the optimal amount of pollution control?

Correct AnswerverifiedThe optimal reduction of a negative exte...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A negative externality or spillover cost occurs when

Correct AnswerverifiedShow Answer

List four ways to correct positive externalities.

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

An example of an adverse selection problem is in insurance, where the people most likely to claim insurance payouts are the people who will seek to buy the most generous policies.

Correct AnswerverifiedShow Answer

There are no external costs with being on the roadways during peak driving hours; there are only private costs that include your gasoline and opportunity cost of time spent in traffic.

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

Refer to the provided supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be

Correct AnswerverifiedB

Refer to the provided graph of a competitive market. If the output level is Q₁, then the sum of the consumer and producer surplus is

Correct AnswerverifiedShow Answer

At the output where the combined amounts of consumer and producer surplus are largest,

Correct AnswerverifiedB

Refer to the diagram. From society's perspective, if MB₂ and MC₁ are relevant,

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

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

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

Correct AnswerverifiedShow Answer

Graphically, producer surplus is measured as the area

Correct AnswerverifiedShow Answer

Refer to the diagram. Which one of the following might shift the marginal cost curve from MC₁ to MC₂?

Correct AnswerverifiedShow Answer

The licensing and regulation of financial advisers is one way by which the government tries to deal with the problem of inadequate information that financial firms have about their customers.

Correct AnswerverifiedFalse

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The optimal reduction of a negative exte...
View Answer

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

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

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
False