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Exam 4: Market Failures Caused by Externalities Asymmetric Information

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Question 101

Multiple Choice

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Sellers will opt out of markets in which

A) there are significant negative externalities.
B) standardized products exist.
C) there are only foreign buyers.
D) information about buyers is inadequate which allows some buyers to consequently impose high costs on the sellers.

E) None of the above
F) B) and D)

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Question 102

Multiple Choice

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Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the

A) buyer and the government.
B) seller and the government.
C) taxpayer and the government.
D) buyer and the seller.

E) All of the above
F) B) and D)

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Question 103

True/False

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In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

Some sellers of used cars provide warranties to buyers, with the aim of reassuring buyers that the car is of good quality. These warranties help reduce the chance of what occurring?

Refer to the diagrams for 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) on the left and from S to S₂ in diagram (b) on the right. The shift of the supply curve from S to S₁ in diagram (a) might be caused by a per-unit

Upon learning that his auto transmission is about to fail, Ray sells his car to an unsuspecting buyer. This circumstance illustrates the

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment.If the government intervenes and corrects the externality in the situation described, we would expect

Which of the following is an example of a negative externality?

If the unit price of a product is P and buyers buy a given quantity Q, then sellers would collect total revenues equal to

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

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment.In the situation described above, we would expect an

A market for pollution rights can be expected to

The socially optimal amount of pollution abatement occurs where society's marginal

Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates

A significant amount of positive consumer surplus is the reason why sometimes a shopper regrets having bought a particular item.

Consumer surplus arises in a market because

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the total maximum amount that consumers would have been willing to pay for the product is represented by the area

Refer to the provided table. What is the producer surplus for all producers A, B, C, and D?

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)

In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This response illustrates the