Question 1

The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer

Accepted Answer

A)  revenues.
B)  surplus.
C)  costs.
D)  utility.E) B) and D)
F) None of the above

Question 2

Define negative externality, and explain how water pollution is an example.

Accepted Answer

A negative externality is a cost imposed...

Question 3

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 S₂ in diagram (b) might be caused by a per-unit

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.E) B) and C)
F) C) and D)

Question 4

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the minimum acceptable total revenue that sellers would have been willing to receive is represented by the area

Accepted Answer

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

Question 5

From an economist's perspective, an important consideration for policies to address global warming is

Accepted Answer

A)  the market for recyclable inputs.
B)  the supply and demand for recycled products.
C)  the marginal cost and marginal benefit of the policies.
D)  a lawsuit that can arise from the enactment of the policies.E) A) and C)
F) A) and B)

Question 6

Deadweight losses occur when the quantity of an output produced is

Accepted Answer

A)  less than, but not when it is greater than, the competitive equilibrium quantity.
B)  greater than, but not when it is less than, the competitive equilibrium quantity.
C)  less than or greater than the competitive equilibrium quantity.
D)  such that the marginal benefit of the output is just equal to the marginal cost.E) B) and C)
F) A) and D)

Question 7

Refer to the provided graph. Suppose that it shows the market for an insurance product. If something happens to worsen the adverse selection problem faced by sellers in this market, then

Accepted Answer

A)  the supply curve will shift to the left.
B)  the supply curve will shift to the right.
C)  the demand curve will shift to the left.
D)  the supply curve will not be affected.E) A) and D)
F) B) and C)

Question 8

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) All of the above
F) None of the above

Question 9

An emission fee levied against polluting firms will tend to shift the

Accepted Answer

A)  supply curve of the firms to the left.
B)  supply curve of the firms to the right.
C)  demand curve for the product to the left.
D)  demand curve for the product to the right.E) None of the above
F) All of the above

Question 10

Refer to the diagram of the market for product X. Curve Sₜ embodies all costs (including externalities) , and Dₜ embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the market equilibrium output is Q₁, we can conclude that the existence of external

Accepted Answer

A)  costs has resulted in an overallocation of resources to X.
B)  benefits has resulted in an overallocation of resources to X.
C)  costs has resulted in an underallocation of resources to X.
D)  benefits has resulted in an underallocation of resources to X.E) None of the above
F) B) and D)

Question 11

eBay, Amazon, and other Internet shopping sites provide "seller ratings" done by previous buyers, in order to help deal with the problem of

Accepted Answer

A)  adverse selection.
B)  externalities.
C)  moral hazard.
D)  public goods.E) A) and D)
F) A) and C)

Question 12

What resource problem is created by positive externalities?

Accepted Answer

Positive externalities occur when an und...

Question 13

Since it's not possible for governments to know the costs of pollution abatement as well as the polluters know themselves, then there is a(n)

Accepted Answer

A)  asymmetric information problem.
B)  externality problem.
C)  moral hazard problem.
D)  problem with the law of demand.E) A) and C)
F) B) and D)

Question 14

When critics of unemployment insurance claim that some of the unemployed are not exerting much effort to find jobs because of the unemployment benefits, they are referring to the moral hazard problem.

Accepted Answer

A) True 
 B)False

Question 15

The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

Accepted Answer

A) True 
 B)False

Question 16

Insurance policies typically stipulate a deductible amount which the insured must pay; this is to address the problem of

Accepted Answer

A)  adverse selection.
B)  externalities.
C)  moral hazard.
D)  public goods.E) All of the above
F) None of the above

Question 17

Pigovian taxes

Accepted Answer

A)  are used to correct negative externalities.
B)  are used to correct positive externalities.
C)  are primarily designed to fund government.
D)  are a form of income tax.E) None of the above
F) A) and D)

Question 18

When the production of a good generates external costs, the producing firm's supply curve will be

Accepted Answer

A)  below (to the right of) the total-cost supply curve.
B)  above (to the left of) the total-cost supply curve.
C)  vertical.
D)  horizontal.E) A) and D)
F) A) and B)

Question 19

Buyers will opt out of markets in which

Accepted Answer

A)  there are significant negative externalities.
B)  standardized products are being produced.
C)  there is inadequate information about sellers and their products.
D)  there are only foreign sellers.E) None of the above
F) All of the above

Question 20

Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S₁ is the optimal supply from the society's perspective. If government corrects this externality problem and shifts production to the socially optimal level, then the product price will be equal to

Accepted Answer

A)  G.
B)  F.
C)  E.
D)  D.E) B) and C)
F) None of the above

Exam 4: Market Failures Caused by Externalities Asymmetric Information

The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

Correct Answer
verified

When the production of a good generates external costs, the producing firm's supply curve will be

Correct Answer
verified

Since it's not possible for governments to know the costs of pollution abatement as well as the polluters know themselves, then there is a(n)

Correct Answer
verified

From an economist's perspective, an important consideration for policies to address global warming is

Correct Answer
verified

Refer to the provided graph. Suppose that it shows the market for an insurance product. If something happens to worsen the adverse selection problem faced by sellers in this market, then

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Define negative externality, and explain how water pollution is an example.

Correct Answer
verified
A negative externality is a cost imposed...
View Answer

What resource problem is created by positive externalities?

Correct Answer
verified
Positive externalities occur when an und...
View Answer

An emission fee levied against polluting firms will tend to shift the

Correct Answer
verified

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the minimum acceptable total revenue that sellers would have been willing to receive is represented by the area

Correct Answer
verified

Correct Answer
verified

Pigovian taxes

Correct Answer
verified

eBay, Amazon, and other Internet shopping sites provide "seller ratings" done by previous buyers, in order to help deal with the problem of

Correct Answer
verified

In the insurance business, the moral hazard problem arises when

Correct Answer
verified

Buyers will opt out of markets in which

Correct Answer
verified

Deadweight losses occur when the quantity of an output produced is

Correct Answer
verified

The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer

Correct Answer
verified

Insurance policies typically stipulate a deductible amount which the insured must pay; this is to address the problem of

Correct Answer
verified

When critics of unemployment insurance claim that some of the unemployed are not exerting much effort to find jobs because of the unemployment benefits, they are referring to the moral hazard problem.

Correct Answer
verified

Exam 4: Market Failures Caused by Externalities Asymmetric Information

The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

Correct AnswerverifiedShow Answer

When the production of a good generates external costs, the producing firm's supply curve will be

Correct AnswerverifiedShow Answer

Since it's not possible for governments to know the costs of pollution abatement as well as the polluters know themselves, then there is a(n)

Correct AnswerverifiedShow Answer

From an economist's perspective, an important consideration for policies to address global warming is

Correct AnswerverifiedShow Answer

Refer to the provided graph. Suppose that it shows the market for an insurance product. If something happens to worsen the adverse selection problem faced by sellers in this market, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Define negative externality, and explain how water pollution is an example.

Correct AnswerverifiedA negative externality is a cost imposed...View AnswerShow Answer

What resource problem is created by positive externalities?

Correct AnswerverifiedPositive externalities occur when an und...View AnswerShow Answer

An emission fee levied against polluting firms will tend to shift the

Correct AnswerverifiedShow Answer

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the minimum acceptable total revenue that sellers would have been willing to receive is represented by the area

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Pigovian taxes

Correct AnswerverifiedShow Answer

eBay, Amazon, and other Internet shopping sites provide "seller ratings" done by previous buyers, in order to help deal with the problem of

Correct AnswerverifiedShow Answer

In the insurance business, the moral hazard problem arises when

Correct AnswerverifiedShow Answer

Buyers will opt out of markets in which

Correct AnswerverifiedShow Answer

Deadweight losses occur when the quantity of an output produced is

Correct AnswerverifiedShow Answer

The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer

Correct AnswerverifiedShow Answer

Insurance policies typically stipulate a deductible amount which the insured must pay; this is to address the problem of

Correct AnswerverifiedShow Answer

When critics of unemployment insurance claim that some of the unemployed are not exerting much effort to find jobs because of the unemployment benefits, they are referring to the moral hazard problem.

Correct AnswerverifiedShow Answer

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A negative externality is a cost imposed...
View Answer

Correct Answer
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Positive externalities occur when an und...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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