Question 1

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 2

Answer the question based on the following information. 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.  Refer to the above information. The marginal benefits of crime control for Level Two are:

Accepted Answer

A)   $10,000
B)   $40,000
C)   $50,000
D)   $200,000E) B) and C)
F) B) and D)

Question 3

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called:

Accepted Answer

A)   Nonrivalry
B)   Nonexcludability
C)   Nontaxability
D)   NondiscriminationE) A) and B)
F) A) and C)

Question 4

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 productE) All of the above
F) None of the above

Question 5

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

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)   Falling property values in a neighborhood where a disreputable nightclub is operating
D)   The higher price you pay when you buy a heavily advertised productE) B) and C)
F) A) and D)

Question 6

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

Question 7

In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair while Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of shoes is $65. What is the combined amount of consumer surplus of Jena and Jane?

Accepted Answer

A)   $10
B)   $30
C)   $130
D)   $215E) None of the above
F) B) and D)

Question 8

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of:

Accepted Answer

A)   New cars being better than used-cars in quality
B)   A declining quality of used cars in the market
C)   A rising quality of used cars in the market
D)   Used-car buyers willing to pay higher pricesE) A) and B)
F) All of the above

Question 9

A public good:

Accepted Answer

A)   Generally results in substantial negative externalities
B)   Can never be provided by a nongovernmental organization
C)   Costs essentially nothing to produce and is thus provided by the government at a zero price
D)   Can't be provided to one person without making it available to others as wellE) B) and C)
F) All of the above

Question 10

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

Accepted Answer

A)   $6
B)   $13
C)   $19
D)   $24E) A) and C)
F) A) and B)

Question 11

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 costE) All of the above
F) A) and D)

Question 12

The equilibrium point in the market is where S and D curve intersect.  Refer to the graph above. At equilibrium, the total maximum amount that consumers would have been willing to pay for the product is represented by the area:

Accepted Answer

A)   a + b
B)   a + b + c
C)   a
D)   b + cE) A) and D)
F) C) and D)

Question 13

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Accepted Answer

A) True 
 B)False

Question 14

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 rightE) A) and B)
F) C) and D)

Question 15

External benefits in consumption refer to benefits accruing to:

Accepted Answer

A)   Those who are selling the product to the consumers
B)   Those who bought and consumed the product
C)   Those other than the ones who consumed the product
D)   Those who are consuming the product abroadE) A) and B)
F) A) and C)

Question 16

The equilibrium point in the market is where S and D curve intersect.  Refer to the graph above. At equilibrium, the producer surplus would be represented by the area:

Accepted Answer

A)   b
B)   b + c
C)   a + b
D)   b + c + dE) All of the above
F) B) and C)

Question 17

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 18

Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $1.50, $1.20, $1.00, and $0.90. If the actual price of lemonade is $1.00 per glass, then consumer surplus in this market will be $0.70.

Accepted Answer

A) True 
 B)False

Question 19

A market for pollution rights can be expected to:

Accepted Answer

A)   Eliminate all pollution
B)   Produce a shortage of pollution
C)   Encourage potential polluters to increase emissions
D)   Provide potential polluters with a monetary incentive to reduce emissionsE) C) and D)
F) A) and B)

Question 20

The franchising of fast-food restaurants would be an example of how a private business:

Accepted Answer

A)   Overcomes market information problems
B)   Solves the moral hazard problem in insurance
C)   Expands the limits of the Coase theorem
D)   Corrects the problem of externalitiesE) A) and D)
F) All of the above

Exam 4: Market Failures: Public Goods and Externalities

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of:

Correct Answer
verified

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Correct Answer
verified

A public good:

Correct Answer
verified

Deadweight losses occur when the quantity of an output produced is:

Correct Answer
verified

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

Correct Answer
verified

A market for pollution rights can be expected to:

Correct Answer
verified

In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair while Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of shoes is $65. What is the combined amount of consumer surplus of Jena and Jane?

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

The franchising of fast-food restaurants would be an example of how a private business:

Correct Answer
verified

External benefits in consumption refer to benefits accruing to:

Correct Answer
verified

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

Correct Answer
verified

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called:

Correct Answer
verified

Correct Answer
verified

Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $1.50, $1.20, $1.00, and $0.90. If the actual price of lemonade is $1.00 per glass, then consumer surplus in this market will be $0.70.

Correct Answer
verified

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, the total maximum amount that consumers would have been willing to pay for the product is represented by the area:

Correct Answer
verified

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, the producer surplus would be represented by the area:

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

The market supply curve indicates the:

Correct Answer
verified

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

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of:

Correct AnswerverifiedShow Answer

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Correct AnswerverifiedShow Answer

A public good:

Correct AnswerverifiedShow Answer

Deadweight losses occur when the quantity of an output produced is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A market for pollution rights can be expected to:

Correct AnswerverifiedShow Answer

In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair while Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of shoes is $65. What is the combined amount of consumer surplus of Jena and Jane?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow 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

The franchising of fast-food restaurants would be an example of how a private business:

Correct AnswerverifiedShow Answer

External benefits in consumption refer to benefits accruing to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $1.50, $1.20, $1.00, and $0.90. If the actual price of lemonade is $1.00 per glass, then consumer surplus in this market will be $0.70.

Correct AnswerverifiedShow Answer

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, the total maximum amount that consumers would have been willing to pay for the product is represented by the area:

Correct AnswerverifiedShow Answer

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, the producer surplus would be represented by the area:

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

The market supply curve indicates the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified