Question 1

From an economist's point of view,zero pollution is always preferable to some pollution.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 31-1
 
-Refer to Exhibit 31-1.If the exhibit represents a negative externality situation,then what is Q1?
A) It is the quantity of output at which marginal social costs (MPC).
b.	It is the quantity of output at which MPC > MSC.
c.	It is the market output; it is the quantity of output that exists if the external costs associated with the negative externality are not taken into account.
d.	It is the socially optimal output; it is the quantity of output that exists if the external costs associated with the negative externality are taken into account.
e.	none of the above

Accepted Answer

Question 3

Exhibit 31-3
 
-Refer to Exhibit 31-3.What is the cost to Firm A of eliminating 2 tons of pollution?

Accepted Answer

A)   $100
B)   $200
C)   $700
D)   $425
E)   $1,500F) A) and C)
G) None of the above

Question 4

Asymmetric information exists when

Accepted Answer

A)   both parties to an exchange have all relevant facts about that exchange.
B)   a good that is either nonrivalrous or nonexcludable is being sold on a market.
C)   the two parties to an exchange differ in what they know about the good being exchanged.
D)   neither party to an exchange is knowledgeable about the quality of the good being exchanged.E) C) and D)
F) All of the above

Question 5

When marginal private cost is less than marginal social cost,

Accepted Answer

A)   a public good exists.
B)   a negative externality exists.
C)   a positive externality exists.
D)   negative economic profits are made.
E)   a and dF) B) and E)
G) B) and D)

Question 6

Which of these goods may be considered rivalrous in consumption and nonexcludable?

Accepted Answer

A)   wilderness areas
B)   national defense
C)   broadcast television reception
D)   fire insuranceE) A) and B)
F) A) and C)

Question 7

The primary difference between private goods and public goods is that

Accepted Answer

A)   private goods are consumed by private individuals whereas public goods are not consumed by private individuals.
B)   private goods often yield externalities but public goods do not.
C)   property rights can be assigned to public goods but not to private goods.
D)   public goods are nonrivalrous in consumption whereas private goods are rivalrous in consumption.E) B) and D)
F) B) and C)

Question 8

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following situations is descriptive of the existence of a negative externality.

Accepted Answer

A)   Vernon studies for his biology test late into the night and oversleeps the next morning, thus missing the test.
B)   Nancy is in the library looking for a book. She is talking to herself and consequently disturbs a few people in the library.
C)   Bob learns later that he could have purchased a pair of shoes for less than he paid.
D)   Jackie has had the flu and has stayed in bed for a week.
E)   none of the aboveF) D) and E)
G) All of the above

Question 10

When marginal private benefit is equal to marginal private cost,

Accepted Answer

A)   the activity in question generates no negative externality.
B)   all negative externalities have been internalized.
C)   all positive externalities have been internalized.
D)   all of the above
E)   a or bF) A) and B)
G) All of the above

Question 11

A good is nonrivalrous in consumption if

Accepted Answer

A)   its consumption by one person does not reduce its consumption by others.
B)   its consumption by one person reduces its consumption by others.
C)   it is possible, or not prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced.
D)   it is impossible, or prohibitively costly, to exclude someone from receiving the benefits of the good once it has been produced.
E)   a and dF) A) and C)
G) A) and E)

Question 12

The Coase theorem is significant because it

Accepted Answer

A)   implies that no transaction costs are associated with solving externalities.
B)   shows that property rights can be assigned.
C)   shows that under certain conditions externalities can be corrected in the market without resorting to nonmarket means.
D)   a and bE) B) and C)
F) All of the above

Question 13

The primary characteristic of a public good is that it is nonrivalrous in consumption.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)   Bad weather reduces the size of the wheat crop.
B)   A reduction in the size of the wheat crop causes the income of wheat farmers to fall.
C)   Smoking harms the health of nonsmokers who are nearby.
D)   Smoking harms the health of the smoker.
E)   all of the aboveF) A) and C)
G) C) and D)

Question 15

The Coase theorem

Accepted Answer

A)   shows that under certain conditions the market can internalize externalities.
B)   states that economic units should specialize in the production of those goods in which they have a comparative advantage.
C)   asserts that the firm should produce that output at which marginal cost is equal to marginal revenue.
D)   holds that the firm should produce that output at which marginal factor cost is equal to marginal revenue product.E) B) and C)
F) A) and D)

Question 16

For a good where network externalities are present,having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Accepted Answer

A) True 
 B)False

Question 17

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

Accepted Answer

A)   higher; higher
B)   higher; lower
C)   lower; higher
D)   lower; lowerE) None of the above
F) B) and C)

Question 18

It is argued that the market will

Accepted Answer

A)   not produce a nonexcludable public good.
B)   produce the socially optimal output of a nonexcludable public good.
C)   produce too much of a nonexcludable public good.
D)   produce a nonexcludable public good if marginal social benefits are equal to marginal private benefits.
E)   b and dF) A) and B)
G) A) and C)

Question 19

A public good can be excludable or nonexcludable.

Accepted Answer

A) True 
 B)False

Question 20

Exhibit 31-5
 2 B)  B and D; Q1 C)  C and A; Q1 D)  B and C; Q1 E)  b and c" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points __________,and the market output is __________.

Accepted Answer

A)   A and C; Q2
B)   B and D; Q1
C)   C and A; Q1
D)   B and C; Q1
E)   b and cF) A) and B)
G) A) and C)

Exam 31: Market Failure: Externalities, Public Goods, and Asymmetric Information

The primary characteristic of a public good is that it is nonrivalrous in consumption.

Correct Answer
verified

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be and cigarette sales to be than would have been the case under symmetric information.

Correct Answer
verified

When marginal private benefit is equal to marginal private cost,

Correct Answer
verified

Which of these goods may be considered rivalrous in consumption and nonexcludable?

Correct Answer
verified

A public good can be excludable or nonexcludable.

Correct Answer
verified

Exhibit 31-3 -Refer to Exhibit 31-3.What is the cost to Firm A of eliminating 2 tons of pollution?

Correct Answer
verified

Which of the following situations is descriptive of the existence of a negative externality.

Correct Answer
verified

From an economist's point of view,zero pollution is always preferable to some pollution.

Correct Answer
verified

Exhibit 31-5 -Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points ,and the market output is .

Correct Answer
verified

A good is nonrivalrous in consumption if

Correct Answer
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Correct Answer
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When marginal private cost is less than marginal social cost,

Correct Answer
verified

The primary difference between private goods and public goods is that

Correct Answer
verified

The Coase theorem is significant because it

Correct Answer
verified

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

Correct Answer
verified

Asymmetric information exists when

Correct Answer
verified

The Coase theorem

Correct Answer
verified

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

Correct Answer
verified

It is argued that the market will

Correct Answer
verified

For a good where network externalities are present,having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Correct Answer
verified

Exam 31: Market Failure: Externalities, Public Goods, and Asymmetric Information

The primary characteristic of a public good is that it is nonrivalrous in consumption.

Correct AnswerverifiedShow Answer

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

Correct AnswerverifiedShow Answer

When marginal private benefit is equal to marginal private cost,

Correct AnswerverifiedShow Answer

Which of these goods may be considered rivalrous in consumption and nonexcludable?

Correct AnswerverifiedShow Answer

A public good can be excludable or nonexcludable.

Correct AnswerverifiedShow Answer

Exhibit 31-3 -Refer to Exhibit 31-3.What is the cost to Firm A of eliminating 2 tons of pollution?

Correct AnswerverifiedShow Answer

Which of the following situations is descriptive of the existence of a negative externality.

Correct AnswerverifiedShow Answer

From an economist's point of view,zero pollution is always preferable to some pollution.

Correct AnswerverifiedShow Answer

Exhibit 31-5 -Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points __________,and the market output is __________.

Correct AnswerverifiedShow Answer

A good is nonrivalrous in consumption if

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When marginal private cost is less than marginal social cost,

Correct AnswerverifiedShow Answer

The primary difference between private goods and public goods is that

Correct AnswerverifiedShow Answer

The Coase theorem is significant because it

Correct AnswerverifiedShow Answer

When an insurance company specifies certain precautions that an insured person must take it is trying to control for moral hazard.

Correct AnswerverifiedShow Answer

Asymmetric information exists when

Correct AnswerverifiedShow Answer

The Coase theorem

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

It is argued that the market will

Correct AnswerverifiedShow Answer

For a good where network externalities are present,having an early lead in the race for customers may be the only lead necessary to ultimately win the race for dominance in the good's market.

Correct AnswerverifiedShow Answer

Correct Answer
verified

It seems quite possible that cigarette companies concealed information about the effect of smoking on health,causing cigarette prices to be and cigarette sales to be than would have been the case under symmetric information.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Exhibit 31-5 -Refer to Exhibit 31-5.If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points ,and the market output is .

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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