Question 1

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

Accepted Answer

A)   reverse wealth problem.
B)   negative externality problem.
C)   adverse selection problem.
D)   moral hazard problem.E) All of the above
F) A) and B)

Question 2

Among the following examples, the one that best illustrates a public good is

Accepted Answer

A)   the laptops used by students in a college or university.
B)   the movies produced by Hollywood companies.
C)   the bike paths around a city or town.
D)   the airline tickets bought by vacationers.E) C) and D)
F) All of the above

Question 3

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

Accepted Answer

A) True 
 B)False

Question 4

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero.

Accepted Answer

A) True 
 B)False

Question 5

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of

Accepted Answer

A)   moral hazard.
B)   adverse selection.
C)   externalities.
D)   diminishing utility.E) A) and D)
F) A) and C)

Question 6

If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its

Accepted Answer

A)   price and output would increase.
B)   output would increase, but price would remain constant.
C)   price would increase and output would decrease.
D)   price would increase, but output would remain constant.E) B) and C)
F) A) and D)

Question 7

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.  On the basis of the data, we can say that

Accepted Answer

A)   Program D is the most efficient on economic grounds.
B)   Program C is the most efficient on economic grounds.
C)   Program B is the most efficient on economic grounds.
D)   Program A is the most efficient on economic grounds.E) A) and C)
F) All of the above

Question 8

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

Accepted Answer

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

Question 9

(Consider This)  Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes

Accepted Answer

A)   the Coase theorem.
B)   the optimal allocation of a public good.
C)   nonrivalry and nonexcludability.
D)   a market for externality rights.E) None of the above
F) C) and D)

Question 10

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 well.E) A) and B)
F) A) and C)

Question 11

When there is overproduction of a good,

Accepted Answer

A)   the marginal benefit of the good exceeds its marginal cost.
B)   the marginal cost of the good exceeds its marginal benefit.
C)   the net benefit of producing extra units if the good is positive.
D)   the allocative efficiency is enhanced.E) None of the above
F) A) and B)

Question 12

For the music industry, the rise of Internet file-sharing of music has

Accepted Answer

A)   worsened the free-rider problem.
B)   diminished or alleviated the free-rider problem.
C)   reduced the options for musicians to have their music heard.
D)   eliminated the problem of digital piracy.E) None of the above
F) B) and D)

Question 13

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve

Accepted Answer

A)   a much greater marginal benefit than marginal cost.
B)   a much greater marginal cost than marginal benefit.
C)   having shortages in the market.
D)   having surpluses in the market.E) A) and B)
F) A) and D)

Question 14

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) All of the above
F) B) and C)

Question 15

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Accepted Answer

A) True 
 B)False

Exam 4: Market Failures: Public Goods and Externalities

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars. On the basis of the data, we can say that

Correct Answer
verified

Buyers will opt out of markets in which

Correct Answer
verified

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

Correct Answer
verified

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve

Correct Answer
verified

(Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes

Correct Answer
verified

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Correct Answer
verified

When there is overproduction of a good,

Correct Answer
verified

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

Correct Answer
verified

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of

Correct Answer
verified

For the music industry, the rise of Internet file-sharing of music has

Correct Answer
verified

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero.

Correct Answer
verified

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

Correct Answer
verified

A public good

Correct Answer
verified

Among the following examples, the one that best illustrates a public good is

Correct Answer
verified

If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars. On the basis of the data, we can say that

Correct AnswerverifiedShow Answer

Buyers will opt out of markets in which

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve

Correct AnswerverifiedShow Answer

(Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes

Correct AnswerverifiedShow Answer

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Correct AnswerverifiedShow Answer

When there is overproduction of a good,

Correct AnswerverifiedShow Answer

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

Correct AnswerverifiedShow Answer

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of

Correct AnswerverifiedShow Answer

For the music industry, the rise of Internet file-sharing of music has

Correct AnswerverifiedShow Answer

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A public good

Correct AnswerverifiedShow Answer

Among the following examples, the one that best illustrates a public good is

Correct AnswerverifiedShow Answer

If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its

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