Question 1

Cost-benefit analysis attempts to:

Accepted Answer

A)   compare the real worth,rather than the market values,of various goods and services.
B)   compare the relative desirability of alternative distributions of income.
C)   determine whether it is better to cut government expenditures or reduce taxes.
D)   compare the benefits and costs associated with any economic project or activity.E) A) and D)
F) None of the above

Question 2

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

Accepted Answer

A) True 
 B)False

Question 3

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

Accepted Answer

A) True 
 B)False

Question 4

Market failure is said to occur whenever:

Accepted Answer

A)   private markets do not allocate resources in the most economically desirable way.
B)   prices rise.
C)   some consumers who want a good do not obtain it because the price is higher than they are willing to pay.
D)   government intervenes in the functioning of private markets.E) A) and C)
F) B) and D)

Question 5

Because of the free-rider problem:

Accepted Answer

A)   the market demand for a public good is overstated.
B)   the market demand for a public good is nonexistent or understated.
C)   government has increasingly yielded to the private sector in producing public goods.
D)   public goods often create serious negative externalities.E) A) and D)
F) A) and C)

Question 6

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

Accepted Answer

A)   increasing costs.
B)   diminishing returns.
C)   diminishing marginal utility.
D)   conservation of matter and energy.E) None of the above
F) All of the above

Question 7

Product reviews help to alleviate problems associated with:

Accepted Answer

A)   asymmetric information.
B)   moral hazard.
C)   positive externalities.
D)   negative externalities.E) All of the above
F) A) and C)

Question 8

Answer the question on the basis of the following information for a public good.Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good,rather than do without it.These people are the only two members of society.  Q ‾12345Paa‾$2100Pab‾$54321\begin{array}{c}\begin{array}{c}\underline{	ext {Q }}\1 \2 \3 \4 \5\end{array}\begin{array}{c}\underline{\mathrm{Pa}_{\mathrm{a}} }\\$  \2\1\0\0\end{array}\begin{array}{c}\underline{\mathrm{Pa}_{\mathrm{b}} }\\$ 5 \4 \3 \2 \1\end{array}\end{array}Q ​12345​Paa​​$2100​Pab​​$54321​​ 
 Refer to the data.The collective willingness of this society to pay for the second unit of this public good is:

Accepted Answer

A)   $2.
B)   $4.
C)   $6.
D)   $8. E) A) and D)
F) A) and C)

Question 9

At the optimal quantity of a public good:

Accepted Answer

A)   marginal benefit exceeds marginal cost by the greatest amount.
B)   total benefit equals total cost.
C)   marginal benefit equals marginal cost.
D)   marginal benefit is zero.E) A) and B)
F) A) and C)

Question 10

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

Question 11

The adverse selection problem is the tendency for insured drivers to drive recklessly.

Accepted Answer

A) True 
 B)False

Question 12

Public goods are those for which there:

Accepted Answer

A)   is no free-rider problem.
B)   are no externalities.
C)   are nonrivalry and nonexcludability.
D)   are rivalry and excludability.E) A) and B)
F) B) and C)

Question 13

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

Accepted Answer

A)   benefit of abatement exceeds its marginal cost of abatement by the greatest amount.
B)   benefit of abatement equals its marginal cost of abatement.
C)   benefit of abatement is zero.
D)   cost of abatement is at its maximum.E) B) and C)
F) None of the above

Question 14

When a supply-side market failure occurs,the costs are greater than the benefits for the last unit(s)of output produced.

Accepted Answer

A) True 
 B)False

Question 15

Answer the question on the basis of the following information for four highway programs of increasing scope.All figures are in millions of dollars.  Program‾ABCDTotal Cost‾$261220Total Benefit‾$9162123\begin{array}{c}\begin{array}{c}\underline{	ext {Program}}\	ext {A}\	ext {B}\	ext {C}\	ext {D}\end{array}\begin{array}{c}\underline{	ext {Total Cost}}\\$ 2 \6\12\20 \end{array}\begin{array}{c}\underline{	ext {Total Benefit}}\\$ 9 \16 \21 \23\end{array}\end{array}Program​ABCD​Total Cost​$261220​Total Benefit​$9162123​​ 
 The data indicate that:

Accepted Answer

A)   there is no highway program that is economically justifiable on the basis of cost-benefit analysis.
B)   the marginal cost and marginal benefit of Program A are $2 and $9 respectively.
C)   the marginal cost and marginal benefit of Program C are $12 and $21 respectively.
D)   the marginal cost and marginal benefit of Program A cannot be determined. E) B) and C)
F) None of the above

Question 16

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Accepted Answer

A) True 
 B)False

Question 17

(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) B) and C)
F) A) and B)

Question 18

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm.Darcy likes to play her music loudly down the hall,and Rachel finds the music annoying.A Coase theorem solution for this problem would be for:

Accepted Answer

A)   Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
B)   the director of housing to impose a fine on Darcy whenever she plays her music too loud.
C)   the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume.
D)   the college to ban the playing of music in dorms.E) A) and C)
F) C) and D)

Question 19

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

Accepted Answer

A) True 
 B)False

Question 20

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?

Accepted Answer

A)   Negative externalities.
B)   Adverse selection.
C)   Spillover benefits.
D)   Moral hazard.E) A) and C)
F) None of the above

Exam 4: Market Failures: Public Goods and Externalities

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?

Correct Answer
verified

Correct Answer
verified

When a supply-side market failure occurs,the costs are greater than the benefits for the last unit(s)of output produced.

Correct Answer
verified

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

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

Because of the free-rider problem:

Correct Answer
verified

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

Correct Answer
verified

Product reviews help to alleviate problems associated with:

Correct Answer
verified

At the optimal quantity of a public good:

Correct Answer
verified

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

Correct Answer
verified

Public goods are those for which there:

Correct Answer
verified

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm.Darcy likes to play her music loudly down the hall,and Rachel finds the music annoying.A Coase theorem solution for this problem would be for:

Correct Answer
verified

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Correct Answer
verified

Market failure is said to occur whenever:

Correct Answer
verified

Correct Answer
verified

Cost-benefit analysis attempts to:

Correct Answer
verified

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

Correct Answer
verified

Buyers will opt out of markets in which:

Correct Answer
verified

The adverse selection problem is the tendency for insured drivers to drive recklessly.

Correct Answer
verified

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a supply-side market failure occurs,the costs are greater than the benefits for the last unit(s)of output produced.

Correct AnswerverifiedShow Answer

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

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

Because of the free-rider problem:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Product reviews help to alleviate problems associated with:

Correct AnswerverifiedShow Answer

At the optimal quantity of a public good:

Correct AnswerverifiedShow Answer

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

Correct AnswerverifiedShow Answer

Public goods are those for which there:

Correct AnswerverifiedShow Answer

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm.Darcy likes to play her music loudly down the hall,and Rachel finds the music annoying.A Coase theorem solution for this problem would be for:

Correct AnswerverifiedShow Answer

A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.

Correct AnswerverifiedShow Answer

Market failure is said to occur whenever:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cost-benefit analysis attempts to:

Correct AnswerverifiedShow Answer

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

Correct AnswerverifiedShow Answer

Buyers will opt out of markets in which:

Correct AnswerverifiedShow Answer

The adverse selection problem is the tendency for insured drivers to drive recklessly.

Correct AnswerverifiedShow Answer

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

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