Question 1

As it applies to insurance, the adverse selection problem is the tendency for

Accepted Answer

A)   those most likely to collect on insurance to buy it.
B)   those who buy insurance to take less precaution in avoiding the insured risk.
C)   sellers to price discriminate.
D)   sellers to restrict output and charge high prices.E) B) and D)
F) None of the above

Question 2

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 externalities.E) None of the above
F) All of the above

Question 3

Which of the following statements concerning a pure public good is false?

Accepted Answer

A)   It is impossible to exclude nontaxpayers from the enjoyment of the public good.
B)   All benefits associated with the production and use of a public good are received by the government.
C)   The availability of a public good to one person simultaneously makes it available to all members of society.
D)   The private sector does not have an economic incentive to produce a socially optimal amount of a public good.E) B) and C)
F) A) and D)

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 product.E) A) and D)
F) B) and D)

Question 5

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Accepted Answer

A)   P × Q.
B)   P + Q.
C)   P - Q.
D)   Q - P.E) B) and D)
F) C) and D)

Question 6

Sometimes, public goods whose benefits are less than their costs still get produced because

Accepted Answer

A)   the marginal benefit is still larger than the marginal cost.
B)   of externalities in production.
C)   the benefits accrue to politically powerful government officials and their constituents.
D)   of market failures.E) B) and D)
F) All of the above

Question 7

Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program. This illustrates the problem of

Accepted Answer

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

Question 8

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

Accepted Answer

A)   the moral hazard problem.
B)   a spillover cost.
C)   a positive externality.
D)   asymmetric information.E) None of the above
F) A) and B)

Question 9

An efficiency loss (or deadweight loss)

Accepted Answer

A)   is measured as the combined loss of consumer surplus and producer surplus from over- or underproducing.
B)   results from producing a unit of output for which the maximum willingness to pay exceeds the minimum acceptable price.
C)   can result from underproduction, but not from overproduction.
D)   can result from overproduction, but not from underproduction.E) B) and C)
F) A) and D)

Question 10

Public goods are those for which there

Accepted Answer

A)   is no free-rider problem.
B)   are no externalities.
C)   are nonrivalry and non excludability.
D)   are rivalry and excludability.E) None of the above
F) A) and B)

Question 11

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

Accepted Answer

A) True 
 B)False

Question 12

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following does not illustrate the asymmetric information problem?

Accepted Answer

A)   Ordinary financial investors do not know the motivations of financial advisers.
B)   Ordinary customers do not know how sanitarily the food is prepared in a restaurant.
C)   Ordinary stock buyers do not know what will happen to the stock's price next week.
D)   Ordinary car buyers do not know the actual quality of the various cars in the dealer's lot.E) A) and B)
F) A) and C)

Question 14

Street entertainers face the free-rider problem when they perform because of the

Accepted Answer

A)   law of demand.
B)   diminishing marginal utility.
C)   nonexcludability characteristic.
D)   rivalry characteristic.E) B) and C)
F) All of the above

Question 15

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Refer to the above information. Which of the following policies would be most appropriate for dealing with this problem?

Accepted Answer

A)   levy a Pigovian tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources
B)   levy a Pigovian tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products
C)   levy a Pigovian tax on the producers of electricity and use the tax revenues to clean up the river
D)   levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the riverE) None of the above
F) B) and C)

Question 16

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 17

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Accepted Answer

A) True 
 B)False

Question 18

That government that has the smallest budget is the most efficient in the economic sense.

Accepted Answer

A) True 
 B)False

Question 19

Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

Accepted Answer

A) True 
 B)False

Question 20

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

Accepted Answer

A)   utility.
B)   consumer surplus.
C)   consumer demand.
D)   market failure.E) B) and C)
F) All of the above

Exam 4: Market Failures: Public Goods and Externalities

As it applies to insurance, the adverse selection problem is the tendency for

Correct Answer
verified

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Correct Answer
verified

Which of the following statements concerning a pure public good is false?

Correct Answer
verified

Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

Correct Answer
verified

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

Correct Answer
verified

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Correct Answer
verified

Which of the following does not illustrate the asymmetric information problem?

Correct Answer
verified

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

Correct Answer
verified

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

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

Correct Answer
verified

Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program. This illustrates the problem of

Correct Answer
verified

An efficiency loss (or deadweight loss)

Correct Answer
verified

Sometimes, public goods whose benefits are less than their costs still get produced because

Correct Answer
verified

Public goods are those for which there

Correct Answer
verified

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Correct Answer
verified

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

Correct Answer
verified

Street entertainers face the free-rider problem when they perform because of the

Correct Answer
verified

The market supply curve indicates the

Correct Answer
verified

That government that has the smallest budget is the most efficient in the economic sense.

Correct Answer
verified

Exam 4: Market Failures: Public Goods and Externalities

As it applies to insurance, the adverse selection problem is the tendency for

Correct AnswerverifiedShow Answer

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Correct AnswerverifiedShow Answer

Which of the following statements concerning a pure public good is false?

Correct AnswerverifiedShow Answer

Whenever there are supply-side market failures in the form of costs that suppliers do not have to shoulder, then there will be overproduction of the output.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Correct AnswerverifiedShow Answer

Which of the following does not illustrate the asymmetric information problem?

Correct AnswerverifiedShow Answer

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

Correct AnswerverifiedShow Answer

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

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

Correct AnswerverifiedShow Answer

Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program. This illustrates the problem of

Correct AnswerverifiedShow Answer

An efficiency loss (or deadweight loss)

Correct AnswerverifiedShow Answer

Sometimes, public goods whose benefits are less than their costs still get produced because

Correct AnswerverifiedShow Answer

Public goods are those for which there

Correct AnswerverifiedShow Answer

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Correct AnswerverifiedShow Answer

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

Correct AnswerverifiedShow Answer

Street entertainers face the free-rider problem when they perform because of the

Correct AnswerverifiedShow Answer

The market supply curve indicates the

Correct AnswerverifiedShow Answer

That government that has the smallest budget is the most efficient in the economic sense.

Correct AnswerverifiedShow Answer

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