Question 1

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of

Accepted Answer

A)  diminishing marginal utility.
B)  conservation of matter and energy.
C)  demand.
D)  diminishing returns.E) B) and D)
F) B) and C)

Question 2

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the total revenues received by sellers would be represented by the area

Accepted Answer

A)  b.
B)  b + c.
C)  a + b.
D)  b + c + d.E) A) and B)
F) All of the above

Question 3

Refer to the provided supply and demand graph. S₁ and D₁ represent the current market supply and demand, respectively. S₂ and D₂ represent the socially optimal supply and demand. The positions of the graphs indicate that there are

Accepted Answer

A)  external benefits from production and external costs from consumption of the product.
B)  external costs from production and external benefits from consumption of the product.
C)  external benefits from production and consumption of the product.
D)  external costs from production and consumption of the product.E) A) and D)
F) None of the above

Question 4

Amanda buys a ruby for $240 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $190. Amanda experiences

Accepted Answer

A)  a consumer surplus of $580, and Tony experiences a producer surplus of $200.
B)  a consumer surplus of $100, and Tony experiences a consumer surplus of $150.
C)  a producer surplus of $200, and Tony experiences a consumer surplus of $100.
D)  a consumer surplus of $100, and Tony experiences a producer surplus of $50.
E)  a producer surplus of $100, and Tony experiences a consumer surplus of $190.F) B) and C)
G) A) and C)

Question 5

The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of

Accepted Answer

A)  moral hazard.
B)  externalities.
C)  adverse selection.
D)  efficiency losses.E) C) and D)
F) All of the above

Question 6

Producer surplus is the difference between

Accepted Answer

A)  the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
B)  the quantity supplied and quantity demanded at an above equilibrium price.
C)  the minimum prices producers are willing to accept for a product and the higher equilibrium price.
D)  the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.E) B) and D)
F) C) and D)

Question 7

In response to the 2008 financial crisis, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future. This illustrates

Accepted Answer

A)  the adverse selection problem.
B)  the moral hazard problem.
C)  the principal-agent problem.
D)  logrolling.E) None of the above
F) B) and D)

Question 8

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 9

Refer to the diagram, in which S is the market supply curve and S₁ is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach

Accepted Answer

A)  an optimal allocation of society's resources.
B)  an underallocation of resources to this product.
C)  an overallocation of resources to this product.
D)  a higher price than is consistent with an optimal allocation of resources.E) All of the above
F) A) and D)

Question 10

Product reviews help to alleviate problems associated with

Accepted Answer

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

Question 11

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

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Refer to the provided supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?

Accepted Answer

A)  supply would increase
B)  demand would decrease
C)  supply would decrease
D)  price would decreaseE) A) and B)
F) A) and C)

Question 14

Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This figure suggests that there is (are)

Accepted Answer

A)  external benefits from the production of this product.
B)  external costs in the production of this product.
C)  currently an underallocation of resources toward producing this product.
D)  positive externalities from producing the product.E) A) and B)
F) None of the above

Question 15

Refer to the provided table. The surplus for Producer A is

Accepted Answer

A)  $7.
B)  $6.
C)  $19.
D)  $4.
E)  $13.F) B) and E)
G) B) and C)

Question 16

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) All of the above

Question 17

Refer to the provided supply and demand graph of Product X. What would happen if the government decided to also start providing Product X in the market?

Accepted Answer

A)  demand would decrease
B)  demand would increase
C)  supply would decrease
D)  price would decreaseE) A) and B)
F) None of the above

Question 18

An effective antipollution policy from the economic perspective requires that all pollution be eliminated and banned.

Accepted Answer

A) True 
 B)False

Question 19

Refer to the diagram. Which one of the following might shift the marginal benefit curve from MB₁ to MB₂?

Accepted Answer

A)  major new studies strongly linking cancer to pollution
B)  improved technology for reducing pollution
C)  a change in consumer tastes from manufactured goods to services
D)  a decrease in the price of recycled goodsE) B) and C)
F) A) and C)

Question 20

Refer to the provided table. What is the total producer surplus in the market for all producers A, B, C, D, and E?

Accepted Answer

A)  $16
B)  $34
C)  $29
D)  $31
E)  $19F) B) and E)
G) A) and B)

Exam 4: Market Failures Caused by Externalities Asymmetric Information

Refer to the provided table. The surplus for Producer A is

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Product reviews help to alleviate problems associated with

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An effective antipollution policy from the economic perspective requires that all pollution be eliminated and banned.

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

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Refer to the provided supply and demand graph of Product X. What would happen if the government decided to also start providing Product X in the market?

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Refer to the diagram. Which one of the following might shift the marginal benefit curve from MB₁ to MB₂?

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Refer to the provided supply and demand graph. S₁ and D₁ represent the current market supply and demand, respectively. S₂ and D₂ represent the socially optimal supply and demand. The positions of the graphs indicate that there are

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Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This figure suggests that there is (are)

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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

Amanda buys a ruby for $240 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $190. Amanda experiences

Correct AnswerverifiedShow Answer

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the total revenues received by sellers would be represented by the area

Correct AnswerverifiedShow Answer

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of

Correct AnswerverifiedShow Answer

Refer to the provided table. What is the total producer surplus in the market for all producers A, B, C, D, and E?

Correct AnswerverifiedShow Answer

Refer to the provided supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?

Correct AnswerverifiedShow Answer

In response to the 2008 financial crisis, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future. This illustrates

Correct AnswerverifiedShow Answer

The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the diagram, in which S is the market supply curve and S₁ is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach

Correct AnswerverifiedShow Answer

Producer surplus is the difference between

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

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