Question 1

Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects.The marginal cost and the marginal benefit of each of the four projects is provided in the table.  Refer to the above table and information.What is the net benefit of undertaking all four projects?

Accepted Answer

A)   $2 billion
B)   $3 billion
C)   $4 billion
D)   $5 billionTo calculate net benefit,one must compare total costs with total benefits.Total cost of all four projects is $16B and total benefit is $20B,for a net benefit of $4B.E) A) and B)
F) A) and C)

Question 2

According to a study by economists Ian Ayres and Steven Levitt,the division of the total benefit of the Lojack to its owners and all other car owners is:

Accepted Answer

A)   100 percent to the car owner with a Lojack,0 percent to other car owners.
B)   75 percent to the car owner with a Lojack,25 percent to other car owners.
C)   50 percent to the car owner with a Lojack,50 percent to other car owners.
D)   10 percent to the car owner with a Lojack,90 percent to other car owners.E) B) and C)
F) C) and D)

Question 3

A government is considering undertaking one or more construction projects.The estimated marginal cost and benefit of each project are given in the table.  Refer to the above table and information.What is the total amount that the government should spend on construction projects?

Accepted Answer

A)   $8 million
B)   $14 million
C)   $19 million
D)   $37 millionE) All of the above
F) A) and D)

Question 4

Taxes on specific goods are a method to reduce negative externalities of polluting firms.

Accepted Answer

A) True 
 B)False

Question 5

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. The above situation is an example of:

Accepted Answer

A)   an external economy.
B)   a spillover cost.
C)   the exclusion principle.
D)   a spillover benefit.E) A) and B)
F) A) and C)

Question 6

If there are external or spillover benefits associated with consumption and production of a product,it can be said that the:

Accepted Answer

A)   government should consider placing a special tax on producers.
B)   government should consider prohibiting the production of the commodity.
C)   supply curve for the product lies too far to the right to provide an efficient allocation of resources.
D)   demand curve understates the total benefit from the product and resources are underallocated to its production.E) A) and B)
F) B) and C)

Question 7

3: A)  efficiency is achieved. B)  an efficiency loss (or deadweight loss) of e + f occurs. C)  an efficiency loss (or deadweight loss) of a + b + c + d occurs. D)  an efficiency loss (or deadweight loss) of a + c occurs." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.If actual production and consumption occur at Q3:

Accepted Answer

A)   efficiency is achieved.
B)   an efficiency loss (or deadweight loss) of e + f occurs.
C)   an efficiency loss (or deadweight loss) of a + b + c + d occurs.
D)   an efficiency loss (or deadweight loss) of a + c occurs.E) A) and B)
F) All of the above

Question 8

If there were a market for pollution rights established by a public agency that determined the amount of pollution that the atmosphere or a body of water can safely absorb,and the agency sold these rights to polluters,we could expect that:

Accepted Answer

A)   the price of these pollution rights would increase over time as the economy grows.
B)   there would be a surplus of pollution rights.
C)   there would be a shortage of pollution rights.
D)   there would be a black market for pollution rights.E) None of the above
F) All of the above

Question 9

Which of the following is most likely to be a private good?

Accepted Answer

A)   Road
B)   Bicycle
C)   Park
D)   City fireworks displayE) A) and B)
F) B) and C)

Question 10

Rivalry means that when one person buys and consumes a product,it is not available for purchase and consumption by another person.

Accepted Answer

A) True 
 B)False

Question 11

If a good that generates negative externalities were priced to account for spillover costs,then its:

Accepted Answer

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

Question 12

If an economy is being "allocatively efficient," then that means the economy is:

Accepted Answer

A)   using the least costly production techniques.
B)   producing the goods and services most wanted by society.
C)   fully employing all economic resources.
D)   maximizing the returns to factors of production.E) A) and B)
F) A) and C)

Question 13

An emission fee levied against polluters will tend to:

Accepted Answer

A)   internalize the internal cost of pollution.
B)   externalize the internal cost of pollution.
C)   internalize the external cost of pollution.
D)   externalize the external cost of pollution.E) A) and D)
F) B) and C)

Question 14

The optimal level of pollution in society occurs whenever:

Accepted Answer

A)   there is no pollution.
B)   the marginal benefit of pollution control equals the marginal cost.
C)   the total benefit of pollution control equals the total cost of pollution.
D)   the average cost of cleaning up the pollution is greater than the marginal cost of cleanup.E) A) and B)
F) B) and C)

Question 15

When the competitive market system does not allocate resources to economically desirable goods,economists say what has occurred?

Accepted Answer

A)   Market failure
B)   Government failure
C)   Externalities
D)   Productive inefficiencyE) None of the above
F) All of the above

Question 16

Allocative efficiency means achieving the optimal or most desired point on the production possibilities curve.

Accepted Answer

A) True 
 B)False

Question 17

The data in the table show the marginal costs and marginal benefits to a city for five different levels of pollution control.  Refer to the above table.What would cause the optimal level of pollution abatement to be 600 tons?

Accepted Answer

A)   An increase in marginal costs by $150,000 at each level
B)   An increase in marginal benefits by $200,000 at each level
C)   A decrease in marginal costs by $150,000 at each level
D)   A decrease in marginal benefits by $100,000 at each levelE) None of the above
F) B) and C)

Question 18

In a free-market economy,a product that entails a spillover benefit will be:

Accepted Answer

A)   overproduced.
B)   underproduced.
C)   produced at the optimal level.
D)   associated only with goods and services provided by the government.E) B) and C)
F) A) and D)

Question 19

Which is an example of a market failure?

Accepted Answer

A)   There are not enough tickets available to concerts of extremely popular performers.
B)   The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and techniques.
C)   Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them.
D)   Extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer industry.E) A) and C)
F) All of the above

Question 20

Suppose the government imposed a carbon tax on firms that emit pollution.Then

Accepted Answer

A)   the firms' marginal cost of production would increase,and the supply curves within the market would shift to the left.
B)   the firms' marginal cost of production would decrease,and the supply curves within the market would shift to the left.
C)   the firms' marginal cost of production would increase,and the supply curves within the market would shift to the right.
D)   the firms' marginal cost of production would decrease,and the supply curves within the market would shift to the right.E) All of the above
F) B) and C)

Exam 5: Market Failures: Public Goods and Externalities

Allocative efficiency means achieving the optimal or most desired point on the production possibilities curve.

Correct Answer
verified

If a good that generates negative externalities were priced to account for spillover costs,then its:

Correct Answer
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It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. The above situation is an example of:

Correct Answer
verified

If there are external or spillover benefits associated with consumption and production of a product,it can be said that the:

Correct Answer
verified

In a free-market economy,a product that entails a spillover benefit will be:

Correct Answer
verified

Rivalry means that when one person buys and consumes a product,it is not available for purchase and consumption by another person.

Correct Answer
verified

When the competitive market system does not allocate resources to economically desirable goods,economists say what has occurred?

Correct Answer
verified

A government is considering undertaking one or more construction projects.The estimated marginal cost and benefit of each project are given in the table. Refer to the above table and information.What is the total amount that the government should spend on construction projects?

Correct Answer
verified

An emission fee levied against polluters will tend to:

Correct Answer
verified

The data in the table show the marginal costs and marginal benefits to a city for five different levels of pollution control. Refer to the above table.What would cause the optimal level of pollution abatement to be 600 tons?

Correct Answer
verified

Correct Answer
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Refer to the above diagram.If actual production and consumption occur at Q₃:

Correct Answer
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Which of the following is most likely to be a private good?

Correct Answer
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The optimal level of pollution in society occurs whenever:

Correct Answer
verified

If an economy is being "allocatively efficient," then that means the economy is:

Correct Answer
verified

Suppose the government imposed a carbon tax on firms that emit pollution.Then

Correct Answer
verified

Which is an example of a market failure?

Correct Answer
verified

According to a study by economists Ian Ayres and Steven Levitt,the division of the total benefit of the Lojack to its owners and all other car owners is:

Correct Answer
verified

If there were a market for pollution rights established by a public agency that determined the amount of pollution that the atmosphere or a body of water can safely absorb,and the agency sold these rights to polluters,we could expect that:

Correct Answer
verified

Taxes on specific goods are a method to reduce negative externalities of polluting firms.

Correct Answer
verified

Exam 5: Market Failures: Public Goods and Externalities

Allocative efficiency means achieving the optimal or most desired point on the production possibilities curve.

Correct AnswerverifiedShow Answer

If a good that generates negative externalities were priced to account for spillover costs,then its:

Correct AnswerverifiedShow Answer

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. The above situation is an example of:

Correct AnswerverifiedShow Answer

If there are external or spillover benefits associated with consumption and production of a product,it can be said that the:

Correct AnswerverifiedShow Answer

In a free-market economy,a product that entails a spillover benefit will be:

Correct AnswerverifiedShow Answer

Rivalry means that when one person buys and consumes a product,it is not available for purchase and consumption by another person.

Correct AnswerverifiedShow Answer

When the competitive market system does not allocate resources to economically desirable goods,economists say what has occurred?

Correct AnswerverifiedShow Answer

A government is considering undertaking one or more construction projects.The estimated marginal cost and benefit of each project are given in the table. Refer to the above table and information.What is the total amount that the government should spend on construction projects?

Correct AnswerverifiedShow Answer

An emission fee levied against polluters will tend to:

Correct AnswerverifiedShow Answer

The data in the table show the marginal costs and marginal benefits to a city for five different levels of pollution control. Refer to the above table.What would cause the optimal level of pollution abatement to be 600 tons?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the above diagram.If actual production and consumption occur at Q3:

Correct AnswerverifiedShow Answer

Which of the following is most likely to be a private good?

Correct AnswerverifiedShow Answer

The optimal level of pollution in society occurs whenever:

Correct AnswerverifiedShow Answer

If an economy is being "allocatively efficient," then that means the economy is:

Correct AnswerverifiedShow Answer

Suppose the government imposed a carbon tax on firms that emit pollution.Then

Correct AnswerverifiedShow Answer

Which is an example of a market failure?

Correct AnswerverifiedShow Answer

According to a study by economists Ian Ayres and Steven Levitt,the division of the total benefit of the Lojack to its owners and all other car owners is:

Correct AnswerverifiedShow Answer

If there were a market for pollution rights established by a public agency that determined the amount of pollution that the atmosphere or a body of water can safely absorb,and the agency sold these rights to polluters,we could expect that:

Correct AnswerverifiedShow Answer

Taxes on specific goods are a method to reduce negative externalities of polluting firms.

Correct AnswerverifiedShow Answer

Correct Answer
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Refer to the above diagram.If actual production and consumption occur at Q₃:

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