Question 1

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 2

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay.Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like.This is an example of a

Accepted Answer

A)  negative externality.
B)  supply-side market failure.
C)  demand-side market failure.
D)  government failure.E) A) and B)
F) A) and C)

Question 3

Market failures

Accepted Answer

A)  are only a concern when they result in prices that are too high.
B)  apply exclusively to situations where private markets do not produce any of an economically desirable good.
C)  result in overproduction or underproduction of a good.
D)  result from government interference in private markets.E) A) and D)
F) B) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Private firms can hardly produce a public good profitably because of

Accepted Answer

A)  liability rules and lawsuits.
B)  the free-rider problem.
C)  shortages and surpluses.
D)  moral hazard and adverse selection.E) A) and B)
F) All of the above

Question 7

When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following situations is not an example of market failure?

Accepted Answer

A)  Ben's Department Store cannot charge passers-by for using the sidewalk outside the store.
B)  Ben cannot afford to buy a high-end Mercedes Benz luxury car.
C)  Ben's Place is the only restaurant in town, and thus he has significant power to set menu prices.
D)  Ben's Industries is dumping its wastewater into the unregulated river behind the factory.E) All of the above
F) A) and D)

Question 9

Toll-free roads sometimes get congested, such as during rush-hour traffic.During those times, we would say that these roads are

Accepted Answer

A)  excludable and rival.
B)  excludable and nonrival.
C)  nonexcludable and nonrival.
D)  nonexcludable and rival.E) A) and D)
F) A) and C)

Question 10

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

Accepted Answer

A) True 
 B)False

Question 11

At the output where the combined amounts of consumer and producer surplus are largest,

Accepted Answer

A)  the areas of consumer and producer surplus necessarily are equal.
B)  the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
C)  consumer surplus exceeds producer surplus by the greatest amount.
D)  marginal benefit exceeds marginal cost by the greatest amount.E) B) and C)
F) All of the above

Question 12

(Consider This)  Suppose that a new band, "Balin and the Wolf Riders," tries to sell its music on the Internet.Economists would expect

Accepted Answer

A)  all of those enjoying the music to pay for downloads and compensate the band for its costs.
B)  some of those enjoying the music to "free ride" through illegal file sharing and digital piracy.
C)  government to tax those attempting to download the band's music.
D)  there to be no consumer surplus for those who download the band's music.E) C) and D)
F) A) and C)

Question 13

At the output level defining allocative efficiency,

Accepted Answer

A)  the areas of consumer and producer surplus necessarily are equal.
B)  marginal benefit exceeds marginal cost by the greatest amount.
C)  consumer surplus exceeds producer surplus by the greatest amount.
D)  the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.E) C) and D)
F) A) and B)

Question 14

Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized.This illustrates

Accepted Answer

A)  the adverse selection problem.
B)  the moral hazard problem.
C)  the special interest effect.
D)  logrolling.E) A) and C)
F) B) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

When the total consumer and producer surplus is at a maximum, the deadweight loss in the market is zero.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements about market failure is not true?

Accepted Answer

A)  Market failure causes an inefficient allocation of resources, even in a competitive market.
B)  Market failure can come from causes on the demand side or the supply side of a market.
C)  Market failure always results from some government action or policy in a market.
D)  Market failure can result from the number of sellers in a market being too few to ensure competition.E) A) and B)
F) B) and C)

Question 18

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) B) and C)
F) None of the above

Question 19

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

Question 20

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

Exam 4: Market Failures: Public Goods and Externalities

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

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When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

Correct AnswerverifiedShow Answer

Which of the following situations is not an example of market failure?

Correct AnswerverifiedShow Answer

Toll-free roads sometimes get congested, such as during rush-hour traffic.During those times, we would say that these roads are

Correct AnswerverifiedShow Answer

When the total consumer and producer surplus is at a maximum, the deadweight loss in the market is zero.

Correct AnswerverifiedShow Answer

At the output level defining allocative efficiency,

Correct AnswerverifiedShow Answer

Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized.This illustrates

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

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

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

Correct AnswerverifiedShow Answer

(Consider This) Suppose that a new band, "Balin and the Wolf Riders," tries to sell its music on the Internet.Economists would expect

Correct AnswerverifiedShow Answer

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay.Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like.This is an example of a

Correct AnswerverifiedShow Answer

Market failures

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

Correct AnswerverifiedShow Answer

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

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Which of the following statements about market failure is not true?

Correct AnswerverifiedShow Answer

Private firms can hardly produce a public good profitably because of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

At the output where the combined amounts of consumer and producer surplus are largest,

Correct AnswerverifiedShow Answer

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

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