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) A) and B)

Question 2

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

Accepted Answer

A)   overcomes product 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) B) and D)
F) C) and D) A

Question 3

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) None of the above
F) All of the above

Question 4

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to
S1 in diagram (a)  on the left and from S to S2 in diagram (b)  on the right. We can conclude that the
Government is correcting for

Accepted Answer

A)   negative externalities in diagram (a)  and positive externalities in diagram (b) .
B)   positive externalities in diagram (a)  and negative externalities in diagram (b) .
C)   negative externalities in both diagrams.
D)   positive externalities in both diagrams.E) A) and B)
F) A) and C) A

Question 5

Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas

Accepted Answer

A)   a + b.
B)   a + b + c + d.
C)   c + d.
D)   a + c.E) A) and B)
F) B) and D)

Question 6

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. One way that
The government could shift supply to its socially optimal level is to

Accepted Answer

A)   tax the sellers.
B)   subsidize the buyers.
C)   provide the product.
D)   regulate the production of the good.E) A) and D)
F) None of the above

Question 7

Refer to the provided graph of a competitive market. If the output level increases from Q2 to Q3, then the

Accepted Answer

A)   marginal cost of the product becomes closer to its marginal beneﬁt.
B)   marginal cost of the product increases, while its marginal beneﬁt decreases.
C)   marginal cost of the product decreases, while its marginal beneﬁt increases.
D)   marginal cost of the product stays constant, while its marginal beneﬁt increases.E) B) and C)
F) B) and D)

Question 8

Allocative eﬃciency occurs only at that output where

Accepted Answer

A)   marginal beneﬁt exceeds marginal cost by the greatest amount.
B)   consumer surplus exceeds producer surplus by the greatest amount.
C)   the combined amounts of consumer surplus and producer surplus are maximized.
D)   the areas of consumer and producer surplus are equal.E) A) and B)
F) A) and C)

Question 9

Graphically, producer surplus is measured as the area

Accepted Answer

A)   under the demand curve and below the actual price.
B)   under the demand curve and above the actual price.
C)   above the supply curve and above the actual price.
D)   above the supply curve and below the actual price.E) B) and C)
F) A) and C)

Question 10

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the producer surplus would be represented by the area

Accepted Answer

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

Question 11

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

Question 12

(Consider This) There are no external costs with being on the roadways during peak driving hours;
there are only private costs that include your gasoline and opportunity cost of time spent in traﬃc.

Accepted Answer

A) True 
 B)False

Question 13

Deﬁne the term producer surplus.

Accepted Answer

Producer surplus is the difference betwe...

Question 14

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) All of the above
F) None of the above

Question 15

The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called

Accepted Answer

A)   production costs.
B)   producers' supply.
C)   producer surplus.
D)   surplus production.E) B) and C)
F) All of the above

Question 16

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) B) and C)

Question 17

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 C)
F) A) and B)

Question 18

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)

Accepted Answer

A)   reverse wealth problem.
B)   negative externality problem.
C)   adverse selection problem.
D)   moral hazard problem.E) A) and B)
F) A) and C)

Question 19

(Last Word) The government should choose pollution abatement for all sources of pollution where
the marginal beneﬁt exceeds the marginal cost of that action.

Accepted Answer

A) True 
 B)False

Question 20

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external beneﬁts associated with the
Production of Z, then

Accepted Answer

A)   government can improve the allocation of resources by subsidizing consumers of Z.
B)   government can improve the allocation of resources by imposing a per-unit tax on Z.
C)   a government subsidy for producers of Z would ensure that consumers are paying directly for all of the beneﬁts they receive from Z.
D)   consumers are paying too much for the good.E) None of the above
F) A) and B)

Exam 4: Market Failures Caused by Externalities Asymmetric Information

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

Correct Answer
verified

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

Correct Answer
verified
A

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

Correct Answer
verified
A

Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas

Correct Answer
verified

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. One way that The government could shift supply to its socially optimal level is to

Correct Answer
verified

Refer to the provided graph of a competitive market. If the output level increases from Q2 to Q3, then the

Correct Answer
verified

Allocative eﬃciency occurs only at that output where

Correct Answer
verified

Graphically, producer surplus is measured as the area

Correct Answer
verified

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the producer surplus would be represented by the area

Correct Answer
verified

Producer surplus is the difference between

Correct Answer
verified
C

(Consider This) There are no external costs with being on the roadways during peak driving hours; there are only private costs that include your gasoline and opportunity cost of time spent in traﬃc.

Correct Answer
verified

Deﬁne the term producer surplus.

Correct Answer
verified
Producer surplus is the difference betwe...
View Answer

Correct Answer
verified

The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called

Correct Answer
verified

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 Answer
verified

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

Correct Answer
verified

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)

Correct Answer
verified

(Last Word) The government should choose pollution abatement for all sources of pollution where the marginal beneﬁt exceeds the marginal cost of that action.

Correct Answer
verified

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external beneﬁts associated with the Production of Z, then

Correct Answer
verified

Exam 4: Market Failures Caused by Externalities Asymmetric Information

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedA

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

Correct AnswerverifiedA

Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas

Correct AnswerverifiedShow Answer

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. One way that The government could shift supply to its socially optimal level is to

Correct AnswerverifiedShow Answer

Refer to the provided graph of a competitive market. If the output level increases from Q2 to Q3, then the

Correct AnswerverifiedShow Answer

Allocative eﬃciency occurs only at that output where

Correct AnswerverifiedShow Answer

Graphically, producer surplus is measured as the area

Correct AnswerverifiedShow Answer

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the producer surplus would be represented by the area

Correct AnswerverifiedShow Answer

Producer surplus is the difference between

Correct AnswerverifiedC

(Consider This) There are no external costs with being on the roadways during peak driving hours; there are only private costs that include your gasoline and opportunity cost of time spent in traﬃc.

Correct AnswerverifiedShow Answer

Deﬁne the term producer surplus.

Correct AnswerverifiedProducer surplus is the difference betwe...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called

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

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

Correct AnswerverifiedShow Answer

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)

Correct AnswerverifiedShow Answer

(Last Word) The government should choose pollution abatement for all sources of pollution where the marginal beneﬁt exceeds the marginal cost of that action.

Correct AnswerverifiedShow Answer

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external beneﬁts associated with the Production of Z, then

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified
Producer surplus is the difference betwe...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified