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Exam 4: Market Failures: Public Goods and Externalities

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Question 51

Multiple Choice

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At equilibrium in a market for a product, the total revenues received by sellers equal the:

A) Market producer surplus
B) Total amount spent by buyers on the product
C) Total profits of sellers
D) Market consumer surplus

E) B) and D)
F) None of the above

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Question 52

Multiple Choice

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Refer to the above table. The producer surplus is $4 for producer:

A) A
B) B
C) C
D) D

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

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Question 53

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Answer the question based on the following information. Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime control. This table shows the expected annual costs and benefits of these alternatives. Refer to the above information. Based on cost-benefit analysis, Normal University should undertake Level:

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

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of:

Answer the question on the basis of the following information is for public good. P_a and P_b represent the prices that citizens (a) and (b) , the only two people in this nation, are willing to pay for additional units of a quantity (Q_c) of the public good. Q_s represents the quantity of the public good supplied by government at each of the collective prices. Refer to the above information. In equilibrium, the marginal benefit and cost of the public good will be:

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

Which of the following would be considered an example of adverse selection?

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.

A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table. Refer to the above table and information. What is the total cost and total benefit of projects 1, 2, and 3?

In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

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 benefits of each of the four projects are given in the table. Refer to the above table and information. What is the net benefit of project D?

The free-rider problem makes a good highly profitable for a private firm to provide.

Refer to the graph above. Suppose consumers do not fully appreciate the benefits of the product whose market shown in the graph. If an external agency is able to provide full information about the benefits of the product, then:

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, consumer surplus would be represented by the area:

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a fireworks display, then we'd have a demand-side market failure.

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

A competitive market can produce economically efficient outcomes if these conditions are met, except:

In a well-functioning cap-and-trade system for pollution rights, the right to pollute will go to those who are able to acquire the largest net benefit from using the scarce resource "clean air".