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1.

award:

10 out of 10.00 points


Market failure is said to occur whenever: private markets do not allocate resources in the most economically desirable way. prices rise. some consumers who want a good do not obtain it because the price is higher than they are willing to pay. government intervenes in the functioning of private markets.

2.
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10 out of 10.00 points


Which of the following is an example of market failure? negative externalities positive externalities public goods all of these

3.
award:

10 out of 10.00 points


What two conditions must hold for a competitive market to produce efficient outcomes? Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. Firms must minimize production costs, and consumers must minimize total expenditures. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay

4.
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10 out of 10.00 points


The two main characteristics of a public good are: production at constant marginal cost and rising demand. nonexcludability and production at rising marginal cost. nonrivalry and nonexcludability. nonrivalry and large negative externalities.

5.
award:

10 out of 10.00 points


Unlike a private good, a public good: has no opportunity costs. has benefits available to all, including nonpayers. produces no positive or negative externalities. is characterized by rivalry and excludability.

6.
award:

10 out of 10.00 points


Which of the following is an example of a public good? a weather warning system a television set a sofa a bottle of soda

7.
award:

10 out of 10.00 points


Nonexcludability describes a condition where: one person's consumption of a good does not prevent consumption of the good by others. there is no effective way to keep people from using a good once it comes into being. sellers can withhold the benefits of a good from those unwilling to pay for it. there is no potential for free-riding behavior.

The following data are for a series of increasingly extensive flood control projects:

8.
Refer to the above data. On the basis of cost-benefit analysis government should undertake: Plan D. Plan C. Plan B. Plan A.

9.
award:

10 out of 10.00 points


A negative externality or spillover cost occurs when: firms fail to achieve allocative efficiency. firms fail to achieve productive efficiency. the price of the good exceeds the marginal cost of producing it. the total cost of producing a good exceeds the costs borne by the producer.

10.
award:

10 out of 10.00 points


(Consider This) According to the Coase theorem: government should levy excise taxes on firms that generate spillover or external costs. taxes should be levied such that they change private behavior as little as possible. private individuals can often negotiate their own resolution of externality problems, without the need for government intervention. private firms should not provide public goods.

11.
award:

10 out of 10.00 points


(Last Word) In a cap-and-trade program: government fixes the price of pollution rights and firms choose how many permits to purchase. government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other. each firm is provided a fixed number of permits for a particular pollutant and no individual firm is allowed to acquire additional permits. firms can emit whatever type of pollutant they want, so long as the total tonnage does not exceed a government established quantity.

12.
(Last Word) A cap-and-trade program: assigns a property right to the atmosphere. mandates that every firm individually cuts its emissions to below a certain level. assigns a property right to polluting the atmosphere. is easy to establish and enforce.

13.
An emission fee levied against polluters will tend to: Internalize the internal cost of pollution Externalize the internal cost of pollution Internalize the external cost of pollution Externalize the external cost of pollution

14.
award:

10 out of 10.00 points


It has been proposed that a government agency be charged with the task of determining the amount of pollution which the atmosphere or a body of water can safely absorb, establish "rights" to this limited amount of pollution, and sell these limited rights to polluters in a cap-and-trade system. What would be the advantage of such a market for pollution rights? Government agencies can make a great deal of money Pollution would be eliminated because nobody would want to pay for such a right The quality of water or air can be maintained at some acceptable standard through economic incentives The social consciousness of people would be raised as they obtain more appreciation for the importance of conservation

15.
By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars: Decreasing and the quantity increasing Decreasing and the quantity decreasing Increasing and the quantity increasing Increasing and the quantity decreasing

16.
Where there is asymmetric information between buyers and sellers. product shortages will occur at the equilibrium price. product surpluses will occur at the equilibrium price. markets can produce inefficient outcomes. markets will fail due to the "free-rider problem."

17.
As it applies to insurance, the moral hazard problem is the tendency for: those most likely to collect on insurance to buy it. those who buy insurance to take less precaution in avoiding the insured risk. sellers to price discriminate. sellers to restrict output and charge high prices.

18.
award:

10 out of 10.00 points


Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the: free-rider problem. principal-agent problem. adverse selection problem. moral hazard problem.

19.
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: the adverse selection problem. the moral hazard problem. the special interest effect. logrolling.

20.
Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates: the principal-agent problem. the moral hazard problem. the free-rider problem. asymmetric information.

21.
Upon learning that his auto transmission is about to fail, Ray Roma sells his car to an unsuspecting buyer. This circumstance illustrates: asymmetric information. the free-rider problem. the moral hazard problem. the principal-agent problem.

22.
award:

10 out of 10.00 points


Because majority voting fails to incorporate the strength of the preferences of individual voters, it: creates negative externalities. produces economically inefficient outcomes under some circumstances. leads to market failure. leads to politics dominated by special interest groups.

22.
award:

10 out of 10.00 points


Because majority voting fails to incorporate the strength of the preferences of individual voters, it: creates negative externalities. produces economically inefficient outcomes under some circumstances. leads to market failure. leads to politics dominated by special interest groups.

24.
award:

10 out of 10.00 points


Suppose that Steve and Susie each perceive $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800. If the proposed tax levied on each for the park would be $300, a majority vote will: defeat this project and resources will be underallocated to it. defeat this project and resources will be efficiently allocated. pass this project and resources will be underallocated to it. pass this project and resources will be overallocated to it.

Answer the next question on the basis of this table showing the marginal benefit that a particular public project will provide to each of the three members of a community. No vote trading is allowed.

25.
award:

10 out of 10.00 points


If the tax cost of this proposed project is $600 per person, a majority vote will: defeat this project and resources will be underallocated to it. defeat this project and resources will be allocated efficiently. pass this project and resources will be overallocated to it. defeat this project and resources will be overallocated to it.

26.
award:

10 out of 10.00 points


According to the paradox of voting: public goods that cost more than the total benefits they confer may get produced under majority voting. trading of votes may either add to or subtract from economic efficiency. the median voter decides what public goods all voters should have. majority voting fails under some circumstances to make consistent choices that reflect the community's underlying preferences.

27.
award:

10 out of 10.00 points


Refer to the above table. In a choice between the highway and the lighthouse: a majority of voters favor the lighthouse. a majority of voters favor the highway. the voters are indifferent as between the two. no voter decision is possible. Learning Objective: 17-02 Explain the difficulties of conveying economic preferences through majority voting.

Multiple Choice

Difficulty: 2 Medium

28.
Refer to the above table. The inconsistency illustrated by the table is that, while a majority of voters prefer the: highway to the lighthouse and the submarine to the highway, they also prefer the lighthouse to the submarine. lighthouse to the highway and the lighthouse to the submarine, they also prefer the submarine to the highway. highway to the lighthouse and the submarine to the lighthouse, they also prefer the submarine to the highway. lighthouse to the submarine and the highway to the submarine, they also prefer the highway to the lighthouse.

29.
The median-voter model implies that a political office seeker will: adopt more extreme views when seeking his or her party's nomination than when running against the other party's opponent. adopt less extreme views when seeking his or her party's nomination than when running against the other party's opponent. favor extensive government spending because demand curves for public goods are added vertically rather than horizontally. favor the private resolution of externality problems rather than governmental intervention.

30.
award:

10 out of 10.00 points


Some people argue that the three main television networks all have similar programming. If true, this observation might best be explained by the: paradox of voting. median-voter model. law of diminishing marginal utility. ability-to-pay principle.

31.
According to public choice theorists, the private sector is more efficient than the public sector mainly because: the private sector has a clear test of performance: profit and loss. wages, salaries, and fringe benefits are higher in the private sector. worker turnover is higher in the public sector. of extensive negative externalities in the public sector.

32.
Suppose American winemakers convince the Federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of: moral hazard. the principal-agent problem. logrolling. rent-seeking behavior.

33.
Public choice theorists hold that politicians will: favor programs entailing immediate and clear-cut costs and vaguely defined or deferred benefits. follow policies leading to an optimal allocation of resources between public and private sectors. favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred costs. objectively weigh the costs and benefits of various government programs and vote accordingly.

34.
award:

10 out of 10.00 points


When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reflects the: paradox of voting. special-interest effect. benefits-received principle. idea of limited and bundled choice.

35.
award:

10 out of 10.00 points


(Consider This) The "lemon" problem associated with the market for used cars: results from asymmetric information and the moral hazard problem. results from asymmetric information and adverse selection. is an example of the principal-agent problem at work. in an example of a spillover benefit.