Eco Final 3

Which of the following is an example of the free-rider problem?

A neighbor who refuses to help pay for a street light that is intended to help reduce crime

Suppose that the market price of good X equals the firms cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

An external benefit is associated with good X

Functions of government include which of the following? a. correcting for externalities b. promoting competition c. producing all private goods

Both A and B

Which of the following is an example of a public good?

National defense

Which of the following is best characterized as a public good?

Police protection

An externality can best be defined as

a consequence of a transaction that spills over to affect third parties

A negative externality is a situation in which

a cost associated with an economic activity is borne by a third party

An external cost, such as the cost generated by pollution, is

a cost paid by a third party or by society at large

An economic activity that, from the perspective of society, results in too few or too many resources going to a specific economic activity once external benefits or costs are taken into account is called

a market failure

A friend of yours receives a voucher for an apartment in a public housing project. This apartment represent

a private good

Which of the following goods is NOT subject to the free-rider problem?

a public transit system

A government action that can help correct positive externalities is

a subsidy to consumers of the good that provides external benefits

A negative externality such as pollution can be corrected by

a tax on producers

When a paper producer pollutes the air, economists argue that there is

an external cost

A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called

an externality

Pollution is caused by a market failure, in an industry in which there is

an overallocation of resources in production

Market failure occurs when

an unrestrained market economy leads to too few or too many resources going to a specific economic activity

To protect the competitive economic system by restricting the formation of monopolies, the government has passed and enforced

antitrust laws

Federal antitrust laws in the US are enforced

by the Department of Justice and by the Federal Trade Commission

A fundamental aspect of public goods is that they

can be consumed jointly by many people simultaneously

One characteristic of a public good is that it

can be consumed simultaneously by many individuals

All of the following illustrate how government can correct for positive externalities EXCEPT

charging effluent fees

Which of the following would be classified as a private good?

clothing

The principle feature of private goods is that

consumption by one person reduces the quantity available to others

In the US economy, which of the following is NOT a generally accepted economic function of government?

distributing consumer goods

Which of the following is NOT an economic function of the US government?

encouraging production of demerit goods

The economic role of the legal system might best be described as

establishing the 'rules if the game' and acting as a referee when disputes arise among market participants

Which of the following leads to an under allocation of resources to a specific economic activity?

external benefits

Society is likely to overallocate resources to produce goods that

generate negative externalities

An effluent fee

gives a firm the right to pollute if it pays a tax on what it discharges

Government can correct for negative externalities by

increasing taxes or regulation

Which of the following often involves positive external benefits?

inoculation programs

The US legal system mainly engages in activities that

involve defining and protecting property

In the US, the idea that the federal government should undertake actions to stabilize business activity

is a relatively new idea that developed in the years during and after the Great Depression

US antitrust laws view monopolies as undesirable because

monopolies restrain trade and promote in efficiencies

Public goods are

neither exclusive nor rival

Public goods are unlikely to be provided by the private sector because

no one can be excluded from the consumption of the good

Public goods are characterized by the free-rider problem because

no one can excluded from the benefits of public goods once they are produced

Suppose that the rapper Eminem decides to perform in Chicago's Grand Park. The concert promoters rightly believe that the only way the concert can be given in the park is if the concert is free. This conclusion is based on the assumption that the concert would be

non excludable in consumption

Public goods are essentially

nonrivial in consumption

When an external cost exists, firms tend to

overproduce the good

A subsidy is sometimes used by the government to correct the problems associated with

positive externalities

Market failures

prevent the price system from attaining economic efficiency

Federal antitrust laws in the US are intended to

promote competition by prohibiting monopolies

To correct for the underproduction of products with positive externalities, the government must

provide the incentives for the private sector to produce the good

Public goods are

provided to additional users at no additional cost

Which of the following is NOT an economic function of government?

providing demerit goods

In the absence of government,

public goods are likely to be underprovided

Which one of the following is NOT a characteristic of public goods?

public goods are subject the principle of rival consumption

Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that

resources are over allocated to the industry

An externality exists when

some of the benefits or costs associated with a good are borne by third parties

The free-rider problem is encountered when

someone benefits from the consumption of a public good without paying his or her full share

Assume the production of a good gives rise to external benefits. The government may increase efficiency by

subsidizing production of the good

If the production of a product results in significant external costs, an appropriate government policy might be to

tax the producer and thus shift the supply curve to the left

When the production of one good spills benefits over to third parties, the government should consider all of the following EXCEPT

taxing the production or consumption of the good

Private goods are those goods

that can only consumed by one individual at a time

The Do-Good company produces goods that provide benefits to society-at-large. If consumers of Do-Good's products fail to take external benefits into account,

the demand curve will be too far to the left

The economic functions of government differ from the political functions of government in that

the economic functions involve things that affect the way exchange is carried out while the political functions include policies that affect income redistribution

Which of the following does NOT generate positive external benefits to society?

the haphazard dispose of industrial wastes

If production of an item results in negative external costs, then

the market price is below the socially preferred price that reflects the external costs

A result of a positive externality in the production of a good is that

the price system will under allocate resources to the production of that good or service

The distinguishing characteristic of private goods is that

their use is exclusive to the people who purchase them

When consumers are sovereign,

they have the freedom to decide what they wish to purchase

When an Australian citizen enjoys military protection in Australia without contributing to the cost of Australia's defense budget, then

this citizen is a free rider

A government subsidy is typically used

to encourage a positive externality

A firm that has a great deal of control over the price of a good is said

to have monopoly power

Which of the following does NOT describe the intended purpose of the antitrust laws of the US?

to prohibit certain economic activities that promote trade

The legal system in the US tends

to promote competition

The purpose of antitrust legislation is

to reduce the power monopoly

Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large. Each individuals demand curve will shift _________, and the market demand curve for the product will shift ___________.

to the right; to the right

Which of the following statements is TRUE?

transfer payments are money payments made by the government for which no goods or services are currently received

When a good causes positive external benefits to accrue to third parties, an unfettered market will

under allocate resources to the good causing the benefit

The opportunity cost of providing a public good to an additional individual is

zero