ECON 202 Chp 4

An efficiency loss (or deadweight loss): A. Is measured as the combine loss of consumer surplus and producer surplus B. Results from producing a unit of output for which the maximum willingness to pay exceeds the minimum acceptable price C. Can result from underproduction, but not from overproduction D. Can result from overproduction, but not from underproduction

A

Market failure is said to occur whenever: A. Private markets do not allocate resources in the most economically desirable way B. Prices rise C. Some consumers who want to good do not obtain it because the price is higher than they are willing to pay D. Government intervenes in the functioning of private markets

A

A positive externality or spillover benefit occurs when: A. Product differentiation increases the variety of products available to consumers B. The benefits associated with the product exceed those occurring to people consume it C. A firm does not bear all of the cost of producing a good or service D. Firms earn positive economic profits

B

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: A. The adverse selection problem B. The moral hazard problem C. The special interest effect D. Logrolling

B

Graphically, if the supply and demand curves are linear consumer surplus is measured as the triangle: 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

B

The market system does not produce public goods because: A. There is no need or demand for such goods B. Private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them C. Public enterprises can produce such goods at lower cost than can private enterprises D. Their production seriously distorts the distribution of income

B

At the optimal quantity of a public good: A. Marginal benefit exceeds marginal cost by the greatest amount B. Total benefit equals total cost C. Marginal benefits equals marginal cost D. Marginal benefit is zero

C

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made made to pay. Because those who put up lights won't be able to charge others to view them, they don't put up as many lights as people would like. This is an example of a: A. Negative externality B. Supply side market failure C. Demand side market failure D. Government failure

C

The trains of the transcontinental railway company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If transcontinental does not pay for the damage it causes, what has occurred? A. Positive externally B. Demand side market failure C. Supply side market failure D. All of these

C

The two main characteristics of a public good are: A. Production at a constant marginal cost and rising demand B. Nonexcludability and production at rising marginal cost C. Nonrivalry and nonexcludability D. Nonrivalry and large negative externalities

C

Where there is asymmetric information between buyers and sellers: A. Product shortages will occur at the equilibrium price B. Product surpluses will occur at the equilibrium price C. Markets can produce inefficient outcomes D. Markets will fail due to the "free-rider problem"

C

Which of the following conditions does not need to occur for a market to achieve allocative efficiency? A. Consumers' maximum willingness to pay equals producers' minimum acceptable price for the last unit of output B. The sun of producer and consumer surplus is maximized C. The total revenue received by the producers equals the total cost of production D. The marginal benefit of the last unit produced equals the marginal cost of producing that unit

C

A public good: A. Can be profitably produced by private firms B. Is characterized by rivalry and excludability C. Produces no positive or negative externalities D. Is available to all and cannot be denied to anyone

D

From society's perspective, in the presence of supply side market failure, the last unit of a good produce typically: A. Generates more of a benefit than it's costs produce B. Produces a benefit exactly equal to the cost of producing the last unit C. Maximizes the net benefit to society D. Cost more to produce that it provides and benefits

D

Graphically, producer surplus is measure as the area: 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

D

Suppose that the Anytown city government asked private citizens to donate money to support the towns annual holiday lighting display. Assuming that the citizens of any Anytown enjoy the lighting display, the request for donation suggest that: A. The display creates negative externalities B. Government should tax producers of holiday lighting C. Resources are currently overallocated to the provision of holiday lighting in Anytown D. Resources are currently underallocated to the provision of holiday lighting in Anytown

D