MICRO CH. 5

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Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would A-result in a price that is lower than the efficient price for both goods. B-result in a price that is higher than the efficient price for both goods. C-result in a price that is lower than the efficient price for the good with an external benefit and a price that is higher than the efficient price for the good with an external cost. D-result in a price that is higher than the efficient price for the good with an external benefit and a price that is lower than the efficient price for the good with an external cost.

A

From the standpoint of economic efficiency, markets tend to provide A-less of a public good than would be efficient. B-more of a public good than would be efficient. C-exactly the amount of a public good that is efficient. D-none of the above.

A

If education creates external benefits, A-actual market outcomes provide less than the efficient quantity of education. B-actual market outcomes provide more than the efficient quantity of education. C-actual market outcomes provide a higher price than the efficient price of education. D-the government should impose a depletion tax.

A

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium? A-The efficient outcome would be greater than 150 units. B-The efficient outcome would be less than 150 units. C-The efficient outcome would also be 150 units. D-The efficient price would be less than $14.

A

Suppose external benefits are present in a market which results in the actual market price of $49 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium? A-The efficient price would be higher than $49. B-The efficient price would be lower than $49. C-The efficient price would also be $49. D-The efficient output would be less than 800 units.

A

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency? A-The price would be too low, and the output would be too large. B-The price would be too high, and the output would be too large. C-The price would be too low, and the output would be too small. D-The price would be too high, and the output would be too small.

A

Because the benefits derived from an activity decline as it is expanded, it is generally A-wise to undertake all actions that generate benefits. B-efficient to stop well before perfection is achieved. C-best to continue as long as it is possible to derive some additional benefits. D-unwise to engage in activities for which the benefits decline as you do more of it.

B

If government taxes a firm which pollutes this will A-Increase the demand for the good produced. B-decrease the supply of the good produced. C-increase the equilibrium quantity of the good produced in the market. D-decrease the equilibrium price of the good produced in the market. E-all of the above.

B

If production of a good creates pollution costs that impose an externality, firms will produce A-too little of the good. B-too much of the good. C-an optimal amount of the good. D-cannot be determined without additional information.

B

Suppose external costs are present in a market which results in the actual market price of $24 and market output of 325 units. How does this outcome compare to the efficient, ideal equilibrium? A-The efficient outcome would be greater than 325 units. B-The efficient outcome would be less than 325 units. C-The efficient outcome would also be 325 units. D-The efficient price would be less than $24.

B

Which of the following about public goods is true? A-Consumption of a public good by one individual reduces the availability of the good for others. B-It is extremely difficult to limit the benefits of a public good to only the people who pay for it. C-Public goods are free to a society when they are produced by the government. D-From an efficiency standpoint, a market will generally supply too much of a public good.

B

How does an additional individual's consumption of a good that is nonrival-in-consumption, such as a radio broadcast, affect the amount of the good available to other consumers? A-The amount available to others will decline. B-The amount available to others will increase. C-The amount available to others is unaffected. D-The amount available to others is eliminated.

C

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce A-too much of both goods. B-too little of both goods. C-too much of the good that generates external benefits and too little of the good that generates external costs. D-too little of the good that generates external benefits and too much of the good that generates external costs.

D

Externalities cause the market mechanism to allocate goods and resources inefficiently because A-nonconsenting third parties are generally not hurt by externalities. B-producers and consumers ignore signals given by the competitive market. C-prices are always higher than they should be. D-competitive markets fail to give producers and consumers correct price signals.

D

When a good is nonexcludable, A-it is impossible or very costly to exclude nonpaying customers from receiving the good. B-individuals will have an incentive to become free riders. C-it will be difficult for a private firm producing the good to generate revenue sufficient to cover the cost of production. D-all of the above are true.

D


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