Economics Chapter 4 Practice
____________ means that buyers who are willing and able to pay the market price for the product obtain its benefits, but those unable or unwilling to pay the price do not.
Excludability
A positive externality (or spillover benefit) resulting in an underallocation of resources to the market is a type of market __________.
failure
Consumer surplus and price are _________ related.
inversely
Water and air pollution both result in a market failure known as a(n) _________ ________, or a spillover cost.
negative externality
When there is no effective way of keeping individuals from the benefit of a good once it comes into existence, the characteristic of the good becomes distinguished by ____________.
nonexludability
Low-interest student loans and government funding of school budgets are examples of correcting for a(n) _________ externality.
positive
All markets that have upward-sloping supply curves yield ________ surplus.
producer
A ______________-side market failure occurs when a market does not reflect the full cost of producing a good or service.
supply
The ____________ curve shows the seller's minimum acceptable price at each unit of product.
supply
Government can finance the demand for public goods through ____________.
taxation
What is the area depicted below the demand curve and above the market price? a) Producer surplus b) Consumer surplus c) Product surplus
b) Consumer surplus
Which of the following direct controls have dominated American air pollution policy? a) No limits on allowable pollution b) Limits on allowable pollution c) Flexible emission standards d) Uniform emission standards e) Heterogeneous emission standards
b) Limits on allowable pollution d) Uniform emission standards
What kind of relationship exists between the equilibrium price and the amount of producer surplus? a) Inverse b) Positive c) Negative
b) Positive
Which of the following happens when a market does not reflect the full cost of producing a good or service? a) Allocative inefficiency b) Supply-side market failure c) Producer surplus d) Productive inefficiency e) Demand-side market failure
b) Supply-side market failure
An externality causes some of the benefits or costs of a market transaction to be passed on to a: a) market supplier b) third party c) government entity d) market consumer
b) third party
Consumer surplus is the area _________ the demand curve and _________ the market.
below, above
Negative externalities such as pollution __________ the utility of people and the communities they live and work in, rather than __________ it. a) reduce; reduce b) increase; increase c) reduce; increase d) increase; reduce
c) reduce; increase
The downward slope of the willingness-to-pay curves of public goods can be explained by: a) the law of increasing marginal returns b) the law of demand c) the law of diminishing marginal utility d) the marginal principle e) the law of supply
c) the law of diminishing marginal utility
Which of the following reduces producer surplus? a) Greater economic surplus b) Higher prices c) Lower consumer surplus d) Lower prices e) Constant prices
d) Lower prices
A deadweight loss is also known as: a) economic surplus b) a producer surplus c) a consumer surplus d) an efficiency loss
d) an efficiency loss
The law of diminishing marginal utility is important to the provision of public goods because ________, thus explaining the downward slope of the collective demand curve. a) as is true for private goods, successive units of any good yield more and more added costs b) as is true for private goods, successive units of any good yield less and less added costs c) as is true for private goods, successive units of any good yield more and more added benefit d) as is true for private goods, successive units of any good yield less and less added benefit
d) as is true for private goods, successive units of any good yield less and less added benefit
Surveys and public voting enable the government to: a) estimate the demand for private goods b) estimate the price elasticity of demand for private goods c) estimate the price elasticity of demand for public goods d) estimate the demand for public goods
d) estimate the demand for public goods
The downward-sloping willingness to-pay curves for public goods are also known as: a) marginal-cost curves b) marginal-revenue curves c) total-cost curves d) marginal-benefit curves e) total-benefit curves
d) marginal-benefit curves
The marginal-cost/marginal-benefit rule can actually help determine what project provides the ________ of total benefits over total costs. a) maximum investment b) maximum utility c) maximum elasticity d) maximum excess
d) maximum excess
The following are all examples of a public good, except: a) army helicopter b) fire station c) police car d) sneakers e) highway
d) sneakers
If society wants a public good: a) society will have to direct households to provide it. b) society will have to direct firms to provide it. c) society will have to direct nonprofits to provide it. d) society will have to direct government to provide it.
d) society will have to direct government to provide it.
Cost-benefit analysis can help the _________ decide on the extent to which a public project should be pursued.
government
The marginal benefit curve for pollution reduction slopes downward because of the law of diminishing marginal __________.
utility
When government subsidizes producers of a product, the supply curve for that particular product will shift to the _________.
right
Two examples of government corrections for an under-allocation of resources in a market (a positive externality) are: a) financial aid b) providing education budgets c) taxing pharmaceutical suppliers d) setting market prices
a) financial aid b) providing education budgets
The optimal reduction of an externality occurs when society's marginal cost _______ the marginal benefit of reducing that externality. a) is equal to b) is less than c) is greater than
a) is equal to
When positive external benefits occur, the market demand curve lies to the _______ of, or _______ the full-benefits demand curve. a) left;below b) right;below c) right;above d) left;above
a) left;below
Examples of public and quasi-public goods include: a) post offices b) submarines c) parks d) clothing e) televisions
a) post offices b) submarines c) parks
As pollution continues to be reduced: a) the marginal cost to firms and society rises b) the marginal cost to firms and society falls c) the marginal benefit to firms and society rises d) the marginal benefit to firms and society is equalized
a) the marginal cost to firms and society rises
Government can correct the _______ of resources by subsidizing consumers of the product. a) under-allocation b) efficiency c) overproduction d) overallocation
a) under-allocation
National defense is an example of a ________ good.
public
The collective demand curve for a __________ good is found by __________ vertically the individual willingness-to-pay curves.
public, summing
Because the economy's resources are _________, decisions to use more resources in the public sector will mean fewer resources for the __________ sector.
scarce, private
Government intervention may be needed to achieve: a) economic efficiency when externalities affect large numbers of people or when community interests are at stake b) economic efficiency when externalities affect large numbers of people or when private interests are at stake c) economic efficiency when externalities affect small numbers of people or when community interests are at stake d) government efficiency when externalities affect large numbers of people or when community interests are at stake
a) economic efficiency when externalities affect large numbers of people or when community interests are at stake
The situation when people can receive the benefits from a good without having to pay for it is known as _______ problem. a) free-rider b) quasi-public c) allocation d) public good
a) free-rider
Market failures can be used to justify: a) government intervention in the economy b) fiscal and monetary policy c) free markets d) elimination of tariffs and quotas
a) government intervention in the economy
When a producer's marginal cost or supply curve is to the right of (or below) the full cost marginal cost curve, this represents the fact that: a) its supply curve does not capture all the costs legitimately associated with the production of its good b) its supply curve does not capture all the revenue legitimately associated with the production of its goods c) its demand curve does not capture all the costs d) its supply curve does capture all the costs legitimately associated with the production of its goods
a) its supply curve does not capture all the costs legitimately associated with the production of its good
Producer surplus is calculated as the difference between the actual price a producer receives and the ______ acceptable price. a) lowest b) highest c) maximum d) actual
a) lowest
The ___________ rule actually tells us which plan provides the maximum excess of total benefits over total costs, or in other words, the plan that provides society with the maximum net benefit. a) marginal cost-marginal benefit b) diminishing marginal returns c) future value d) utility maximization e) present value
a) marginal cost-marginal benefit
The _____________ curve for positive externalities reflects only the direct private benefit to the individuals who consume the product. a) market demand b) total-benefit demand c) total-cost supply d) market supply
a) market demand
Public goods are distinguished by: a) nonexcludability b) nonrivalry c) excludability d) rivalry
a) nonexcludability b) nonrivalry
Everyone can benefit from _________ goods and there is no effective way of excluding individuals from the benefits derived from them once they exist. a) public b) rivalrous c) excludable d) private
a) public
If a good is nonrival and nonexcludable, then it is known as a: a) public good b) private good c) quasi-public good
a) public good
Characteristics of a pure private good include: a) rivalry b) nonrivalry c) excludability d) nonexcludability
a) rivalry c) excludability
Identify policies for coping with the over-allocation of resources caused by negative externalities. a) specific taxes b) subsidies to consumers c) subsidies to producers d) liability rules and lawsuits e) direct controls f) private bargaining g) markets for externality rights
a) specific taxes d) liability rules and lawsuits e) direct controls f) private bargaining g) markets for externality rights
Which of the following has been stated to reduce society's costs by allowing pollution rights to be bought and sold? a) Direct controls to pollution abatement b) A cap-and-trade program c) Market-based approaches to pollution abatement
b) A cap-and-trade program c) Market-based approaches to pollution abatement
Government can attempt to correct a market experiencing a positive externality by directly producing the good, or by ________ producers and/or consumers of the good. a) educating b) subsidizing c) regulating d) taxing
b) subsidizing
When government subsidizes producers of a product, the expected change that occurs in that particular market is that: a) supply decreases causing a shift leftward of the supply curve b) supply increases causing a shift rightward of the supply curve c) supply decreases causing a shift rightward of the supply curve d) supply increases causing a shift leftward of the supply curve
b) supply increases causing a shift rightward of the supply curve
Suppose that society were to decide that it wanted cleaner air and water because of new information about the adverse health effects of pollution. Then, one could expect: a) the marginal cost curve to shift rightward b) the optimal quantity level of pollution control to increase c) the marginal benefit curve to shift leftward d) the marginal benefit curve to shift rightward e) the marginal cost curve to shift leftward
b) the optimal quantity level of pollution control to increase d) the marginal benefit curve to shift rightward
Which of the following could give rise to a negative externality? a) A vaccination program b) Improved health care system c) A coal generated power plant d) Disabled workers
c) A coal generated power plant
Which of the following are true statements about competitive markets? a) A competitive market makes private goods available to consumers. b) A competitive market allocates resources efficiently. c) A competitive market always results in underproduction of products. d) A competitive market always results in overproduction of products.
a) A competitive market makes private goods available to consumers. b) A competitive market allocates resources efficiently.
What is achieved at the equilibrium quantity? a) Allocative efficiency b) Economic inefficiency c) Productive efficiency
a) Allocative efficiency c) Productive efficiency
A ____________ to a producer is a payment from the government to decrease the producers' cost in order to encourage more output of a product beneficial to society.
subsidy
When government gives money to a community college student, this is an example of a consumer _________.
subsidy
When government gives money to public colleges and universities in order to correct for an under-allocation of resources, this is known as a producer ___________.
subsidy
Points on the ________ curve represent marginal cost.
supply
The marginal cost or ___________ curve measures society's marginal cost of each unit produced.
supply
The government has different ways of dealing with the ____________ of resources resulting from positive externalities.
under-allocation
Two children are about to start public school. One child comes from a local American family and the other comes from a family visiting America. Which of the following statements represent the characteristic of non-rivalry of a public good? a) The child visiting America will not be permitted to enroll in the school because there are no classroom seats left. b) Only the child of working American parents will be enrolled because there are no classroom seats left. c) A public school bus picks up each child. d) Both children will be enrolled in the school.
c) A public school bus picks up each child. d) Both children will be enrolled in the school.
A negative externality occurs when: a) An underproduction of a product occurs and there is an over-allocation of resources to this product. b) An overproduction of a product occurs and there is an under-allocation of resources to this product. c) An overproduction of a product occurs and there is an over-allocation of resources to this product. d) An underproduction of a product occurs and there is an under-allocation of resources to this product.
c) An overproduction of a product occurs and there is an over-allocation of resources to this product.
Free and __________ markets produce equilibrium prices and quantities that maximize the combined consumer and producer surplus.
competitive
The optimal size and scope of a project are determined by comparing marginal _____________ to marginal _____________.
costs, benefits
A(n) _____________ causes some of the benefits or costs of a market transaction to be passed on to a third party.
externality
A(n) _____________ is a cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction.
externality
Education funding by government is an example of a positive __________.
externality
A market ____________ occurs when the competitive market system produces externalities- a situation where not all of the benefits or costs are incorpoated into supply and/or demand.
failure
According to the Coase Theorem, ____________ should restrict its involvement to remedying external costs or benefits.
government
Cost-benefit analysis can help the _______ decide on the extent to which a public project should be pursued.
government
Government can attempt to correct a market experiencing a __________ externality by subsidizing producers and/or consumers, or by government production of the product.
positive
There is a(n) ________ relationship between equilibrium price and amount of producer surplus.
positive
A good that could be produced by the market system (since exclusion is possible), but government provides it in order to avoid an under-allocation of resources is called a(n) _______ public good.
quasi
Direct controls _________ the marginal cost of production because the firms must operate and maintain pollution control equipment.
raise
As a result of the law of diminishing (marginal) __________, reducing pollution by one more unit or eliminating pollution might not be economically desirable, even if it is technologically feasible.
returns
The marginal cost to firms and hence to society __________ as pollution is reduced more and more.
rises
A private good that displays ________ characteristics means that when someone buys and consumes that good, it is not available for someone else to buy and consume.
rival
Characteristics of a private good include __________ and excludability.
rivalry
When the purchase and consumption of a good makes the purchase and consumption of that good unavailable to another person, it is known as _________.
rivalry
Private goods exhibit two consumption characteristics, _____________ and _____________.
rivalry, excludability
Market failures in competitive markets can be classified into:
1. supply-side 2. demand-side
Goods that are provided by competitive markets because they incur profits are known as: a) quasi-public goods b) private goods c) public goods
b) private goods
Resource use is only efficient if all ________ and costs are fully reflected in the market demand and supply curves.
benefits
A positive externality is an uncompensated: a) spillover cost b) quasi-public good c) free-rider d) spillover benefit
d) spillover benefit
Which of the following would be considered private goods? a) clothing b) national defense c) street lighting d) automobiles
a) clothing d) automobiles
_____________ intervention may be needed to achieve economic efficiency when positive or negative _____________ affect large numbers of people or when community interests are at stake.
Government, externalities
_____________ in consumption means that one person's consumption of a good does not preclude consumption of the goods by others.
Non-rivalry
_____________ surplus is the difference between the actual price a seller receives and the minimum acceptable price.
Producer
The effect of subsidies on consumers in correcting for positive externalities are: a) An increase in demand illustrated as a shift outward of the demand curve. b) The demand curve would shift inward because of an increase in supply. c) The subsidy reduces the price of purchasing the good. d) The quantity of the product purchased would rise to the economically optimal output eliminating the under-allocation of resources. e) The quantity purchased of the product would fall to the equilibrium output quantity eliminating the over-allocation of resources.
a) An increase in demand illustrated as a shift outward of the demand curve. c) The subsidy reduces the price of purchasing the good. d) The quantity of the product purchased would rise to the economically optimal output eliminating the under-allocation of resources.
How can the government deal with the underallocation of resources resulting from positive externalities? a) By providing goods via government b) By raising taxes on everyone c) By subsidizing suppliers d) By subsidizing consumers
a) By providing goods via government c) By subsidizing suppliers d) By subsidizing consumers
Which of the following help highlight the reasons why law of diminishing marginal returns may make it undesirable to completely eliminate pollution? a) Cleaning up the last 10% of pollutants from an industrial smokestack normally is the most costly reduction of all. b) Cleaning up the second 10% of pollutants from an industrial smokestack normally is more costly than cleaning up the first 10%. c) Cleaning up the first 10% of pollutants from an industrial smokestack normally is the most costly reduction of all. d) Cleaning up the third 10% of pollutants from an industrial smokestack normally is more costly than cleaning up the second 10%.
a) Cleaning up the last 10% of pollutants from an industrial smokestack normally is the most costly reduction of all. b) Cleaning up the second 10% of pollutants from an industrial smokestack normally is more costly than cleaning up the first 10%. d) Cleaning up the third 10% of pollutants from an industrial smokestack normally is more costly than cleaning up the second 10%.
Which of the following refers to reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product? a) Dead-weight loss b) Surplus loss c) Inefficiency loss d) Triangle loss
a) Deadweight loss
Which of the following happens when a market does not reflect consumers' full willingness to pay for a good or service. a) Demand-side market failure b) Supply-side market failure c) Consumer surplus d) Productive efficiency failure e) Allocative efficiency failure
a) Demand-side market failure
Which of the following are examples of markets that are more likely to experience positive externalities? a) Education b) Health care c) Airline travel d) Gas & electric generation e) Immunizations
a) Education b) Health care e) Immunizations
The government can provide the efficient amount of a public good by adhering to which of the following rules? a) Marginal benefit equals marginal cost b) Total benefit is less than total cost c) Marginal benefit is less than marginal cost d) Total benefit equals total cost
a) Marginal benefit equals marginal cost
What conditions must exist for allocative efficiency to occur? a) Maximum willingness to pay equals minimum acceptable price. b) Marginal benefit equals marginal cost. c) Combined consumer and producer surplus is at a minimum.
a) Maximum willingness to pay equals minimum acceptable price. b) Marginal benefit equals marginal cost.
Which of the following occurs due to over-allocation of resources to the production of a good or service? a) Negative externality b) Spillover benefit c) Economic surplus d) Positive externality
a) Negative externality
Which of the following examples exemplifies a rivalrous private good? a) Purchasing the last in-stock cell phone at the wireless cell phone store. b) Borrowing the last copy available of McConnell's Economics from the town library. c) Receiving a ticket to use the community swimming pool. d) Buying a permit for the city recycle center.
a) Purchasing the last in-stock cell phone at the wireless cell phone store.
Two types of government solutions for negative externalities are: a) Specific taxes b) Credit lines to firms c) Legislation d) Transfer payments e) Subsidies
a) Specific taxes c) Legislation
Which of the following are subsidies to producers to correct for an under-allocation of resources caused by a lack of consumer demand for a product beneficial to society? a) Tax credit to vaccine drug makers. b) Cash payment from government to pharmaceutical firms making vaccines. c) Coupon to parents to lower price of vaccination for child. d) Tax credit to parents for vaccinating a child.
a) Tax credit to vaccine drug makers. b) Cash payment from government to pharmaceutical firms making vaccines.
Which of the following is known as market-based approach where an appropriate government pollution-control agency determines the amount of pollutants that firms can discharge into the environment? a) The Cap-and-Trade Program b) Externality rights c) The Dump and Pay Program d) The Environmental Protection Agency
a) The Cap-and-Trade Program
_________ provides goods to correct a positive externality where positive externalities are extremely large. a) The government b) An oligopoly c) A perfectly competitive market d) Private business
a) The government
Private bargaining, subsidies to producers, subsidies to consumers and government provisions are all ways for coping with: a) The under-allocation of resources associated with positive externalities b) The under-allocation of resources with negative externalities c) The over-allocation of resources associated with negative externalities d) The over-allocation of resources associated with positive externalities
a) The under-allocation of resources associated with positive externalities
Which of the following highlight the free-rider problem associated with a public good? a) There is no potential for revenue or profits. b) The presence of excludability of a good or service. c) The presence of rivalry for a good or service. d) Non-payers can obtain benefit from the use of a good or service.
a) There is no potential for revenue or profits. d) Non-payers can obtain benefit from the use of a good or service.
Which of the following goods are excludable? a) Your auto's navigation system b) National Defense c) Big-Macs d) Concert tickets
a) Your auto's navigation system c) Big-Macs d) Concert tickets
The guidelines to follow when comparing different public project plans include: a) stop the activity at, or as close as possible to, the point at which the marginal benefit equals the marginal cost b) decrease an activity, project, or output as long as the marginal benefit exceeds the marginal cost c) consider increasing an activity, project, or output as long as the marginal benefit exceeds the marginal cost d) do not undertake a project for which the marginal cost exceeds the marginal benefit
a) stop the activity at, or as close as possible to, the point at which the marginal benefit equals the marginal cost c) consider increasing an activity, project, or output as long as the marginal benefit exceeds the marginal cost d) do not undertake a project for which the marginal cost exceeds the marginal benefit
The three options available to government in order to correct spillover benefits or the under-allocation of resources are: a) subsidies to producers. b) subsidies to buyers. c) a tax on the government provisions of public goods. d) a tax on buyers. e) a tax on producers. f) government provision of public goods.
a) subsidies to producers. b) subsidies to buyers. f) government provision of public goods.
The direct way to reduce negative externalities from a certain activity is: a) to pass legislation limiting the activity b) to pass legislation encouraging that activity c) to pass taxes encouraging that activity d) to pass taxes limiting the activity
a) to pass legislation limiting the activity
Completely eliminating pollution ma be undesirable for the following reasons: a) At some point, marginal benefit may rise so high that it exceeds society's marginal cost of further pollution abatement. b) At some point, marginal cost may rise so high that it exceeds society's marginal benefit of further pollution abatement. c) Additional actions to reduce pollution will lower society's well-being because total cost will rise more than total benefit. d) Additional actions to increase pollution will increase society's well-being because total cost will rise more than total benefit.
b) At some point, marginal cost may rise so high that it exceeds society's marginal benefit of further pollution abatement. c) Additional actions to reduce pollution will lower society's well-being because total cost will rise more than total benefit.
Which of the following goods could be classified as nonexcludable? a) concert tickets b) Environmental Protection Agency c) i-Pods d) county roads
b) Environmental Protection Agency d) county roads
Which of the following are examples of markets that are more likely to experience positive externalities? a) Gas & electric generation b) Health care c) Immunizations d) Education e) Airline travel
b) Health care c) Immunizations d) Education
Which of the following scenarios represents a reason for firms to "tap the market"? a) Sale of traditional tube TVs has fallen 95% in the last 3 years. b) The average industry profit margin is 40% for providing cell phone service. c) Classical opera ticket sales are not covering the cost of production. d) The production of vinyl records has not been able to keep up with demand.
b) The average industry profit margin is 40% for providing cell phone service. d) The production of vinyl records has not been able to keep up with demand.
Which of the following would be considered private goods? a) national defense b) automobiles c) street lighting d) clothing
b) automobiles d) clothing
A demand-side market failure arises because it is impossible in certain cases to: a) provide consumers what they are willing to pay for a product b) charge consumers what they are willing to pay for a product c) match price with quantity demanded d) pay for the full cost of producing a product
b) charge consumers what they are willing to pay for a product
Examples of quasi-public goods include: a) national defense b) fire departments c) police d) libraries
b) fire departments c) police d) libraries
Consumer surplus is the difference between the _____________ price a consumer is willing to pay for a product and the price paid. a) actual b) highest c) equilibrium d) lowest
b) highest
Resources should be shifted from the private to the public sector: a) if the benefit from the extra public goods does not exceed the cost that results from having fewer private goods b) if the benefit from the extra public goods exceeds the cost that results from having fewer private goods c) if the cost of the foregone private goods is less than the benefit associated with the extra public goods d) if the cost of the foregone private goods is greater than the benefit associated with the extra public goods
b) if the benefit from the extra public goods exceeds the cost that results from having fewer private goods c) if the cost of the foregone private goods is less than the benefit associated with the extra public goods
Government solutions for negative externalities are designed to ________ external costs by imposing a cost on the offending firm. a) minimize b) internalize c) isolate d) externalize
b) internalize
The supply curve for any good, private or public is: a) its total-revenue curve b) its marginal-cost curve c) its marginal-revenue curve d) its total-cost curve
b) its marginal-cost curve
The intersection of the demand and supply curves at the equilibrium output indicates that: a) marginal costs exceed marginal benefits b) marginal benefit equals marginal cost c) the efficient level of output has not been reached d) marginal benefit exceeds marginal cost
b) marginal benefit equals marginal cost
When markets fail to incorporate all benefits and/or all costs into the market supply and demand curves, then the competitive market system is experiencing a: a) transfer payment b) market failure c) market intervention d) public good
b) market failure
Examples of public goods include: a) subsidized inoculation markets b) national defense c) street lighting d) education grants
b) national defense c) street lighting
If the benefit from producing extra public goods exceeds the cost that results from having fewer private goods, then: a) needed or required resources should be shifted from the public to the private sector b) needed or required resources should be shifted from the private to the public sector c) needed or required resources should not be shifted from the private to the public sector d) needed or required resources should be shared equally between the public and private sector
b) needed or required resources should be shifted from the private to the public sector
When producers intentionally or unintentionally pass some of the costs of production onto the community, resources for production are ________ to the commodity, producing too much output and causing __________ externalities to occur. a) under-allocated; positive b) over-allocated; negative c) under-allocated;negative d) over-allocated;deadweight e)over-allocated;positive
b) over-allocated; negative
According to the Coarse Theorem, the government is not needed to remedy external costs or benefits where: a) the number of people involved is large. b) property ownership is clearly defined. c) property ownership is ambiguous. d) bargaining costs are negligible. e) the number of people involved is small.
b) property ownership is clearly defined. d) bargaining costs are negligible. e) the number of people involved is small.
The collective demand curve measures: a) society's marginal benefit of all units of a particular good b) society's collective willingness-to-pay for each additional marginal benefit of a particular public good c) society's marginal cost of each unit of a particular good d) individuals' willingness-to-pay for each additional marginal benefit of a particular public good
b) society's collective willingness-to-pay for each additional marginal benefit of a particular public good
A cost-____________ analysis involves an assessment of marginal changes.
benefit
When marginal _________ exceeds marginal _________, additional abatement (reduction) of a community problem may move society toward economic efficiency.
benefit, cost
Which of the following describes the implications of the government's choice to use more resources in the public sector? a) Because the economy's resources are unlimited, decisions to use more resources in the public sector will mean fewer resources for the private sector. b) Because the economy's resources are limited, decisions to use less resources in the public sector will mean fewer resources for the private sector. c) Because the economy's resources are limited, decisions to use more resources in the public sector will mean fewer resources for the private sector. d) Because the economy's resources are limited, decisions to use more resources in the private sector will mean fewer resources for the public sector.
c) Because the economy's resources are limited, decisions to use more resources in the public sector will mean fewer resources for the private sector.
__________ is calculated as the difference between the maximum price a consumer is willing to pay for a product and the actual price paid. a) Producer surplus b) Economic surplus c) Consumer surplus d) Deadweight loss
c) Consumer surplus
What is the difference between the actual price a seller receives and the minimum acceptable price? a) Producer profit b) Extra surplus c) Producer surplus d) Consumer surplus
c) Producer surplus
The stated advantages of a cap-and-trade program over direct controls include which of the following? a) Increase society's costs by allowing pollution rights to be free. b) Increase society's costs by allowing pollution rights to be bought and sold. c) Reduces negative externalities costs to society by allowing pollution rights to be bought and sold. d) Potential polluters have a monetary incentive not to pollute because they must pay for the right to discharge waste matter. e) Reduce society's costs by allowing pollution rights to be free.
c) Reduces negative externalities costs to society by allowing pollution rights to be bought and sold. d) Potential polluters have a monetary incentive not to pollute because they must pay for the right to discharge waste matter.
Which of the following are subsidies to consumers to correct for an under-allocation of resources by producers? a) Repurchase by government of U.S. Savings Bond held by individuals. b) Tax refund from filing an annual tax return. c) Tax credit for purchasing an electric car. d) Discount coupon to inoculate children again classic childhood diseases.
c) Tax credit for purchasing an electric car. d) Discount coupon to inoculate children again classic childhood diseases.
When government acts to correct a market which is experiencing a positive externality, what could happen in the market? a) The demand for the good causing the externality would fall resulting in the demand curve shifting inward. b) The demand for the good causing the externality would rise resulting in the demand curve shifting inward. c) The demand for the good causing the externality would rise resulting in the demand curve shifting outward. d) The supply for the good causing the externality would rise resulting in the supply curve shifting outward. e) The supply for the good causing the externality would fall resulting in the supply curve shifting inward.
c) The demand for the good causing the externality would rise resulting in the demand curve shifting outward. d) The supply for the good causing the externality would rise resulting in the supply curve shifting outward.
For a given supply curve, how do higher prices affect producer surplus? a) They decrease it. b) It stays the same. c) They increase it.
c) They increase it.
Because some individuals do not consume a beneficial product but accrue benefits from others who do consume the product benefiting society, producers do which of the following? a) Maintain resources at the same level to the beneficial product b) Demand government to mandate use of beneficial product by society c) Under-allocate resources to beneficial product d) Over-allocate resources to the beneficial product
c) Under-allocate resources to beneficial product
A comparison of marginal changes is known as: a) a total revenue analysis b) a demand analysis c) a cost-benefit analysis d) the peter principle e) a supply analysis
c) a cost-benefit analysis
The optimal size and scope of a project is determined by: a) comparing total costs to total benefits b) comparing marginal costs to total benefits c) comparing marginal costs to marginal benefits d) comparing total revenues and total profits
c) comparing marginal costs to marginal benefits
When comparing different public project plans, it is critical to follow the guidelines stating: a) consider engaging in an activity as long as marginal benefit is less than marginal cost b) consider engaging in an activity only as long as marginal cost equals marginal benefit c) consider engaging in an activity as long as marginal benefit exceeds marginal cost d) consider engaging in an activity as long as marginal cost exceeds marginal benefit
c) consider engaging in an activity as long as marginal benefit exceeds marginal cost
The _______ problem makes it difficult for firms to gather resources and profitably provide a good. a) excludability b) rivalry c) free-rider d) moral hazard
c) free-rider
Identifies policies for coping with the under-allocation of resources associated with positive extranalities. a) direct controls b) cap-and-trade programs c) government provision d) subsidies to consumers e) private bargaining f) subsidies to producers g) collective bargaining
c) government provision d) subsidies to consumers e) private bargaining f) subsidies to producers
The __________ measures society's marginal benefit of each unit of a particular good. a) optimal amount of a public good b) individual demand curve c) total demand curve d) budget line
c) total demand curve
Government provision refers to: a) The government providing a public good in order to correct for positive externalities where the positive externality is extremely small. b) The government providing a private good in order to correct for positive externalities is extremely large. c) The government providing a public good in order to correct for negative externalities where the negative externality is extremely large. d) The government providing a public good in order to correct for positive externalities where the positive externality is extremely large.
d) The government providing a public good in order to correct for positive externalities where the positive externality is extremely large.
Because the costs of public goods typically are immediate while the benefits often accrue over longer time periods, economists: a) convert both costs and benefits to future values for comparison b) convert only costs to present values for comparison c) converts only benefits to present values for comparison d) convert both costs and benefits to present values for comparison
d) convert both costs and benefits to present values for comparison
If a third party to a market transaction is experiencing an uncompensated cost, then the transaction results in a market failure known as a _____________ or _____________. a) market intervention b) spillover benefit c) positive externality d) negative externality e) spillover cost
d) negative externality e) spillover cost
Negative externalities (or spillover costs) result in a(n) _________ of resources to the production of the good. a) equalization b) redistribution c) under-allocation d) overallocation
d) overallocation
In order to correct for positive externalities, government may choose to ____________ buyers and or producers, as well as provide ____________ goods. a) tax; private b) tax; public c) subsidize; free d) subsidize; public
d) subsidize; public
A _________-side market failure arises in the situation in which a __________ does not have pay the full cost of production. a) demand;firm b) supply;consumer c) demand;consumer d) supply;firm
d) supply;firm
Direct controls on pollution raise the marginal cost of production because: a) the firms must eliminate pollution control equipment b) the firms must pay taxes in order to operate and maintain pollution control equipment c) the firms must pay new taxes on overproduction and over-allocation of resources d) the firms must purchase, operate and maintain pollution control equipment
d) the firms must purchase, operate and maintain pollution control equipment
Government subsidies ________ producers' costs, shifting the supply curve to ________ and correcting the ________-allocation of resources by producers.
decrease, right, under
A _________-side market failure occurs when a market does not reflect consumers' full willingness to pay for a good or service.
demand
Market failures in competitive markets can be classified into ________-side and ________-side.
demand, supply
Government can use ________ controls and specific _________ to counter negative extranalities and it may provide ____________ or public goods to deal with positive extranalities.
direct, taxes, subsidies
A cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction is known as: a) dead weight loss b) an internal cost c) consumer surplus d) producer surplus e) an externality
e) an externality
The _____________ characteristic of a private good is the ability of a seller to prevent people who did not pay for a product from obtaining its benefits.
excludability
Quantity levels less or greater than the efficient quantity create efficiency or deadweight ____________.
losses
Reducing a ___________ externality has a cost and society must decide how much of a reduction in the externality it wants to pay for.
negative
A ____________ ____________, also known as a spillover cost, is a market failure that occurs when a third party to a transaction experiences uncompensated costs.
negative externality
Another policy approach to ________ externalities is for government to levy a ___________ or a charge specifically on the related good.
negative, taxes
