Economics Chapter 5 complete quiz

If a corrective tax equal to the external cost imposed on third parties is levied on polluters it will

force polluters to internalize the external cost resulting from their actions

In the market for insurance, the moral hazard problem leads:

those who buy insurance to take fewer precautions to avoid the insured risk.

Where a free-ride problem exists, goods tend to be:

underproduced

This will most likely generate positive externalities

public education

These are true of adverse selection

-It can be a difficult problem to overcome, because it is often not in the self-interest of the transactor with the superior information to provide a truthful and complete disclosure. -It can cause the quality of goods traded to fall, if quality detection costs are high. -It can result when both parties to a transaction have little information about the quality of the goods involved.

These are not activities that represents an external cost:

-The pollination of apple trees that occurs when a beekeeper locates next door to an apple orchard. -The benefits that accrue to society when an individual receives a college education. -The increase in property values of vacant lots in an area near where a new park is dedicated. -The price you pay for a slice of pizza.

The median voter model implies that:

-many people will be dissatisfied with the amount of spending on government funded projects. -a candidate may adopt more extreme views when seeking her party's nomination than during the general election.

This is least likely to be provided by the private sector:

a good characterized by non-rivalry in consumption form which nonpaying customers cannot be excluded

A public good is:

a good or service that can be consumed by both paying and nonpaying customers.

To internalize a negative externality

a producer's costs could be increased by an amount equal to the external cost resulting from the production of a good.

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, there would probably be:

an increase in consumption

When a good is non-rivalrous in consumption, then:

consumption by an additional individual does not prevent others from benefiting from a public good.

Negative externalities are:

costs incurred by individuals other than sellers

A free-rider problem arises whenever

goods cannot be provided exclusively to those who pay for them.

If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:

impose a tax on production of the good in order to decrease production

A common resource

is a rival good that is nonexcludable

The consumption of public goods is

non-excludable and non-rivalrous

In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will NOT happen?

output of the good being produced will be too low

The market system fails to provide the efficient output of public goods because:

private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them.

If negative externalities are created in the production of a good, then society will:

produce too much of the good since the marginal private cost to firms is less than the marginal social cost.

If the production of a good created both external costs and external benefits, but the external costs were greater, without government intervention, a market economy will:

produce too much of the product

Int eh case of public goods, when people act as free-riders,

some goods and services having benefits greater than costs will not be produced

If there are important spillover benefits from consumption of a good,

the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production.

If, after she buys a car with air bags, Maria Andretti starts to drive recklessly, that would be an illustration of:

the moral hazard problem.

A situation in which the winner of an auction is worse off than the loser because of inaccurate valuation is known as:

winner's curse