Exam 2

Which of the following is the definition of marginal benefit? a. the additional benefit to a consumer from consuming one more unit of a good or service b. the additional cost to a firm of producing one more unit of a good or service c. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays d. the difference between the lowest price a firm would have been willing to accept and the price it actually receives

A

What does the sum of consumer surplus and producer surplus equal? a. economic efficiency b. economic surplus c. deadweight loss d. competitive equilibrium

B

What does the term excludability refer to? a. a situation in which one person's consumption of a good means that no one else can consume it b. the fact that anyone who does not pay for a good cannot consume it c. the idea that someone can benefit from a good without paying for it d. the possibility that public goods may become private goods

B

What is the name of a legally determined minimum price that sellers may receive? a. a price ceiling b. a price floor c. marginal benefit d. consumer surplus

B

The term tax incidence refers to a. the type of product the tax is levied on. b. the amount of revenue collected by the government from a tax. c. the actual division of the burden of a tax. d. the actual versus the desired impact of a tax burden.

C

Which of the following is the definition of marginal cost? a. the additional benefit to a consumer from consuming one more unit of a good or service b. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays c. the additional cost to a firm of producing one more unit of a good or service d. the difference between the lowest price a firm would have been willing to accept and the price it actually receives

C

When the government imposes price floors or price ceilings, which of the following occurs? a. Some people win. b. Some people lose. c. There is a loss of economic efficiency. d. All of the above occur.

D

Fill in the blank. When a negative externality is present in producing a good or service, ______ of the good or service will be produced at market equilibrium. a. too much b. too little c. the optimal quantity d. none

a

Fill in the blanks. According to the Coase theorem, if transactions costs are__, private bargaining will result in an __solution to the problem of externalities. a. low; efficient b. low; inefficient c. high; efficient d. high; optimal

a

What does the term rivalry refer to? a. a situation in which one person's consumption of a good means that no one else can consume it b. the fact that anyone who does not pay for a good cannot consume it c. the idea that someone can benefit from a good without paying for it d. the possibility that public goods may become private goods

a

What is the difference between private benefit and social benefit? a. an external benefit b. private cost c. social cost d. a negative externality

a

What is the name of a legally determined maximum price that sellers may charge? a. a price ceiling b. a price floor c. marginal benefit d. consumer surplus

a

What type of solution to externalities is the Coase theorem? a. a private solution to externalities b. a public solution to externalities c. the only solution to externalities d. the least preferred solution

a

When is output inefficiently low? a. when marginal benefit is greater than marginal cost b. when marginal cost is greater than marginal benefit c. when marginal cost is equal to marginal benefit d. All of the above; any output level can be inefficiently low.

a

Which of the following statements is correct according to Ronald Coase's argument for dealing with externalities and market failure? a. In some situations, a private solution to the problem of externalities can be found. b. Only public solutions exist for solving externalities. c. Completely eliminating an externality is almost always the most efficient solution. d. The only cure to externalities is taxation.

a

Fill in the blanks. When there are many people involved, the transactions costs are often___ than the net benefits from reducing an externality. In such cases, a private solution to an externality problem ___feasible. a. higher; is b. higher; is not c. lower; is d. lower; is not

b

If the average price that cable subscribers are willing to pay for cable television is $208, but the actual price they pay is $81, how much is consumer surplus per subscriber? a. $208 + $81 = $289 b. $208 - $81 = $127 c. $81 + $127 = $208 d. $81

b

In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people have called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of a. a price floor. b. a price ceiling. c. an equilibrium price. d. rent control.

b

Some people believe there should be a legally determined maximum price in the gasoline market. Such a limit on the price of gasoline would be an example of a. a price floor. b. a price ceiling. c. an equilibrium price. d. rent control.

b

What is the situation called in which the market fails to produce the efficient level of output? a. an externality b. market failure c. external disequilibrium d. the Coase theorem

b

When we talk about property rights in the discussion of externalities, which rights do we refer to? a. the rights of individuals to pollute b. the rights of individuals to have exclusive use of their property c. the rights of individuals to buy but not sell their property d. all of the above

b

Which of the following statements is correct? a. There is a shortage of every good that is scarce. b. There is no shortage of most scarce goods. c. Scarcity and shortage mean the same thing to economists. d. None of the above statements is correct.

b

What are the sources of externalities and market failure? a. incomplete property rights b. the difficulty of enforcing property rights in certain situations c. both a. and b. d. lack of understanding of the market system

c

What is the focus of a command-and-control approach to reducing pollution? a. imposing taxes intended to bring about an efficient level of output in the presence of externalities b. offering subsidies intended to bring about an efficient level of output in the presence of externalities c. imposing quantitative limits on the amount of pollution firms are allowed to generate d. trading emissions allowances to pollute for cash payments

c

When a competitive market is in equilibrium, what is the economically efficient level of output? a. any output level where marginal benefit is greater than marginal cost b. any output level where marginal cost is greater than marginal benefit c. the output level where marginal cost is equal to marginal benefit d. all of the above

c

Which of the following is the definition of consumer surplus? a. the additional benefit to a consumer from consuming one more unit of a good or service b. the additional cost to a firm of producing one more unit of a good or service c. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays d. the difference between the lowest price a firm would have been willing to accept and the price it actually receives

c

What is the tragedy of the commons? a. The tragedy of the commons refers to the fact that some people benefit from a good without paying for it. b. The tragedy of the commons is the tendency for some goods to be excluded from public consumption. c. The tragedy of the commons refers to the fact that a good can be rival and excludable. d. The tragedy of the commons refers to the tendency for a common resource to be overused.

d

Which of the following is the definition of producer surplus? a. the additional benefit to a consumer from consuming one more unit of a good or service b. the additional cost to a firm of producing one more unit of a good or service c. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays d. the difference between the lowest price a firm would have been willing to accept and the price it actually receives

d