Micro Exam Review III

Basic knowledge is an example of____

a public good

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced?

The equilibrium quantity is less than the socially optimal quantity

The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and operates on both tuition and private donations. Although every resident places value on having an educated community, the school's revenues have suffered lately due to a large decline in private donations from the elderly population. Since the benefit that each citizen receives from having an educated community is a public good, which of the following would not be correct?

The private market is the best way to supply education.

An externality is an example of____

a market failure

On holiday weekends thousands of people picnic in state parks. Some picnic areas become so overcrowded the benefit or value of picnicking diminishes to zero. An overcrowded picnic area is an example of____

a Tragedy of the Commons

A tax on gasoline often reduces road congestion because gasoline____

and driving are complements

In a market economy, government intervention____

may improve market outcomes in the presence of externalities.

When something of value has no price attached to it____

externalities will be present.

Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the____

larger is the dead-weight loss of the tax

An externality____

results in an equilibrium that does not maximize the total benefits to society.

If one person's use of a good diminishes another person's enjoyment of it, the good is____

rival in consumption

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the___

smaller is the price elasticity of supply