Econ Test 4

Which of the following is true concerning public goods?

People cannot be prevented from enjoying a public good

Which of the following is true?

Public goods are generally paid for by the government with tax revenues

What distinguishes a public good from a private good?

Public goods are subject to the free-rider problem

Why don't taxpayers complain more vociferously about projects that generate limited benefits yet cost billions of dollars?

The cost on each taxpayer is relatively small compared to the total cost

Why might a politician start a costly spending program if its costs exceed its social benefits?

The politician gains prestige

If we compare the effects of a pollution tax with those of a command-and-control policy, in most cases we will find:

a command-and-control policy will be more costly

An external cost is:

a cost resulting from some activity that is imposed or bestowed on parties outside the activity

An example of a public good would be:

a lighthouse

An example of moral hazard is:

a situation where a person purchases life insurance and then lives recklessly

Reduction in pollution from a specific starting level of existing pollution is called:

abatement

Which of the following is an external cost generated by the use of automobiles?

all the above

Air pollution generated by a steel mill is an example of:

an external cost

If a buyer or seller enters into an exchange with another party who has more information, there is:

asymmetric information

The primary source of smog-causing pollution is:

automobiles

When one firm sells its pollution permit to another:

both firms benefit

The USA currently uses ______ to regulate automobile pollution.

command and control

If the government were to limit the release of air pollution produced by a chemical company to 20,000 units, this policy would be considered a:

command-and-control policy

The biggest problem with using a tax as a way to solve an external problem is that:

damages must be estimated in financial terms to determine the correct level of the tax

The study of external cost is a major concern of:

environmental economics

To internalize the external costs from traffic congestion, policymakers could:

establish a congestion tax

When the government taxes a firm that generates an external cost, the profit maximizing firm will produce:

fewer units of output than before the tax was imposed

When dealing with a pollution problem, pollution permits are more efficient than taxes or command-and-control policies because:

firms with high costs of abatement can buy more permits

Once the tradable pollution permits have been issued firms:

firms with the highest cost of pollution abatement will have the greatest willingness to pay for the permits

The government imposes taxes on firms which generate external costs in an effort to:

force decision makers to consider the full costs of their actions

The problem that occurs when a person tries to get the benefit of a public good without paying for it is known as the _____ problem.

free-rider

You will still be able to get public broadcasting whether or not you contribute to their fund-raising campaign, so you decide not to contribute. This is an example of the:

free-rider problem

Public goods and services are:

generally paid for with tax revenues

When considering the adverse-selection problem in the case of medical insurance, as the cost of insurance rises:

healthy people might reduce their coverage while unhealthy people will maintain their coverage

On an automobile insurance policy, a deductible is the dollar amount that the driver will pay toward damages before the insurance will pay anything. Asymmetric information suggests that:

high-risk drivers will buy a policy without any deductible

Once a firm is forced to consider an external cost, the price of its product will:

increase and output will decrease

If a producer is imposing an external cost on society, the best response would be to:

internalize the externality

Small producer groups that want to be sure their programs are funded will often use _____ to convince legislators to vote for their programs.

lobbyists

If, while producing goods and services, a factory is producing pollution and not incurring the cost of this pollution, then a ________ exists.

market failure

After John discovered that he was seriously ill, he immediately purchased health insurance without telling the insurance company that he was ill. This is an example of:

moral hazard

The problem of ______ arises when one party to a contract passes the cost of his or her behavior on to the other party to the contract.

moral hazard

Because of asymmetric information, a seller of a lemon used car earns:

more profit than a seller of a plum used car

Markets which have external cost will produce ______ output than the socially efficient level where as markets which have external benefits will produce ______ output than the socially efficient level.

more; less

Public goods are:

nonrival in consumption and their benefits are non-excludable

In the market for used cars, which of the following could be employed to avoid a thin market?

offering warranties on plum used cars

Higher education is considered a:

private good with external benefits

The field of economics that studies how governments operate is called:

public choice

Lemon laws:

require automakers to repurchase automobiles that experience frequent problems during their first year of use

Private goods are:

rival in consumption and their benefits are excludable

In the market for insurance:

sellers generally have less information than buyers

Assume the costs of a project are spread out among all taxpayers while the benefits are concentrated among smaller segments of the population. This statement best describes the:

special interest theory

The model of government based on small groups of people manipulating government for their own gain is:

special-interest politics

If the production of a good generates external benefits, the government could increase efficiency by:

subsidizing the production of the good to increase the amount produced

Free riding is a problem with public goods but not with private goods because for the private good:

the good is an excludable good

The median voter group is:

the large group of voters in the middle of the political spectrum

If a person improves their property by adding new and appropriate landscaping, then:

the neighbors will receive external benefits

If there are external benefits associated with education, then:

the social benefit exceeds the private benefit

A government project may be considered inefficient if:

the total benefit is less than the total cos

Command-and-control policies mandate:

the use of a particular abatement control technology

Consider a market in which some high-quality goods are sold, but not as many as if there was perfect information about the quality of the good. This type of market is known as a:

thin market

The annual cost of collisions in the US is approximately $300 billion. Of this, about ______ is borne by the driver who causes the collision.

two-thirds

If a tax is placed on the output of perfectly competitive firm that imposes external costs on society, the firm's marginal cost curve will shift ______ and the market supply curve will shit to the ______.

up; left

When the government imposes a tax on a firm that generates external costs, the tax is:

usually borne by both the firm and the consumer

One advantage that a command-and-control policy has over a pollution tax is that:

we will be able to accurately predict the amount of pollution that will occur

Tradable pollution permits:

will be sold by firms that have relatively low abatement costs

Tradable pollution permits:

will be traded in a market governed by supply and demand