Microeconomics Quiz 8 (Ch. 10)

The term market failure refers to: a. a market that fails to allocate resources efficiently b. an unsuccessful advertising campaign which reduces demand c. ruthless competition among firms d. a firm that is forced out of business because of losses

a. a market that fails to allocate resources efficiently

Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are: a. $1.90 and 38 units, respectively b. $1.80 and 35 units, respectively c. $1.60 and 42 units, respectively d. $1.35 and 58 units, respectively

b. $1.80 and 35 units, respectively

Refer to Table 10-2. What is the equilibrium quantity of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units

b. 4 units

A positive externality will cause a market to produce: a. more than is socially desirable b. less than is socially desirable c. the socially optimal equilibrium amount d. more than the same market would produce in the presence of a negative externality

b. less than is socially desirable

All remedies for externalities share the goal of: a. moving the allocation of resources toward the market equilibrium b. moving the allocation of resources toward the socially optimal equilibrium c. increasing the allocation of resources d. decreasing the allocation of resources

b. moving the allocation of resources toward the socially optimal equilibrium

Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates: a. positive externalities b. negative externalities c. no externalities d. no equilibrium in the market

b. negative externalities

Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are: a. $1.90 and 38 units, respectively b. $1.80 and 35 units, respectively c. $1.60 and 42 units, respectively d. $1.35 and 58 units, respectively

c. $1.60 and 42 units, respectively

Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output? a. $3 b. $5 c. $7 d. $9

c. $7

Refer to Table 10-2. What is the socially-optimal level of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units

c. 5 units

A externality is an example of: a. a corrective tax b. a tradable pollution permit c. a market failure d. Both a and b are correct

c. a market failure

Markets are often inefficient when negative externalities are present because: a. private costs exceed social costs at the private market solution b. externalities cannot be corrected without government regulation c. social costs exceed private costs at the private market solution d. production externalities lead to consumption externalities

c. social costs exceed private costs at the private market solution

Which of the following policies is the government most inclined to use when faced with a positive externality? a. taxation b. permits c. subsidies d. usage fees

c. subsidies

When a negative externality exists in a market, the cost to producers: a. is greater than the cost to society b. will be the same as the cost to society c. will be less than the cost to society d. will differ from the cost to society, regardless of whether an externality is present

c. will be less than the cost to society

A positive externality arises when a person engages in an activity that has: a. an adverse effect on a bystander who is not compensated by the person who causes the effect an adverse effect on a bystander who is compensated by b. the person who causes the effect c. a beneficial effect on a bystander who pays the person who causes the effect d. a beneficial effect on a bystander who does not pay the person who causes the effect

d. a beneficial effect on a bystander who does not pay the person who causes the effect

An externality exists whenever: a. the economy cannot benefit from government intervention b. markets are not able to reach equilibrium c. a firm sells its product in a foreign market d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect

d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect