Assignment 4 Quiz

If the production of a product involves negative externalities, then the government can improve market efficiency by: A. Imposing a tax to correct for an overallocation of resources. B. Imposing a tax to correct for an underallocation of resources. C. Providing a subsidy to correct for an underallocation of resources. D. Providing a subsidy to correct for an overallocation of resources.

A. Imposing a tax to correct for an overallocation of resources.

An example of someone bearing the burden of a negative externality would be: A. Taylor living downwind from a smelly feedlot where pigs are raised. B. Maria getting the flu vaccine. C. John smoking in his own apartment where he lives alone. D. Lynna playing loud music on her headphones.

A. Taylor living downwind from a smelly feedlot where pigs are raised.

One of the reasons for which the university offers you discounted flu vaccines is that: A. Vaccination is associated with positive externalities. B. Vaccination is a public good and needs to be offered to everyone. C. Vaccination is good for you and the university cares about your individual health. D. Vaccination is associated with negative externalities.

A. Vaccination is associated with positive externalities.

The free-rider problem for a public good means that: A. a private market would provide less than the efficient amount of the good. B. a private market would provide zero amount of the good. C. a private market would provide more than the efficient amount of the good. D. a private market would provide the efficient amount of the good.

A. a private market would provide less than the efficient amount of the good.

Your grade point average acts as ________ to potential employers. A. a signal B. insurance C. a guarantee D. private information

A. a signal

Adverse selection is created by: A. asymmetric information B. risk C. signaling D. taxes

A. asymmetric information

Which of the following actions would most likely have an external benefit? A. attending college B. throwing trash out your car window as you drive to class C. driving recklessly to work D. eating a peanut butter sandwich

A. attending college

A good that is ________ and ________ is a ________. A. rival; excludable; private good B. rival; excludable; public good C. rival; nonexcludable; private good D. nonrival; excludable; public good

A. rival; excludable; private good

Which is an example of a negative externality? A. The higher price you pay when you buy a heavily advertised product. B. Decreased property values in a neighborhood when a disreputable nightclub is operating. C. The costs paid by a company to build an automated factory. D. An increase in the value of land you own when a nearby development is completed.

B. Decreased property values in a neighborhood when a disreputable nightclub is operating.

Among the following examples, the one that best illustrates a public good is: A. The textbooks used by students in a college or university. B. The bike paths around a city or town. C. The music CDs produced by entertainment-media companies. D. The airline tickets bought by people going on vacations.

B. The bike paths around a city or town.

One way to overcome the tragedy of the commons is to A. take away property rights so that no one owns the resource. B. assign property rights so that someone owns the resource. C. leave the market alone because the market will reach an equilibrium in which the efficient amount of the resource is used. D. educate people in order to overcome the problem of rational ignorance.

B. assign property rights so that someone owns the resource.

Higher education brings benefits not only to the individual who enrolls in a university, but also to the society where this individual lives. This is an example of: A. Network externality B. Positive externality C. Negative externality D. Public good

B. Positive externality

In a free-market economy, a product which entails a positive externality will be: A. Associated only with goods and servics provided by the government. B. Underproduced. C. Produced at the optimal level. D. Overproduced.

B. Underproduced.

Which of the following is the best example of a private good? A. a missile defense system B. a can of Diet Pepsi C. a sidewalk in Fargo D. a library in St. Louis

B. a can of Diet Pepsi

A payment made by the government to private producers of roads and libraries would be an example of A. a tax. B. a subsidy. C. a voucher. D. a copyright.

B. a subsidy.

In the health insurance market, moral hazard occurs when: A. patients sue their doctor. B. insured people adopt an unhealthy lifestyle. C. chronically ill people buy insurance. D. chronically ill people cannot buy insurance.

B. insured people adopt an unhealthy lifestyle.

The free-rider problem is associated with: A. private goods. B. public goods. C. common resources. D. any type of good.

B. public goods.

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity should be: A. Taxed. B. Prohibited. C. Subsidized. D. Left alone.

C. Subsidized.

Auto insurance companies charge a lower premium to drivers who carry a higher deductible because: A. insurance companies prefer that drivers carry no deductible. B. a high deductible signals a high risk. C. a high deductible reveals that driver is a careful driver. D. a driver's riskiness increases as the driver's deductible increases.

C. a high deductible reveals that driver is a careful driver.

The fact that people who know they are risky drivers are more likely to buy auto insurance reflects: A. signaling. B. moral hazard. C. adverse selection. D. a separating equilibrium.

C. adverse selection.

Adverse selection can occur when: A. all parties have full information. B. nobody has any information. C. one party has information not available to the other party. D. information is not full but both parties have the same information.

C. one party has information not available to the other party.

In the auto insurance market, who is most likely to have private information that leads to adverse selection? A. the insurance company B. the government agency that regulates insurance companies C. the drivers D. the automobile manufacturers

C. the drivers

To achieve the efficient level of national defense,: A. the government can provide national defense because it is a private good. B. private firms can provide national defense because it is a private good. C. the government could provide national defense because it is a public good. D. the government can provide national defense because it is a common resource.

C. the government could provide national defense because it is a public good.

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called: A. Nontaxability B. Nonrivalry C. Nonexcludability D. Nondiscrimination

D. Nondiscrimination

A cost that arises from the production or consumption that falls on someone other than the producer or consumer is called: A. a negative benefit. B. a public choice impact. C. a positive externality. D. a negative externality.

D. a negative externality.

In the market for automobile insurance, adverse selection implies that: A. those who are insured might take greater risks. B. those who are uninsured might take greater risks. C. drivers with lower risks are more likely to buy insurance. D. drivers with greater risks are more likely to buy insurance.

D. drivers with greater risks are more likely to buy insurance.

If a salesperson is paid by the volume of sales he or she makes, then the A. adverse selection problem is enhanced. B. adverse selection problem is diminished. C. moral hazard problem is enhanced. D. moral hazard problem is diminished.

D. moral hazard problem is diminished.

Pollution is an example of a ________ externality. A. beneficial B. total C. positive D. negative

D. negative

The free-rider problem exists because: A. private goods or services cause some people to want to take them for free. B. some goods or services are excludable and cause envy for those who don't have them. C. people must all consume the same public good and so everyone wants to pay for it. D. people cannot be excluded from consuming public goods even if they don't pay for them.

D. people cannot be excluded from consuming public goods even if they don't pay for them.

Which of the following goods is excludable and nonrival? A. a streetlight B. a two liter bottle of Mountain Dew C. food D. the Internet

D. the Internet

In the market for automobile insurance, moral hazard implies that A. those who are uninsured might take greater risks. B. drivers with greater risks are more likely to buy insurance. C. drivers with smaller risks are more likely to buy insurance. D. those who are insured might take greater risks.

D. those who are insured might take greater risks.