ECON 150 - MARKET CHALLENGES AND THE ROLE OF GOVERNMENT - WO4 QUIZ
In response to the financial crisis that began in 2007, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future. This illustrates
the moral hazard problem.
Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that
the third unit should be produced.
As it applies to insurance, the moral hazard problem is the tendency for
those who buy insurance to take less precaution in avoiding the insured risk.
Chronic budget deficits can be attributed to
voters wanting government programs but not wanting to pay taxes.
Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Q Pa Pb 1 $3 $5 2 2 4 3 1 3 4 0 2 5 0 1 If the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be
3 units.
Answer the question on the basis of the following table that shows the total costs and total benefits facing a city of five different potential baseball stadiums of increasing size. All figures are in millions of dollars. Stadium Total Cost Total Benefit A $ 80 $140 B 100 200 C 130 250 D 165 290 E 220 300 The marginal cost and marginal benefit of stadium B (relative to A) are
$20 million and $60 million, respectively.
Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas
a + b.
Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences
a consumer surplus of $9, and Nathan experiences a producer surplus of $3.
Refer to the diagram. If actual production and consumption occur at Q3,
an efficiency loss (or deadweight loss) of e + f occurs.
Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of
asymmetric information.
"Earmarks" refer to
authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending legislation.
At the optimal quantity of a public good,
marginal benefit equals marginal cost.
Where there is asymmetric information between buyers and sellers,
markets can produce inefficient outcomes.
(Consider This) According to a 2015 study, health and safety violations are more prevalent in public companies because
public companies are less likely to be fined for violating health and safety laws than private companies.
The pursuit through government of a "transfer of wealth" at someone else's expense refers to
rent-seeking behavior.
Government fiscal policy involves changing which of the following?
taxes and government spending
(Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes
the Coase theorem.
As it relates to corporations, the principal-agent problem is that
the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).
Because of the free-rider problem,
the market demand for a public good is nonexistent or understated.
At the output level defining allocative efficiency,
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
