ECON ch. 8

According to the Coase Theorem, private negotiation to correct for negative externalities is likely to produce an efficient outcome only if: a. property rights are clearly defined and transaction costs are low. b. common resources are involved. c. government forces the parties directly involved to internalize the externality. d. goods are both nonrival and nonexcludable.

a

From society's perspective, outputs that generate negative externalities tend to be: a. overproduced by private markets. b. underproduced by private markets. c. efficiently produced by private markets. d. not produced by private markets.

a

Products that generate positive externalities tend to be: a. underproduced by private markets. b. overproduced by private markets. c. efficiently produced by private markets. d. not produced by private markets.

a

When some of the costs of a good spill over to a third party, a _ externality exists and the good tends to be ___ by private markets. a. negative; overproduced. b. negative; underproduced c. positive; underproduced. d. positive; overproduced.

a

According to the Coase Theorem, an efficient outcome can be achieved without any need for active government involvement as long as: a. property rights are clearly defined and transaction costs are sufficiently high. b. property rights are clearly defined and transaction costs are sufficiently low. c. there are no ownership rights which might be affected by a spillover (external) cost. d. the parties causing the spillover (external) costs cannot be identified.

b

Negative externalities occur when: a. people buy things that work better than expected. b. costs associated with an activity are borne by a third party. c. private market demand curves are the same as marginal social benefit curves. d. market activity creates benefits that spill over to third parties.

b

Products that generate negative externalities tend to be: a. underproduced by private markets. b. overproduced by private markets. c. efficiently produced by private markets. d. not produced by private markets.

b

Which of the following is a likely government response to a positive externality? a. Regulating the production of the good in an attempt to force producers to internalize the spillover costs b. Subsidizing the consumption of the good in an attempt to take advantage of the benefits that spillover to society c. Charitable foundations using donations to provide the output in an attempt to increase the level of output of the good d. Private producers banding together to form associations that set minimum industry standards for members of the association

b

Which of the following is not an example of government response to a market failure? a. A county collecting property taxes to fund public schools b. A privately-owned business that does not allow smoking c. The Environmental Protection Agency setting auto emissions standards d. Laws requiring that children attend school

b

All of the following are functions of government in the U.S. except: a. Providing public goods and correcting externalities b. Providing a legal framework and protecting property rights c. Promoting a perfectly equal distribution of income d. Promoting full employment, low inflation, and economic growth

c

Assuming no externalities exist, an output that is rival and excludable is likely to be: a. unprofitable when produced by private markets. b. not produced by private markets. c. produced in an efficient amount by private markets. d. considered a public good by private markets.

c

Of the following, the best example of a public good is: a. the benefits to society of a more educated population. b. a library because most libraries are open to public use. c. a fireworks display because many people can watch the display at the same time and it is difficult to prevent people who do not pay from enjoying the fireworks. d. a school of fish in the ocean because it is difficult to prevent people from fishing in the ocean and the number of fish in the ocean is impossible to count.

c

The Tragedy of the Commons refers to: a. the tendency for the quality of output to decline as it becomes more readily available, or common. b. the inability of the common man to successfully negotiate with large corporations when negative externalities arise. c. the tendency to use common resources more than is desirable from society's point of view. d. the fact that common areas are often little-used and ignored on college campuses.

c

The free-rider problem occurs when: a. some people receive welfare benefits to which they are not entitled. b. the benefits associated with pure private goods cannot be denied to those who do not pay for them. c. the benefits associated with pure public goods cannot be denied to those who do not pay for them. d. government must subsidize public transportation.

c

Under which of the following scenarios would a park exhibit the characteristics of a pure public good? a. Visitors to the park must pay an admittance fee and the park is never crowded b. Visitors to the park must pay an admittance fee and the park is always crowded c. Visitors can enter the park free of charge and the park is never crowded d. Visitors can enter the park free of charge and the park is always crowded

c

Which of the following is a government solution to a positive externality? a. The Sierra club uses private donations to protect the environment b. Corporations fund scholarships to make college educations more affordable c. The county uses tax revenue to fund public schools d. Mr. Jones allows Mr. Smith to cut down a large tree on the Jones property that is blocking Mr. Smiths view

c

Because a pure public good is: a. excludable, it is not possible for any consumer to be a free rider. b. excludable, it is possible for some consumers to be free riders. c. nonexcludable, it is not possible for any consumer to be a free rider. d. nonexcludable, it is possible for some consumers to be free riders.

d

Many consumers may watch public TV and listen to public radio who do not contribute to fund-raising drives to help finance these organizations. This is an example of: a. the irrationality of consumers. b. the subsidy effect. c. a negative externality. d. the free rider problem.

d

Positive externalities occur when: a. people buy things that work better than expected. b. costs associated with an activity are borne by a third party. c. private market demand curves are the same as marginal social benefit curves. d. market activity creates benefits that spill over to third parties.

d

The tendency to use common resources more than is desirable from society's point of view is called the: a. Coase theorem. b. law of diminishing marginal utility. c. rivalry problem. d. Tragedy of the Commons.

d