Quiz #6

Negative Externalities and Raising Pigs for Pork (Question #9, Quiz #6)

Negative Externalities and Raising Pigs for Pork (Question #9, Quiz #6)

Which of the following is the best example of a public good? inoculation against a contagious disease taxi service a city bus a flood-control dam

a flood-control dam

Without government intervention: the socially optimal amount of pollution will be produced. an inefficiently high amount of pollution will be produced. an inefficiently low amount of pollution will be produced. the marginal social cost of pollution will be less than the marginal social benefit.

an inefficiently high amount of pollution will be produced.

Which of the following is NOT one of the ways to reduce adverse selection? cultivating private information cultivating a long-term reputation signaling screening

cultivating private information

One benefit of marketable permits is that regulators: does not have to determine how much it costs each firm to reduce pollution by one additional unit. can set any price they want for the permits. can restrict permit holding to the polluters only. can restrict the technologies used for pollution control.

does not have to determine how much it costs each firm to reduce pollution by one additional unit.

A health insurance company asking its customers whether they smoke is engaging in: pooling. screening. diversification. signaling.

screening.

The optimal Pigouvian tax is equal to: the marginal social benefit of pollution at the market-determined level of pollution. the marginal social cost of pollution at the market-determined level of pollution. the marginal social benefit when it is zero. the marginal social cost of pollution at the socially optimal quantity of pollution.

the marginal social cost of pollution at the socially optimal quantity of pollution.

Market failure arises when: a decrease in supply causes an increase in price. an increase in demand causes an increase in price. there is no equal distribution of income. the market fails to provide an efficient quantity of a good.

the market fails to provide an efficient quantity of a good.

The Coase Theorem asserts that: negative externalities are successfully addressed by government intervention. negative externalities are not harmful. transaction costs are independent of the number of parties involved. the private market can successfully resolve externalities if transaction costs are low.

the private market can successfully resolve externalities if transaction costs are low.

The marginal social benefit of a flu shot would be: the reduction in the individual's likelihood of catching the flu. the reduction in the rest of society's likelihood of catching the flu. the cost of producing one more unit of flu vaccine. the reduction in the individual and society's likelihood of catching the flu.

the reduction in the individual and society's likelihood of catching the flu.

Which of the following are considered a "market failure?" Check all that apply. Abuse of Monopoly Power Falling Prices leading to smaller company profits Prices rising when there is a shortage in the market Over production of goods with negative externalities Under production of goods with positive externalities Under providing public goods Over supply of private goods causing prices to drop Overusing common resources

Abuse of Monopoly Power Over production of goods with negative externalities Under production of goods with positive externalities Under providing public goods Overusing common resources

Individual marginal benefit (Question #15, Quiz #6)

Individual marginal benefit (Question #15, Quiz #6)

John and Kareem live next to each other in the UW Madison dorms. John values playing music $100 per week. Kareem likes to study in his dorm and values peace and quiet at a value of $150. Using the Coase Theorem, which of the following statements is true about an efficient solution to this externality problem if John has the right to play loud music before 10 PM and if there are no transaction costs? Kareem will pay John between $100 and $150 and John will stop playing loud music. John will pay Kareem $150 and John will continue to play loud music. The efficient solution has John playing load music, so nothing will change. None of the above.

Kareem will pay John between $100 and $150 and John will stop playing loud music.

Which of the following is TRUE of public goods? They are nonexcludable and nonrival in consumption. A free market will produce more than the efficient amount. They must be provided by the government. A free market will produce more than the efficient amount of a good, and that good is nonrival in consumption.

They are nonexcludable and nonrival in consumption.

The free-rider problem arises when: goods are nonrival in consumption. there is overuse of a common resource. the marginal social cost of producing a good exceeds the private marginal cost. a good is nonexcludable.

a good is nonexcludable.

Which of the following is an example of an artificially scarce good? a public beach to which individuals have free access a busy city street a weather forecast provided only to those who pay for the forecasting service public restrooms provided free of charge

a weather forecast provided only to those who pay for the forecasting service

Moral hazard occurs when: risks are pooled. risks are diversified. events that once were independent now are positively correlated. an individual knows more about his or her own actions than others do.

an individual knows more about his or her own actions than others do.

A situation where the seller has information regarding the hazards of a product, yet continues to sell it without informing consumers (e.g., cigarette producers), is described as ___________________, whereas, a situation where a homeowner doesn't bother to replace the battery in a smoke detector because she holds a generous insurance policy is called ___________________. asymmetric information; moral hazard information hazard; moral asymmetry asymmetric hazard; moral information moral hazard; asymmetric information

asymmetric information; moral hazard

The problem of moral hazard can be addressed by: lecturing the insured person about the risks involved. lecturing the insured person about the need to be more careful and vigilant. exchanging risk between those who are risk-loving and those who are risk-averse. giving the insured person some personal stake in what happens.

giving the insured person some personal stake in what happens.

When an emissions tax is imposed on production of a good, then the price will be ________ than it would be in the absence of the tax, and the equilibrium quantity will be _________. higher; higher lower; lower lower; higher higher; lower

higher; lower

When positive externalities exist the: market quantity will exceed the socially optimal quantity. market quantity will be less than the socially optimal quantity. marginal private benefit from consuming the good will exceed the marginal social benefit. marginal private benefits from consuming the good will equal the marginal social benefit.

market quantity will be less than the socially optimal quantity.

When negative externalities exist the: market quantity will exceed the socially optimal quantity. market quantity will be less than the socially optimal quantity. marginal private cost of producing the good will exceed the marginal social cost. marginal social costs of producing the good will equal the marginal private cost.

market quantity will exceed the socially optimal quantity.

Suppose a farmer in Nebraska incurs $8,700 in crop damage from sparks created when trains of a local railroad company run along tracks bordering the farm. This damage can be best described as a: negative externality. positive externality. transaction cost. social benefit.

negative externality.

A common resource is both: excludable and rival in consumption. nonexcludable and nonrival in consumption. excludable and nonrival in consumption. nonexcludable and rival in consumption.

nonexcludable and rival in consumption.

Traffic congestion is an example of: overuse of a common resource. an artificially scarce good. a good that is nonrival in consumption. a good for which the marginal social cost is zero.

overuse of a common resource.

Property rights will help ensure efficient use of a common resource like fisheries, since: property rights can be used to make a good excludable. property rights can be used to make a good nonrival. property rights will eliminate any negative externality arising from the use of a resource. the marginal private cost of production will be reduced.

property rights can be used to make a good excludable.

In the marketable permits system for reducing pollution, the government: calculates marginal abatement costs. takes up the responsibility to set the price of each permit. sets a maximum quantity of pollution and issues permits granting the "right" to pollute a certain amount. restricts the right to own a permit to pollute by allowing only the polluters to hold the permit.

sets a maximum quantity of pollution and issues permits granting the "right" to pollute a certain amount.

Pure public goods often: generate negative externalities suffer from the free rider problem. are over consumed. are always funded out of taxes.

suffer from the free rider problem.

Which of the following is NOT a negative externality? second-hand smoke safety hazards of cell-phone use technology spillovers acid rain

technology spillovers

A subsidy is a legitimate policy option when: there are external benefits arising from an activity. tradable emissions permits are issued. there are marginal social costs arising from an activity. there are external costs arising from an activity.

there are external benefits arising from an activity.

A system of tradable emissions permits ensures that: there will be no pollution. pollution will be at the level at which marginal social benefit equals zero. pollution will be at the level at which marginal social cost equals zero. those who can reduce pollution most cheaply will do so.

those who can reduce pollution most cheaply will do so.

According to the Coase theorem: the private sector cannot solve the problem of externalities without government intervention. two parties cannot come to a private agreement to eliminate an externality because transaction costs exist. two parties can internalize an externality, provided the transaction costs are sufficiently low. externalities always lead to inefficiencies because individuals have no incentive to make private deals.

two parties can internalize an externality, provided the transaction costs are sufficiently low.