Eco Final 3
Which of the following is an example of the free-rider problem?
A neighbor who refuses to help pay for a street light that is intended to help reduce crime
Suppose that the market price of good X equals the firms cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?
An external benefit is associated with good X
Functions of government include which of the following? a. correcting for externalities b. promoting competition c. producing all private goods
Both A and B
Which of the following is an example of a public good?
National defense
Which of the following is best characterized as a public good?
Police protection
An externality can best be defined as
a consequence of a transaction that spills over to affect third parties
A negative externality is a situation in which
a cost associated with an economic activity is borne by a third party
An external cost, such as the cost generated by pollution, is
a cost paid by a third party or by society at large
An economic activity that, from the perspective of society, results in too few or too many resources going to a specific economic activity once external benefits or costs are taken into account is called
a market failure
A friend of yours receives a voucher for an apartment in a public housing project. This apartment represent
a private good
Which of the following goods is NOT subject to the free-rider problem?
a public transit system
A government action that can help correct positive externalities is
a subsidy to consumers of the good that provides external benefits
A negative externality such as pollution can be corrected by
a tax on producers
When a paper producer pollutes the air, economists argue that there is
an external cost
A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called
an externality
Pollution is caused by a market failure, in an industry in which there is
an overallocation of resources in production
Market failure occurs when
an unrestrained market economy leads to too few or too many resources going to a specific economic activity
To protect the competitive economic system by restricting the formation of monopolies, the government has passed and enforced
antitrust laws
Federal antitrust laws in the US are enforced
by the Department of Justice and by the Federal Trade Commission
A fundamental aspect of public goods is that they
can be consumed jointly by many people simultaneously
One characteristic of a public good is that it
can be consumed simultaneously by many individuals
All of the following illustrate how government can correct for positive externalities EXCEPT
charging effluent fees
Which of the following would be classified as a private good?
clothing
The principle feature of private goods is that
consumption by one person reduces the quantity available to others
In the US economy, which of the following is NOT a generally accepted economic function of government?
distributing consumer goods
Which of the following is NOT an economic function of the US government?
encouraging production of demerit goods
The economic role of the legal system might best be described as
establishing the 'rules if the game' and acting as a referee when disputes arise among market participants
Which of the following leads to an under allocation of resources to a specific economic activity?
external benefits
Society is likely to overallocate resources to produce goods that
generate negative externalities
An effluent fee
gives a firm the right to pollute if it pays a tax on what it discharges
Government can correct for negative externalities by
increasing taxes or regulation
Which of the following often involves positive external benefits?
inoculation programs
The US legal system mainly engages in activities that
involve defining and protecting property
In the US, the idea that the federal government should undertake actions to stabilize business activity
is a relatively new idea that developed in the years during and after the Great Depression
US antitrust laws view monopolies as undesirable because
monopolies restrain trade and promote in efficiencies
Public goods are
neither exclusive nor rival
Public goods are unlikely to be provided by the private sector because
no one can be excluded from the consumption of the good
Public goods are characterized by the free-rider problem because
no one can excluded from the benefits of public goods once they are produced
Suppose that the rapper Eminem decides to perform in Chicago's Grand Park. The concert promoters rightly believe that the only way the concert can be given in the park is if the concert is free. This conclusion is based on the assumption that the concert would be
non excludable in consumption
Public goods are essentially
nonrivial in consumption
When an external cost exists, firms tend to
overproduce the good
A subsidy is sometimes used by the government to correct the problems associated with
positive externalities
Market failures
prevent the price system from attaining economic efficiency
Federal antitrust laws in the US are intended to
promote competition by prohibiting monopolies
To correct for the underproduction of products with positive externalities, the government must
provide the incentives for the private sector to produce the good
Public goods are
provided to additional users at no additional cost
Which of the following is NOT an economic function of government?
providing demerit goods
In the absence of government,
public goods are likely to be underprovided
Which one of the following is NOT a characteristic of public goods?
public goods are subject the principle of rival consumption
Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that
resources are over allocated to the industry
An externality exists when
some of the benefits or costs associated with a good are borne by third parties
The free-rider problem is encountered when
someone benefits from the consumption of a public good without paying his or her full share
Assume the production of a good gives rise to external benefits. The government may increase efficiency by
subsidizing production of the good
If the production of a product results in significant external costs, an appropriate government policy might be to
tax the producer and thus shift the supply curve to the left
When the production of one good spills benefits over to third parties, the government should consider all of the following EXCEPT
taxing the production or consumption of the good
Private goods are those goods
that can only consumed by one individual at a time
The Do-Good company produces goods that provide benefits to society-at-large. If consumers of Do-Good's products fail to take external benefits into account,
the demand curve will be too far to the left
The economic functions of government differ from the political functions of government in that
the economic functions involve things that affect the way exchange is carried out while the political functions include policies that affect income redistribution
Which of the following does NOT generate positive external benefits to society?
the haphazard dispose of industrial wastes
If production of an item results in negative external costs, then
the market price is below the socially preferred price that reflects the external costs
A result of a positive externality in the production of a good is that
the price system will under allocate resources to the production of that good or service
The distinguishing characteristic of private goods is that
their use is exclusive to the people who purchase them
When consumers are sovereign,
they have the freedom to decide what they wish to purchase
When an Australian citizen enjoys military protection in Australia without contributing to the cost of Australia's defense budget, then
this citizen is a free rider
A government subsidy is typically used
to encourage a positive externality
A firm that has a great deal of control over the price of a good is said
to have monopoly power
Which of the following does NOT describe the intended purpose of the antitrust laws of the US?
to prohibit certain economic activities that promote trade
The legal system in the US tends
to promote competition
The purpose of antitrust legislation is
to reduce the power monopoly
Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large. Each individuals demand curve will shift _________, and the market demand curve for the product will shift ___________.
to the right; to the right
Which of the following statements is TRUE?
transfer payments are money payments made by the government for which no goods or services are currently received
When a good causes positive external benefits to accrue to third parties, an unfettered market will
under allocate resources to the good causing the benefit
The opportunity cost of providing a public good to an additional individual is
zero
