Microeconomics Exam 3 Multiple Choice

Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are $1.90 and 38 units, respectively $1.80 and 35 units, respectively $1.60 and 42 units, respectively $1.35 and 58 units, respectively

$1.60 and 42 units, respectively

Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are $1.90 and 38 units, respectively $1.80 and 35 units, respectively $1.60 and 42 units, respectively $1.35 and 58 units, respectively

$1.80 and 35 units, respectively

Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output? $3 $5 $7 $9

$7

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. Refer to Table 10-2. What is the equilibrium quantity of output in this market? 3 units 4 units 5 units 6 units

4 units

Refer to Table 10-2. What is the socially-optimal level of output in this market? 3 units 4 units 5 units 6 units

5 units

A positive externality arises when a person engages in an activity that has an adverse effect on a bystander who is not compensated by the person who causes the effect an adverse effect on a bystander who is compensated by the person who causes the effect a beneficial effect on a bystander who pays the person who causes the effect a beneficial effect on a bystander who does not pay the person who causes the effect

a beneficial effect on a bystander who does not pay the person who causes the effect

An externality is an example of a corrective tax a tradable pollution permit a market failure Both a and b are correct

a market failure

The term market failure refers to a market that fails to allocate resources efficiently an unsuccessful advertising campaign which reduces demand ruthless competition among firms a firm that is forced out of business because of losses

a market that fails to allocate resources efficiently

An externality exists whenever the economy cannot benefit from government intervention markets are not able to reach equilibrium a firm sells its product in a foreign market a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect

a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect

A lighthouse is typically considered to be a public good because the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse there is rarely another lighthouse nearby to provide competition a nearby port authority cannot avoid paying fees to the lighthouse owner all passing ships are able to enjoy the benefits of the lighthouse without paying

all passing ships are able to enjoy the benefits of the lighthouse without paying

Governments can improve market outcomes for public goods but not common resources common resources but not public goods both public goods and common resources neither public goods nor common resources

both public goods and common resources

The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except assigning land property rights auctioning off sheep-grazing permits taxing sheep flocks subsidizing sheep flocks

subsidizing sheep flocks

At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a private good natural monopoly common resource public good

common resource

Goods that are not excludable include both private goods and public goods natural monopolies and common resources common resources and public goods private goods and natural monopolies

common resources and public goods

A free-rider problem exists for any good that is not excludable a private good free rival in consumption

excludable

Private decisions about consumption of common resources and production of public goods usually lead to an efficient allocation of resources and external effects efficient allocation of resources and no external effects inefficient allocation of resources and external effects inefficient allocation of resources and no external effects

inefficient allocation of resources and external effects

A positive externality will cause a market to produce more than is socially desirable less than is socially desirable the socially optimal equilibrium amount more than the same market would produce in the presence of a negative externality

less than is socially desirable

All remedies for externalities share the goal of moving the allocation of resources toward the market equilibrium moving the allocation of resources toward the socially optimal equilibrium increasing the allocation of resources decreasing the allocation of resources

moving the allocation of resources toward the socially optimal equilibrium

The national defense of the United States is not rival because my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States. my enjoyment of the national defense does diminish your enjoyment of the national defense of the United States. once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this defense. once the nation is defended, it is possible to prevent any single person from enjoying the

my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States.

Pay-per-view broadcasts are private goods natural monopolies common resources public goods

natural monopolies

Goods that are not rival in consumption include both private goods and common resources natural monopolies and public goods common resources and public goods private goods and natural monopolies

natural monopolies and public goods

Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates positive externalities negative externalities no externalities no equilibrium in the market

negative externalities

An AM radio transmission of a baseball game is (assume everyone has a radio) excludable and rival in consumption excludable and not rival in consumption not excludable and rival in consumption not excludable and not rival in consumption

not excludable and not rival in consumption

At the local park there is a playground that anyone may use. There is rarely anyone using the playground, so children who use the playground receive full enjoyment from its use. The playground is rival in consumption and is excludable not rival in consumption, but is excludable rival in consumption, but is not excludable not rival in consumption nor is it excludable

not rival in consumption nor is it excludable

Goods that are excludable include both natural monopolies and public goods public goods and common resources common resources and private goods private goods and natural monopolies

private goods and natural monopolies

Markets are often inefficient when negative externalities are present because private costs exceed social costs at the private market solution externalities cannot be corrected without government regulation social costs exceed private costs at the private market solution production externalities lead to consumption externalities

social costs exceed private costs at the private market solution

Which of the following policies is the government most inclined to use when faced with a positive externality? taxation permits subsidies usage fees

subsidies

Too few resources are devoted to the creation of knowledge because profit-seeking firms undervalue knowledge in their pursuit of revenues overuse their patents tend to free-ride on the knowledge that others have developed tend to rely on existing employee knowledge

tend to free-ride on the knowledge that others have developed

Government policy can potentially raise economic well-being in all markets for goods and services in economic models, but not in reality when a good does not have a price attached to it never

when a good does not have a price attached to it

When a negative externality exists in a market, the cost to producers is greater than the cost to society will be the same as the cost to society will be less than the cost to society will differ from the cost to society, regardless of whether an externality is present

will be less than the cost to society