Question 1

At the output level defining allocative efficiency,

Accepted Answer

A)  the areas of consumer and producer surplus necessarily are equal.
B)  marginal benefit exceeds marginal cost by the greatest amount.
C)  consumer surplus exceeds producer surplus by the greatest amount.
D)  the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.E) A) and B)
F) B) and D)

Question 2

Market failures

Accepted Answer

A)  are only a concern when they result in prices that are too high.
B)  apply exclusively to situations where markets do not produce any of an economically desirable good.
C)  result in overproduction or underproduction of a good.
D)  result from government interference in markets.E) B) and C)
F) None of the above

Question 3

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Accepted Answer

A)  P × Q.
B)  P + Q.
C)  P - Q.
D)  Q - P.E) A) and B)
F) C) and D)

Question 4

The "too big to fail" policy of the Fed, whereby some banks are bailed out if they are in danger of failing because they are too big and could bring the system down, leads to which of the following problems?

Accepted Answer

A)  adverse selection
B)  externalities
C)  moral hazard
D)  public goodsE) A) and D)
F) A) and C)

Question 5

Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for

Accepted Answer

A)  Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
B)  the director of housing to impose a fine on Darcy whenever she plays her music too loud.
C)  the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume.
D)  the college to ban the playing of music in dorms.E) B) and C)
F) A) and D)

Question 6

Which of the following antipollution policies is least likely to make use of cost-benefit analysis?

Accepted Answer

A)  creating a market for pollution rights
B)  charging polluters an emission fee
C)  enacting legislation that bans pollution
D)  private bargainingE) All of the above
F) C) and D)

Question 7

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because

Accepted Answer

A)  too few resources will be allocated toward producing the good.
B)  firms will shut down until costs are reduced.
C)  costs of production will, on average, be too high.
D)  too many resources will be allocated toward producing the good.E) All of the above
F) C) and D)

Question 8

Refer to the provided graph. Suppose consumers do not know the safety risks associated with a particular good and that the free-market equilibrium is at E, as shown in the diagram above. If an independent agency now provides accurate information to consumers about the harmful characteristics of the product, then

Accepted Answer

A)  the supply curve will shift to the left.
B)  the supply curve will shift to the right.
C)  both the new equilibrium price and quantity will be lower.
D)  the new equilibrium price will be higher but the equilibrium quantity will be either higher or lower.E) B) and D)
F) A) and B)

Question 9

The Coase theorem suggests that the government does not have to be involved at all in resolving a market failure due to externalities.

Accepted Answer

A) True 
 B)False

Exam 4: Market Failures Caused by Externalities Asymmetric Information

Which of the following antipollution policies is least likely to make use of cost-benefit analysis?

Correct Answer
verified

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Correct Answer
verified

At the output level defining allocative efficiency,

Correct Answer
verified

Correct Answer
verified

The "too big to fail" policy of the Fed, whereby some banks are bailed out if they are in danger of failing because they are too big and could bring the system down, leads to which of the following problems?

Correct Answer
verified

The Coase theorem suggests that the government does not have to be involved at all in resolving a market failure due to externalities.

Correct Answer
verified

Market failures

Correct Answer
verified

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because

Correct Answer
verified

Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for

Correct Answer
verified

Exam 4: Market Failures Caused by Externalities Asymmetric Information

Which of the following antipollution policies is least likely to make use of cost-benefit analysis?

Correct AnswerverifiedShow Answer

If the unit price of a product is P, then the amount of money buyers would need to pay for a given quantity Q is equal to

Correct AnswerverifiedShow Answer

At the output level defining allocative efficiency,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The "too big to fail" policy of the Fed, whereby some banks are bailed out if they are in danger of failing because they are too big and could bring the system down, leads to which of the following problems?

Correct AnswerverifiedShow Answer

The Coase theorem suggests that the government does not have to be involved at all in resolving a market failure due to externalities.

Correct AnswerverifiedShow Answer

Market failures

Correct AnswerverifiedShow Answer

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because

Correct AnswerverifiedShow Answer

Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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