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Exam 4: Market Failures: Public Goods and Externalities

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Question 31

Multiple Choice

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The two main characteristics of a public good are

A) production at constant marginal cost and rising demand.
B) nonexcludability and production at rising marginal cost.
C) nonrivalry and nonexcludability.
D) nonrivalry and large negative externalities.

E) None of the above
F) All of the above

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Question 32

Multiple Choice

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The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called

A) production costs.
B) producers' supply.
C) producer surplus.
D) surplus production.

E) None of the above
F) A) and B)

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Question 33

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Asymmetric information always results in adverse selection.

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it.This characteristic is called

A moral hazard problem occurs before a transaction-when people alter their behavior before they sign a contract, imposing costs on the other party.

Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed, the supply of "pollution rights" in a cap-and-trade system will be perfectly elastic (horizontal).

Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer

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?

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

When the government bails out large banks when the banks become unstable, it could lead to a moral hazard problem in banking.

When there is overproduction of a good,

Alex, Kara, and Susie are the only three people in a community.Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25.If the marginal cost of producing the third unit is $100, what is the minimum amount that Susie must be willing to pay for it to be efficient for government to produce the third unit?

Along a demand curve, product price and consumer surplus are inversely related.

By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution.This will lead to the equilibrium price of cars

Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program.This illustrates the problem of

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

External benefits in consumption refer to benefits accruing to

If a good that generates negative externalities were priced to take these negative externalities into account, then its

According to the marginal-cost-marginal-benefit rule,