Multiple Choice Questions

(Consider This) 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:
  • the Coase theorem.
  • Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
  • the demand and supply curves don't reflect the full cost of producing a good or service.
  • government should levy a per unit excise tax on Z to shift the supply curve toward S1.
Demand-side market failures occur when:
  • the demand and supply curves don't reflect the full cost of producing a good or service.
  • the benefits associated with a product exceed those accruing to people who consume it.
  • the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.
  • the market demand for a public good is nonexistent or understated.
The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of:
  • diminishing returns.
  • nonrival in consumption.
  • improved technology for reducing pollution
  • a + b + c + d.
Allocative efficiency occurs only at that output where:
  • the benefits associated with a product exceed those accruing to people who consume it.
  • the total cost of producing a good exceeds the costs borne by the producer.
  • the demand and supply curves don't reflect the full cost of producing a good or service.
  • the combined amounts of consumer surplus and producer surplus are maximized.
(Consider This) Suppose that Susie creates a work of art and displays it in a public place. Economists would expect:
  • the benefits associated with a product exceed those accruing to people who consume it.
  • asking for donations based on how much people enjoy his work. Economists would expect that:, people will understate their enjoyment of the art in order to "free ride."
  • those enjoying the art to "free ride" since they cannot be made to bear any of the cost.
  • the demand and supply curves don't reflect the full cost of producing a good or service.
Refer to the above competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and SIf there are substantial external benefits associated with the production of Z, then:
  • government should levy a per unit excise tax on Z to shift the supply curve toward S1.
  • government can improve the allocation of resources by subsidizing consumers of Z.
  • Q1 represents too little pollution abatement.
  • tax producers so that the market supply curve shifts leftward (upward).
Cost-benefit analysis attempts to:
  • private markets do not allocate resources in the most economically desirable way.
  • the marginal cost and marginal benefit of Program A are $2 and $9 respectively.
  • the market demand for a public good is nonexistent or understated.
  • compare the benefits and costs associated with any economic project or activity.
Refer to the above diagram. If actual production and consumption occur at Q3:
  • an efficiency loss (or deadweight loss) of b + d occurs.
  • an overallocation of resources to this product.
  • an efficiency loss (or deadweight loss) of e + f occurs.
  • Q1 represents too little pollution abatement.
Refer to the above diagram. Which one of the following might shift the marginal cost curve from MC1 to MC2?
  • an overallocation of resources to this product.
  • improved technology for reducing pollution
  • Q1 represents too little pollution abatement.
  • diminishing returns.
Which of the following is an example of a public good?
  • The total revenue received by producers equals the total cost of production.
  • Public goods are only provided by government.
  • a weather warning system
  • Plan B.
Producer surplus:
  • private markets do not allocate resources in the most economically desirable way.
  • asking for donations based on how much people enjoy his work. Economists would expect that:, people will understate their enjoyment of the art in order to "free ride."
  • is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.
  • the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them they don't put up as many lights as people would like. This is an example of a:
  • Supply-side market failure
  • the 3rd unit should be produced
  • demand-side market failure
  • the Coase theorem.
At the output where the combined amounts of consumer and producer surplus are largest:
  • The benefit surpluses shared between consumers and producers will be maximized.
  • maximum willingness to pay exceeds minimum acceptable price.
  • Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
  • the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:
  • maximum willingness to pay exceeds minimum acceptable price.
  • equals the marginal cost of producing that particular unit.
  • a consumer surplus of $10 and Tony experiences a producer surplus of $190.
  • the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
Refer to the above diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). We can conclude that the government is correcting for:
  • negative externalities in diagram (a) and positive externalities in diagram (b).
  • costs has resulted in an overallocation of resources to X.
  • an output greater than G would result in a more efficient allocation of resources.
  • major new studies strongly linking cancer to pollution
(Last Word) In a cap-and-trade program:
  • assigns a property right to polluting the atmosphere.
  • government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.
  • government should levy a per unit excise tax on Z to shift the supply curve toward S1.
  • making monitoring difficult and costly, many economists:, prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions.
Refer to the above diagram. Which one of the following might shift the marginal benefit curve from MB1 to MB2?
  • government can improve the allocation of resources by subsidizing consumers of Z.
  • major new studies strongly linking cancer to pollution
  • tax producers so that the market supply curve shifts leftward (upward).
  • a + b + c + d.
Supply-side market failures occur when:
  • the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.
  • the demand and supply curves don't reflect the full cost of producing a good or service.
  • the combined amounts of consumer surplus and producer surplus are maximized.
  • the benefits associated with a product exceed those accruing to people who consume it.
(Last Word) A cap-and-trade program:
  • major new studies strongly linking cancer to pollution
  • is measured as the combined loss of consumer surplus and producer surplus.
  • the optimal project size is the one for which MB = MC.
  • assigns a property right to polluting the atmosphere.
Which of the following statements is not true?
  • an efficiency loss (or deadweight loss) of e + f occurs.
  • Public goods are only provided by government.
  • public goods
  • The total revenue received by producers equals the total cost of production.
At the output level defining allocative efficiency:
  • the market demand for a public good is nonexistent or understated.
  • marginal benefit equals marginal cost.
  • the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
  • Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
A positive externality or spillover benefit occurs when:
  • the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.
  • The benefit surpluses shared between consumers and producers will be maximized.
  • the benefits associated with a product exceed those accruing to people who consume it.
  • the optimal project size is the one for which MB = MC.
Refer to the above data. The collective willingness of this society to pay for the 2nd unit of this public good is:
  • $18.
  • $6.
  • $0
  • Q1.
Unlike a private good
  • a public good:,has benefits available to all, including nonpayers.
  • summing vertically the individual demand curves for the public good.
  • assigns a property right to polluting the atmosphere.
  • there is no effective way to keep people from using a good once it comes into being.
Refer to the above diagram. With MB1 and MC1 society's optimal amount of pollution abatement is:
  • Q1.
  • $0
  • Q1 represents too little pollution abatement.
  • $6.
Public goods are those for which there:
  • nonrivalry and nonexcludability.
  • the optimal project size is the one for which MB = MC.
  • is nonrivalry and nonexcludability.
  • is available to all and cannot be denied to anyone.
Market failure is said to occur whenever:
  • private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.
  • the total cost of producing a good exceeds the costs borne by the producer.
  • private markets do not allocate resources in the most economically desirable way.
  • the market demand for a public good is nonexistent or understated.
The socially optimal amount of pollution abatement occurs where society's marginal:
  • costs more to produce than it provides in benefits.
  • maximum willingness to pay exceeds minimum acceptable price.
  • benefit of abatement equals its marginal cost of abatement.
  • whenever they over- or underallocate resources to a project.
The above data indicate that:
  • the marginal cost and marginal benefit of Program A are $2 and $9 respectively.
  • whenever they over- or underallocate resources to a project.
  • summing vertically the individual demand curves for the public good.
  • is available to all and cannot be denied to anyone.
Amanda buys a ruby for $330 for which she was willing to pay $The minimum acceptable price to the seller Tony was $Amanda experiences:
  • a consumer surplus of $9 and Nathan experiences a producer surplus of $3.
  • major new studies strongly linking cancer to pollution
  • The benefit surpluses shared between consumers and producers will be maximized.
  • a consumer surplus of $10 and Tony experiences a producer surplus of $190.
Refer to the above diagram of the market for product X. Curve St embodies all costs (including externalities) and Dt embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the market equilibrium output is Q1, we can conclude that the existence of external:
  • government can improve the allocation of resources by subsidizing consumers of Z.
  • government should levy a per unit excise tax on Z to shift the supply curve toward S1.
  • benefits has resulted in an underallocation of resources to X.
  • an overallocation of resources to this product.
Refer to the above diagram. Assuming equilibrium price P1 consumer surplus is represented by areas:
  • $0
  • an efficiency loss (or deadweight loss) of e + f occurs.
  • a + b.
  • $18.
Refer to the above diagram of the market for product X. Curve St embodies all costs (including externalities) and Dt embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the equilibrium output is Q2, we can conclude that the existence of external:
  • costs has resulted in an overallocation of resources to X.
  • an overallocation of resources to this product.
  • an efficiency loss (or deadweight loss) of e + f occurs.
  • major new studies strongly linking cancer to pollution
Refer to the above diagram. Assuming equilibrium price P1 producer surplus is represented by areas:
  • a + b + c + d.
  • c + d.
  • 3 units.
  • a + b.
If one person's consumption of a good does not preclude another's consumption the good is said to be:
  • diminishing returns.
  • nonrival in consumption.
  • price and output would increase.
  • diminishing marginal utility.
Which of the following conditions does not need to occur for a market to achieve allocative efficiency?
  • the total cost of producing a good exceeds the costs borne by the producer.
  • The benefit surpluses shared between consumers and producers will be maximized.
  • The total revenue received by producers equals the total cost of production.
  • all of these
Refer to the above diagram. If actual production and consumption occur at Q2:
  • c + d.
  • major new studies strongly linking cancer to pollution
  • a + b.
  • efficiency is achieved.
Refer to the above data. If this good were a private good instead of a public one the total quantity demanded at a $3 market price would be:
  • Q1 represents too little pollution abatement.
  • an output greater than G would result in a more efficient allocation of resources.
  • 4 units.
  • a + b.
(Consider This) Brinley puts on an art show in a public space
  • making monitoring difficult and costly, many economists:, prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions.
  • government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.
  • asking for donations based on how much people enjoy his work. Economists would expect that:, people will understate their enjoyment of the art in order to "free ride."
  • private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.
If the demand curve reflects consumers' full willingness to pay and the supply curve reflects all costs of production then which of the following is true?
  • The benefit surpluses shared between consumers and producers will be maximized.
  • The total revenue received by producers equals the total cost of production.
  • those enjoying the art to "free ride" since they cannot be made to bear any of the cost.
  • the benefits associated with a product exceed those accruing to people who consume it.
Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display the request for donations suggests that:
  • the 3rd unit should be produced
  • diminishing marginal utility.
  • government can improve the allocation of resources by subsidizing consumers of Z.
  • resources are currently underallocated to the provision of holiday lighting in Anytown.
If a good that generates positive externalities were produced and priced to take into account these spillover benefits then its:
  • nonrivalry and nonexcludability.
  • price and output would increase.
  • $28,000 and $12,000 respectively.
  • those enjoying the art to "free ride" since they cannot be made to bear any of the cost.
The two main characteristics of a public good are:
  • is nonrivalry and nonexcludability.
  • benefit of abatement equals its marginal cost of abatement.
  • price and output would increase.
  • nonrivalry and nonexcludability.
A negative externality or spillover cost occurs when:
  • the optimal project size is the one for which MB = MC.
  • the combined amounts of consumer surplus and producer surplus are maximized.
  • the total cost of producing a good exceeds the costs borne by the producer.
  • The total revenue received by producers equals the total cost of production.
Graphically producer surplus is measured as the area:
  • above the supply curve and below the actual price.
  • Program B is the most efficient on economic grounds.
  • whenever they over- or underallocate resources to a project.
  • assigns a property right to polluting the atmosphere.
Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8 respectively for the 3rd unit of a public good. Also assume that the marginal cost of the 3rd unit is $We can conclude that:
  • the 3rd unit should be produced
  • price and output would increase.
  • 3 units.
  • tax producers so that the market supply curve shifts leftward (upward).
Refer to the above diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production including external costs. Assume that the number of people affected by these external costs is large. Without government interference this market will reach:
  • tax producers so that the market supply curve shifts leftward (upward).
  • an efficiency loss (or deadweight loss) of b + d occurs.
  • government can improve the allocation of resources by subsidizing consumers of Z.
  • an overallocation of resources to this product.
Nonexcludability describes a condition where:
  • there is no effective way to keep people from using a good once it comes into being.
  • the marginal cost and marginal benefit of Program A are $2 and $9 respectively.
  • compare the benefits and costs associated with any economic project or activity.
  • the total cost of producing a good exceeds the costs borne by the producer.
At the optimal quantity of a public good:
  • Program B is the most efficient on economic grounds.
  • the marginal cost and marginal benefit of Program A are $2 and $9 respectively.
  • assigns a property right to polluting the atmosphere.
  • marginal benefit equals marginal cost.
Refer to the above diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). The shift of the supply curve from S to S2 in diagram (b) might be caused by a per unit:
  • subsidy paid to the producers of this product.
  • benefits has resulted in an underallocation of resources to X.
  • tax producers so that the market supply curve shifts leftward (upward).
  • major new studies strongly linking cancer to pollution
Refer to the above data. For Plan D marginal costs and marginal benefits are:
  • a + b + c + d.
  • $28,000 and $12,000 respectively.
  • subsidy paid to the producers of this product.
  • tax on the producers of this product.
Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good rather than do without it. The collective willingness to pay for the 1st unit of this public good is:
  • c + d.
  • a + b + c + d.
  • $18.
  • costs has resulted in an overallocation of resources to X.
Because of the free-rider problem:
  • is measured as the combined loss of consumer surplus and producer surplus.
  • the total cost of producing a good exceeds the costs borne by the producer.
  • The total revenue received by producers equals the total cost of production.
  • the market demand for a public good is nonexistent or understated.
Refer to the above diagram. From society's perspective if MB2 and MC1 are relevant:
  • subsidy paid to the producers of this product.
  • government should levy a per unit excise tax on Z to shift the supply curve toward S1.
  • Q1 represents too little pollution abatement.
  • $28,000 and $12,000 respectively.
For which one of the following goods would we need to sum individual demand curves vertically to obtain the total demand curve?
  • courts of law
  • nonrival in consumption.
  • all of these
  • price and output would increase.
Refer to the above diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should:
  • tax producers so that the market supply curve shifts leftward (upward).
  • an output greater than G would result in a more efficient allocation of resources.
  • benefits has resulted in an underallocation of resources to X.
  • costs has resulted in an overallocation of resources to X.
A producer's minimum acceptable price for a particular unit of a good:
  • equals the marginal cost of producing that particular unit.
  • whenever they over- or underallocate resources to a project.
  • benefit of abatement equals its marginal cost of abatement.
  • diminishing marginal utility.
Refer to the above competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and SIf there are substantial external costs associated with the production of Z, then:
  • government should levy a per unit excise tax on Z to shift the supply curve toward S1.
  • government can improve the allocation of resources by subsidizing consumers of Z.
  • Q1 represents too little pollution abatement.
  • an output greater than G would result in a more efficient allocation of resources.
Refer to the above diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). The shift of the supply curve from S to S1 in diagram (a) might be caused by a per unit:
  • tax producers so that the market supply curve shifts leftward (upward).
  • benefits has resulted in an underallocation of resources to X.
  • tax on the producers of this product.
  • subsidy paid to the producers of this product.
(Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes:
  • a consumer surplus of $9 and Nathan experiences a producer surplus of $3.
  • the Coase theorem.
  • all of these
  • a + b + c + d.
According to the marginal-cost-marginal-benefit rule:
  • the total cost of producing a good exceeds the costs borne by the producer.
  • the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
  • the optimal project size is the one for which MB = MC.
  • the benefits associated with a product exceed those accruing to people who consume it.
A public good:
  • a public good:,has benefits available to all, including nonpayers.
  • is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
  • is available to all and cannot be denied to anyone.
  • the optimal project size is the one for which MB = MC.
The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:
  • diminishing returns.
  • demand-side market failure
  • improved technology for reducing pollution
  • diminishing marginal utility.
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Multiple Choice Questions
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