Economics (McConnell), 18th Edition

Chapter 16: Public Goods, Externalities, and Information Asymmetries

Quiz

1
Answer the next question on the basis of the following information for a public good. PR and PS are the prices that Rafael and Sarah, respectively, are willing to pay for the marginal unit of a public good, rather than do without it. Rafael and Sarah are the only members of society.
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Refer to the table. Suppose the public good can be provided by the government at a constant marginal cost of $7. The optimal quantity of the public good is:
A)1 unit
B)2 units
C)3 units
D)4 units
2
Firms will likely provide the economically efficient level of workplace safety if:
A)monopoly profits provide sufficient resources to cover the cost
B)workers are constrained from readily changing jobs
C)wages are inflexible
D)markets are competitive and workers are informed of safety risks
3
Coase's assertion that government intervention is not necessary to resolve situations of negative externalities does not apply in situations where:
A)property rights are not clearly established
B)markets are competitive
C)bargaining between the affected parties is costless
D)there are only a few affected parties
4
Answer the next question on the basis of the following information for four city beautification programs of increasing scope. All figures are in millions of dollars.
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Refer to the table. On economic grounds, the most efficient program is:
A)A
B)B
C)C
D)D
5
Government has imposed a tax on the producers of good X and has subsidized the consumers of good Y. If these policies result in the production of the efficient amounts of both goods, it is likely the government is correcting for:
A)external costs in producing X and external benefits in consuming Y
B)external benefits in producing X and external costs in consuming Y
C)external benefits in producing X and consuming Y
D)external costs in producing X and consuming Y
6
Provisions of the Clean Air Act of 1990 that required 30 to 60 percent reduction of tailpipe emissions in cars were an example of:
A)market policies to correct for an external benefit
B)direct controls to correct for an external cost
C)an application of the Coase Theorem
D)direct controls to correct for moral hazard
7
The primary benefit of a market for pollution rights is that such markets:
A)typically are the only way to reduce pollution to zero
B)force the worst polluters to clean up the most
C)typically are the only way to reduce the adverse selection problem
D)reduce the total costs of achieving a given level of pollution reduction
8
Considering a market for pollution rights, the discovery of a new, cleaner, inexpensive technology for the production of energy would:
A)reduce the supply of pollution permits
B)increase the price of pollution permits
C)reduce the demand for pollution permits
D)increase the quantity of pollution permits
9
Which of the following is a likely benefit of slowing or eliminating the greenhouse effect?
A)A reduction in the cost of making required economic adjustments to higher global temperatures
B)Increased per-capital consumption of fossil fuels
C)A reduction in the rate of economic growth
D)Warmer temperatures in the summer months
10
Which of the following best exemplifies the moral hazard problem?
A)Kevin, who knows his new car is a lemon, attempts to sell it to an unsuspecting buyer
B)Given the choice of better family medical coverage or increased paid time away in the company's benefits program, Kelsey selects the former
C)After buying the extended coverage on her rental car agreement, Melissa drives more recklessly than she would in her own car
D)David watches his favorite shows on public television, but never contributes to their pledge drives
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