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1 | |
A public good exhibits the characteristics of: |
| | A) | rivalry and excludability |
| | B) | nonrivalry and excludability |
| | C) | rivalry and nonexcludability |
| | D) | nonrivalry and nonexcludability |
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2 | |
Answer the next question on the basis of the following table, which shows the total benefits and total costs of four progressively larger proposals for a community center for the elderly in a small town. All figures are in thousands of dollars.
| Proposal | Total
Benefit | Total
Cost | | A | $ 800 | $ 500 | | B | 1,400 | 1,000 | | C | 1,800 | 1,500 | | D | 2,000 | 2,000 |
Refer to the table. The marginal benefit of proposal B is: |
| | A) | $400,000 |
| | B) | $600,000 |
| | C) | $1,400,000 |
| | D) | $2,200,000 |
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3 | |
Answer the next question on the basis of the following table, which shows the total benefits and total costs of four progressively larger proposals for a community center for the elderly in a small town. All figures are in thousands of dollars.
| Proposal | Total
Benefit | Total
Cost | | A | $ 800 | $ 500 | | B | 1,400 | 1,000 | | C | 1,800 | 1,500 | | D | 2,000 | 2,000 |
Refer to the table. According to this cost-benefit study, how much should the community spend on the senior center? |
| | A) | $500,000 |
| | B) | $1,000,000 |
| | C) | $1,500,000 |
| | D) | $2,000,000 |
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4 | |
The Coase Theorem suggests that government intervention is least likely to be needed to correct which of the following spillovers? |
| | A) | Individuals who outfit their cars with Lojack antitheft devices provide benefits to themselves and other car owners in the community |
| | B) | A large brewery discharges its wastewater into a creek, killing many fish a downstream resort relies on to attract anglers |
| | C) | Automobiles discharge greenhouse gases that potentially reduce the ozone layer and contribute to global warming |
| | D) | Hundreds of ranchers pay below-market rates for their cattle to graze on public land, resulting in overgrazing |
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5 | |
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 |
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6 | |
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 |
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7 | |
Consider the market for a product that uses recycled material in its production. If the demand for this product increases: |
| | A) | the demand for the recycled material will increase |
| | B) | the price of the recycled material will decrease |
| | C) | the supply of the recycled material will increase |
| | D) | the optimal amount of recycling will decrease |
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8 | |
Many savings and loan institutions failed in the 1980s by making very risky investments. Knowing that their deposits were insured, their depositors did not carefully scrutinize their banks' investment portfolios. This is an example of: |
| | A) | adverse selection |
| | B) | the Coase Theorem |
| | C) | a public good |
| | D) | moral hazard |
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9 | |
True or false: Government intervention is required to correct market failures created by negative externalities. |
| | A) | True |
| | B) | False |
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10 | |
Which of the following best describes the amount of safety provided by employers? |
| | A) | Employers have no incentive to provide a safe working environment, because safety increases their costs |
| | B) | Asymmetric information will lead to an underallocation of safety by employers |
| | C) | Provision of information to employees regarding risk will lead to "too much" job safety provided |
| | D) | Competitive labor markets will lead to an underallocation of safety by employers, even with perfect information |
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