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1 | |
Use the following diagram to answer the next question.
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Refer to the diagram. Assume S is a market supply curve comprising all private costs of production and D is a demand curve representing all private benefits. Further assume that property rights are well defined. In which of the following circumstances is the appropriate government response most likely to be a tax that shifts the supply curve to S1? |
| | A) | Production of this good generates a substantial spillover benefit and the number of affected parties is small |
| | B) | Production of this good generates a substantial spillover benefit and the number of affected parties is large |
| | C) | Production of this good generates a substantial spillover cost and the number of affected parties is small |
| | D) | Production of this good generates a substantial spillover cost and the number of affected parties is large |
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2 | |
All else equal, a decrease in the demand for bottled water will: |
| | A) | increase the supply of recyclable plastic |
| | B) | decrease the supply of recyclable plastic |
| | C) | decrease the demand for recyclable plastic |
| | D) | increase the demand for recyclable plastic |
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3 | |
Amy, Ben, and Carol are the only three people in a community considering how big a fireworks show to put on for the 4th of July. Amy is willing to pay $3 for the tenth shell, Ben is willing to pay $2, and Carol is willing to pay $1. The tenth shell should be fired if the marginal cost of the shell is: |
| | A) | less than $1 |
| | B) | at least $2 |
| | C) | at least $3 |
| | D) | less than $6 |
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4 | |
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) | spillover costs in producing X and spillover benefits in consuming Y |
| | B) | spillover benefits in producing X and spillover costs in consuming Y |
| | C) | spillover benefits in producing X and consuming Y |
| | D) | spillover costs in producing X and consuming Y |
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5 | |
Use the following diagram to answer the next question.
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Refer to the diagram. Suppose private marginal cost is given by S1 and private benefits are given by D1. Under what circumstances is output G the economically efficient output in this market? |
| | A) | Both production and consumption of this good entail external costs |
| | B) | Both production and consumption of this good entail external benefits |
| | C) | Production of this good entails external benefits; consumption entails external costs |
| | D) | Production of this good entails external costs; consumption entails external benefits |
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6 | |
At the optimal quantity of a public good: |
| | A) | the marginal benefit to each consumer equals the marginal cost of provision |
| | B) | the sum of the marginal benefits to each consumer equals the marginal cost of provision |
| | C) | the marginal benefit to each consumer equals the sum of the marginal costs of provision |
| | D) | the sum of the marginal benefits to each consumer equals the sum of the marginal costs of provision |
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7 | |
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 family medical coverage or increased vacation 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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8 | |
A premium television service transmits its signal via a stationary satellite; the scrambled signal is available to anyone with a satellite dish and descrambler who also pays a monthly service fee. This service is: |
| | A) | both rival and excludable |
| | B) | neither rival nor excludable |
| | C) | rival but nonexcludable |
| | D) | nonrival but excludable |
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9 | |
Which of the following will increase both the price and quantity of recycled newsprint? |
| | A) | Free curbside pickup of old newspapers |
| | B) | A government demand that newspapers use at least 30% recycled content |
| | C) | Subsidized garbage collection rates to consumers who recycle their newspapers |
| | D) | A sales tax increase on newspapers |
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10 | |
Which of the following would be an example of an attempt to reduce the adverse selection problem? |
| | A) | An employer requires all employees to participate in its company-subsidized health insurance plan |
| | B) | The government subsidizes the use of recycled inputs |
| | C) | The government imposes a tax on tailpipe emissions for automobiles |
| | D) | An employer monitors her workers to ensure they are not shirking |
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