978-1259723223 Test Bank TBChap004 Part 3

A.

the display creates negative externalities.

80.

The socially optimal amount of pollution abatement occurs where society’s marginal

81.

The marginal benefit to society of reducing pollution declines with increases in pollution

abatement because of the law of

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eliminate every last bit of a negative externality such as air pollution.

Test Bank: I

Topic:

Societys Optimal Amount of Externality Reduction

82.

The marginal cost to society of reducing pollution rises with increases in pollution

abatement because of the law of

83.

Refer to the diagram. From society’s perspective, if MB1 and MC2 are relevant,

D.

Q4 represents too little pollution abatement.

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written consent of McGraw-Hill Education.

Di ffi cu l ty:

02 Medium

Learning Objective: 04-05 Show why we normally won’t want to pay what it would cost to

eliminate every last bit of a negative externality such as air pollution.

Test Bank: I

To pi c:

Societys Optimal Amount of Externality Reduction

84.

Refer to the diagram. From society’s perspective, if MB2 and MC1 are relevant,

A. Q4 represents too little pollution abatement.

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85.

Refer to the diagram. With MB1 and MC1, society’s optimal amount of pollution abatement is

D.

Q4.

86.

Refer to the diagram. Which one of the following might shift the marginal cost curve from MC1

to MC2?

87.

Refer to the diagram. Which one of the following might shift the marginal benefit curve from

MB1 to MB2?

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88.

The MC curves in the diagram slope upward because of the law of

89.

The MB curves in the diagram slope downward because of the law of

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written consent of McGraw-Hill Education.

A.

conservation of matter and energy.

B.

diminishing returns.

C. diminishing marginal utility.

D. increasing cost.

90.

(Consider This) Suppose that a new band, “Balin and the Wolf Riders,” tries to sell its music

on the Internet. Economists would expect

of Augi’s music have been poor due to Internet piracy. However, concerts are regularly sold out

and merchandise (such as T-shirts) sells well. If Augi wants to enhance

profits, economists

would most likely recommend that she

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Learning Objective: 04–03 Describe free riding and public goods, and illustrate why private

firms cannot normally produce public goods.

Test Bank: I

To pi c:

Public Goods

92.

(Consider This) According to the Coase theorem,

93.

(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

94.

(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

95.

(Last Word) In a cap-and-trade program,

96.

(Last Word) A cap-and-trade program

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written consent of McGraw-Hill Education.

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 04-05 Show why we normally won’t want to pay what it would cost to

eliminate every last bit of a negative externality such as air pollution.

Test Bank: I

Topic:

Societys Optimal Amount of Externality Reduction

97.

(Last Word) Because there are so many sources of carbon dioxide, making monitoring

difficult and costly, many economists

98.

Supply-side market failures occur because it is impossible in certain cases for sellers to

charge consumers what they are willing to pay for a product.

99.

When a supply-side market failure occurs, the costs are greater than the benefits for the last

unit(s) of output produced.

100.

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

101.

Along a supply curve, product price and producer surplus are inversely related.

102.

Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds

minimum acceptable price by the greatest amount.

103.

Allocative efficiency occurs where the collective sum of consumer and producer surplus is

at a maximum.

104.

That government that has the smallest budget is the most efficient in the economic sense.

105.

A demand curve for a public good is determined by summing horizontally the individual

demand curves for the public good.

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written consent of McGraw-Hill Education.

AACSB: Knowledge Application

A c c e s s i b i l i t y :

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 04–03 Describe free riding and public goods, and illustrate why private

firms cannot normally produce public goods.

Test Bank: I

To pi c:

Public Goods

106.

The optimal quantity of a public good occurs where the marginal benefit of the citizen who

has the highest preference for the good just equals the good’s marginal cost.

107.

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the

full benefits of a public good or service.

108.

Society’s optimal amount of pollution abatement is where society‘s marginal benefit of

abatement is zero.

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written consent of McGraw-Hill Education.

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 04–05 Show why we normally won’t want to pay what it would cost to

eliminate every last bit of a negative externality such as air pollution.

Test Bank: I

Topic:

Societys Optimal Amount of Externality Reduction

109.

An improvement in the technology of pollution control is likely to increase society’s

optimal amount of pollution abatement.

110.

Society’s marginal cost of pollution abatement curve slopes upward because of the law of

diminishing marginal utility.

111.

(Consider This) The principle that private negotiation can resolve potential externalities

without resorting to government intervention is known as the Coase theorem.

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written consent of McGraw-Hill Education.

Learning Objective: 04–04 Explain how positive and negative externalities cause under- and

overallocations of resources.

Test Bank: I

Topic:

Externalities

Multiple Choice Questions

112.

Where there is asymmetric information between buyers and sellers,

A.

product shortages will occur at the equilibrium price.

113.

Buyers will opt out of markets in which

A.

there are significant negative externalities.

114.

Sellers will opt out of markets in which

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sellers.

115.

As it applies to insurance, the moral hazard problem is the tendency for

A.

those most likely to collect on insurance to buy it.

116.

As it applies to insurance, the adverse selection problem is the tendency for

D.

sellers to restrict output and charge high prices.

117.

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a

set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing

braces, selects the family dental coverage. This is an example of the

118.

Because the federal government typically provides disaster relief to farmers, many farmers

do not buy crop insurance even through it is federally subsidized. This illustrates

banks deemed “too big to fail.” Critics of this action argued that this would create the prospect

of future bailouts and encourage banks to be fiscally irresponsible in the future. This

illustrates

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AACSB: Knowledge Application

A c c e s s i b i l i t y :

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 04–06 Appendix: Describe how information failures may justify

government intervention in some markets.

Test Bank: I

Topic:

Appendix: Information Failures

120.

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the

121.

Professional buyers of antiques often have more information about the value of antique

objects than do the sellers. This illustrates

122.

Upon learning that his auto transmission is about to fail, Ray Roma sells his car to an

unsuspecting buyer. This circumstance illustrates the

123.

In a television advertisement for AFLAC supplemental health insurance, an ice skater says

to his skating partner, “Do you want to try a triple jump?” She responds, “Why not, I have

AFLAC.” This response illustrates the

124.

Owners of defective used cars have more information about the condition of their vehicles

than potential buyers of those used cars. This is an example of

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D i f f i c u l t y :

02 Medium

Learning Objective: 04–06 Appendix: Describe how information failures may justify

government intervention in some markets.

Test Bank: I

To pi c:

Appendix: Information Failures

125.

Suppose an insurance company decided to offer divorce insurance. Based on the concept of

moral hazard, economists would expect

126.

Some sellers of used cars provide warranties to buyers, with the aim of reassuring buyers

that the car is of good quality. These warranties help reduce the chance of what occurring?

127.

Product reviews help to alleviate problems associated with