14&15 Market Failure. © 2012 Pearson Addison-Wesley Q1: Food is an example of a good that is...

14&15Market Failure

© 2012 Pearson Addison-Wesley

Q1: Food is an example of a good that is _______.

A nonrival and nonexcludable

B rival and excludable

C nonrival and excludable

D rival and nonexcludable


Q2: Because Yellowstone National Park is ____ and ______, it is a _______.

A nonexcludable; nonrival; public good

B excludable; nonrival; common resource

C nonexcludable; rival; public good

D excludable; rival; common resource


Q3: Which of the following items would most likely be a public good?

A Baseball game at Busch Stadium in St. Louis

B iTunes sells songs through their website

C An Elvis CD

D The freeway from New York City to Los Angeles


Q4: The free-rider problem is that _______.

A too many people take public transit without paying the correct fare

B the market would provide an inefficiently small quantity of a public good

C too many unqualified people apply for and receive government benefits

D the market would provide an inefficiently small quantity of a private good


Q5: Road safety signs ______.

A provide a benefit and do not have a free-rider problem

B have a free-rider problem that cannot be eliminated

C have a free-rider problem that can eliminated by using gas tax revenue to pay for them

D are a private good


Q6: For a mixed good with an external benefit, a free market would produce _____ than the efficient output and the market price of the good would _____ than the marginal social benefit from it.

A less; more

B less; less

C more; more

D more; less


Q7: Choose the statement that is incorrect.

A An educated population produces external benefits because it supports high-quality newspapers and television channels, music, and theater.

B Health care generates an external benefit because through vaccinations people other than those vaccinated are less likely to catch infectious diseases.

C Health care generates an external benefit because a healthy population produces more goods and services than a sick population.

D Education creates an external benefit only when taxpayers contribute to the cost of the education.


Q8: In the market for a mixed good with an external benefit, _________.

A the outcome is inefficient because the market price exceeds the marginal social cost of producing the good

B public production can achieve an efficient outcome if taxes are not increased

C an efficient outcome can be achieved if subsidies are issued to buyers of the good

D vouchers (a type of subsidy) are issued to buyers equal to the external benefit


Q9: A marginal external cost associated with producing a good _______.

A decreases as the quantity of the good produced increases

B is not an opportunity cost because nothing is forgone

C is an opportunity cost that falls on people other than the producer of the good

D is what the producer forgoes to increase the quantity of the good produced by one unit


Q10: To comply with the federal Clean Air Act, Californian strawberry growers must use 50 percent less pesticide. It is estimated that strawberry output will fall by 60 percent. A limit on pesticide ______.

A that lowers the marginal external cost makes the strawberry industry more efficient

B that raises the marginal external cost makes the strawberry industry more efficient

C that lowers the marginal external cost makes the strawberry industry less efficient

D has no effect on the efficiency of the strawberry industry


Q11: If a pesticide producer pollutes a lake used by a trout farmer, then a Pigovian tax would _______.

A create an efficient outcome when the tax is set equal to the marginal external cost.

B not result in the same outcome as when property rights are assigned to the pesticide producer.

C not result in the same outcome as when property rights are assigned to the trout farm.

D increase marginal social benefit.


Q12: The Coase Theorem is the proposition that if the number of involved parties is small, property rights ________ and transactions costs are ________, then private transactions are efficient.

A are nonexistent; low

B exist; high

C are nonexistent; high

D exist; low


Q13. Two industries emit sulfur dioxide and the government decides to issue marketable permits. If the H Industry has a higher marginal cost of reducing sulfur dioxide than does the J Industry, then

A marketable permits will not make the amount of pollution efficient.

B J Industry will sell marketable permits to the H Industry.

C H Industry will sell marketable permits to the J Industry.

D H Industry and J Industry will emit the same quantity of sulfur dioxide.


Q14: For year, scientists have said that cod was so seriously overfished in European waters that there was a risk of extinction due to stock collapse. To avoid extinction, “Ministers agreed a 10 percent cut in days at sea (for North Sea cod),” E.U. Fisheries Commissioner Joe Borg stated in 2008. The goal of this policy is to reduce the catch to the point where _________.

A marginal cost of cod equals its marginal benefit

B marginal social cost of cod equals its marginal benefit

C marginal social benefit of cod equals its marginal cost

D marginal social cost of cod equals its marginal social benefit


Q15: Setting a production quota does not always achieve the efficient use of a common resource because ______.

A marginal cost differs for each producer and it is in everyone’s self-interest to cheat and produce more than the quota

B marginal cost differs for each producer and the marginal social benefit from a production quota is zero

C the marginal private cost of a production quota is zero

D a production quota does not totally eliminate the problem of free-ridership of a common resource


Q16: If ITQs are issued on a scale that reduces the catch to the efficient level, then the market price of an ITQ is equal to the ________ at the efficient quantity.

A marginal private benefit

B marginal social benefit

C marginal social cost minus the marginal external cost

D marginal social benefit minus the marginal cost

14&15 Market Failure. © 2012 Pearson Addison-Wesley Q1: Food is an example of a good that is...

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