Econ 101 - Microeconomics » Summer 2021 » iVAT Chapter 8

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Question #1
A coal plant pollutes a neighboring lake, which kills the food source for the local town's population. This is an example of:
A.   Moral hazard.
B.   A free rider problem.
C.   A positive externality.
D.   An adverse selection problem.
E.   A negative externality.
Question #2
What do economists mean when they say there is "market failure"?
A.   Markets have surpluses or shortages so that government rationing is necessary.
B.   Free markets have led to excessive profits.
C.   Free markets yield results that economists do not consider socially optimal.
D.   Business has introduced a product that consumers did not want.
Question #3
Jon enjoys gardening in the nude because he says it puts him in touch with nature. His neighbors find his gardening routine very offensive, but Jon replies that they should mind their own business and not watch him. To an economist this situation illustrates the concept of:
A.   A negative externality.
B.   The tragedy of the commons.
C.   Adverse selection.
D.   A positive externality.
Question #4
The best example of a positive externality is:
A.   Pollution.
B.   Roller coaster rides.
C.   Alcoholic beverages.
D.   Education.
Question #5
Jon is playing his music at full volume in his dorm room. The other people living on his floor are enjoying his music, but Jon does not know or care. Jon's music playing is an example of a:
A.   Negative externality.
B.   Pareto externality.
C.   Normative externality.
D.   Positive externality.
Question #6
A way to equate marginal social cost and marginal private cost to eliminate externalities would be:
A.   Instituting a tax on the good creating the externality.
B.   Increasing the cost of a substitute of the good creating.
C.   Instituting tax reform.
D.   None of the available answers.
E.   Reducing the cost of the good creating the externality.
Question #7
If a positive externality is to be taken full advantage of, the:
A.   Producers' marginal costs should be decreased by an amount equal to the marginal cost imposed on third parties that results from production of the good.
B.   Consumer of the good should pay a tax equal to the marginal benefit to third parties that results from production (or consumption) of the good.
C.   Consumer of the good should receive a subsidy equal to the marginal cost imposed on third parties that results from production (or consumption) of the good.
D.   Producers' marginal costs should be increased by an amount equal to the marginal benefit to third parties that results from production of the good.
Question #8
If once vaccinated, a person cannot catch a cold or give a cold to someone else, the marginal social benefit resulting from consumption of the vaccine:
A.   Equals the marginal social cost of producing the vaccine in a competitive equilibrium.
B.   Is less than the marginal benefit received by consumers of the vaccine.
C.   Equals the marginal benefit received by consumers of the vaccine in a competitive equilibrium.
D.   Exceeds the marginal benefit received by consumers of the vaccine.

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