Question 1

A key difference between incentives for government and for business is:

Accepted Answer

A business is a profit-driven entity that must generate revenue to stay afloat, while a government can continue to operate even if it runs a deficit. As such, incentives for businesses are often centered on maximizing profits, whereas government incentives may be focused on achieving political goals or public welfare.

Question 2

Identify and briefly explain the four incentives that arise when there are well-defined property rights for a homeowner.

Accepted Answer

The answer of Identify and briefly explain the four incentives...

Question 3

Explain how the following two activities could create both a negative externality and a positive externality:
1.A bee farm
2.A fireworks display

Accepted Answer

The answer of Explain how the following two activities could...

Question 4

What two incentives are associated with common property that can be used to explain the tragedy of the commons?

Accepted Answer

The answer of What two incentives are associated with common...

Question 5

Positive externalities exist because ________ benefits are ________ benefits.

Accepted Answer

The answer of Positive externalities exist because ________ benefits are...

Question 6

Refer to the accompanying figure.The market for college degrees is currently in equilibrium at point A,and the government decides to subsidize the cost of a college education by offering grants to students.The new socially optimal equilibrium will be at point:

Accepted Answer

The answer of Refer to the accompanying figure.The market for...

Question 7

Your roommate is studying to be a chef and likes to try new recipes.He leaves his delicious creations in the refrigerator for anyone who wants to eat them.The food he leaves is always gone within a day.This is an example of:

Accepted Answer

The answer of Your roommate is studying to be a...

Question 8

A city is considering expanding a frequently traveled road from two lanes to four lanes.This road passes through the center of the city.What negative externalities and positive externalities might the expansion create once it is finished?

Accepted Answer

The answer of A city is considering expanding a frequently...

Question 9

The city decides to offer a subsidy to each homeowner's association that plants more flowers in its common areas.In the market for flowers,this will cause the:

Accepted Answer

The subsidy encourages homeowner's associations to plant more flowers, increasing the demand for flowers, which shifts the demand curve to the right.

Question 10

When a negative externality exists,as in the case of pollution,the government may be able to restore the social optimum using three different corrective measures.Name them.

Accepted Answer

The answer of When a negative externality exists,as in the...

Question 11

Refer to the accompanying figure.Which area represents the difference between the social supply curve and the internal supply curve associated with producing at the market equilibrium instead of the social optimum?

Accepted Answer

The answer of Refer to the accompanying figure.Which area represents...

Question 12

When people elect to spend more years in school,this results in a ________ externality because there are ________ associated with this decision.

Accepted Answer

When people elect to spend more years in school, this results in a positive externality because there are external benefits associated with this decision, such as higher levels of education leading to a more skilled and productive workforce, and reduced government spending on social welfare.

Question 13

The term "government failure" refers to when:

Accepted Answer

Government failure refers to when government intervention and policymaking actually worsen a problem rather than solving it. This can happen when government policies interfere with market forces, create unintended consequences, or fail to achieve the desired outcomes.

Question 14

Are city parks considered public goods? Why or why not?

Accepted Answer

The answer of Are city parks considered public goods? Why...

Question 15

Explain why cap-and-trade is an efficient policy approach to reducing emissions.

Accepted Answer

The answer of Explain why cap-and-trade is an efficient policy...

Question 16

Explain the difference between an internal cost and an external cost.Give an example of each for a car.

Accepted Answer

The answer of Explain the difference between an internal cost...

Quiz 9: Government in the Economy