Question 1

Most economists believe that the market __________ produce nonexcludable public goods because of the __________.

Accepted Answer

The free rider problem occurs when individuals can enjoy the benefits of a public good without contributing to its production. This creates a disincentive for private producers to produce nonexcludable public goods as they cannot capture all the benefits of their production. Hence, most economists believe that the market will not produce nonexcludable public goods due to the free rider problem.

Question 2

Suppose that for Jim the marginal benefit (MB)of producing is $60 and that the marginal cost (MC)of producing is $10.Suppose also that his marginal benefit of stealing is $50 and the marginal cost of stealing is $10.Is Jim currently maximizing utility in terms of producing and stealing? If not,should he produce more and steal less,or produce less and steal more to move toward utility maximization?

Accepted Answer

Jim is not maximizing utility because the marginal benefit to marginal cost ratio for producing (60/10 = 6) is greater than that for stealing (50/10 = 5), indicating he should produce more and steal less to increase his utility.

Question 3

In the case of nonexcludable goods,economists contend that the market ___________ produce these goods because of the ________________________.

Accepted Answer

Nonexcludable goods are those goods for which it is impossible to prevent non-paying consumers from benefiting from the good. Due to the free rider problem, where individuals can enjoy the benefits of the good without paying for it, producers will not have an incentive to produce nonexcludable goods as they will not be able to profit from it.

Question 4

Which of the following statements is false?

Accepted Answer

The intended effect of the health-care reform bills passed in March 2010 was for more people to become insured, not for people who had insurance before to become uninsured.

Question 5

When a positive externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Accepted Answer

The answer of When a positive externality exists,_______________________ and thus...

Question 6

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy)be worse than the problem (the market failure)?

Accepted Answer

The per-unit subsidy may lead to a situation where the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. This can happen if the subsidy is too large and encourages overproduction beyond the efficient level. In such a case, the solution (subsidy) can be worse than the problem (market failure). Option A and D are incorrect because if the subsidy is less than or equal to the marginal external benefit, it will help achieve an efficient outcome. Option B is incorrect because if the post-subsidy output is closer to the efficient level of output than the pre-subsidy output, it will result in an improvement.

Question 7

Which of the following statements is false?

Accepted Answer

In a prisoner's dilemma setting, it is possible for the government to define and enforce property rights that the individuals involved in the setting want to have defined and enforced. This can lead to a cooperative outcome and make both individuals better off. However, it may be difficult for the government to identify and enforce such property rights.

Question 8

In the case of a negative externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

Accepted Answer

In the case of a negative externality, such as pollution, the external costs are not reflected in the market price, and therefore, the market outcome is not efficient. In order to achieve efficiency, the government needs to intervene by imposing a tax on the producer equal to the amount of external costs per unit of output. This tax will shift the supply curve upward, reflecting the true social costs of production, and lead to the socially optimal level of output. Therefore, choice A, which suggests setting a tax equal to the external costs, is the correct answer.

Question 9

In the case of a negative externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.

Accepted Answer

A negative externality (e.g. pollution) causes an overproduction of the good or service, leading to a higher quantity than the socially optimal level. The government can use a tax to increase the cost of production or consumption of the good, causing firms and individuals to reduce the quantity consumed or produced, thus leading to a more efficient outcome.
On the other hand, a positive externality (e.g. education) causes an underproduction of the good or service, leading to a lower quantity than the socially optimal level. The government can use a subsidy to incentivize the production or consumption of the good, leading to an increase in quantity, thus leading to a more efficient outcome.

Question 10

Which of the following statements is false?

Accepted Answer

In the case of a positive externality, applying a tax would not achieve efficiency. Instead, subsidies or other incentives that equal the marginal external benefits (MEB) are typically used to correct the market failure and achieve efficiency. Taxes are used to correct negative externalities, not positive ones.

Question 11

When a good is nonexcludable,then individuals

Accepted Answer

When a good is nonexcludable, individuals can obtain the benefits of the good without paying for it, which creates an incentive to become free riders. As a result, individuals are likely to purchase more than the optimum amount, which could lead to a market failure.

Question 12

An unintended effect of a new tax placed on the producers of good A may include

Accepted Answer

A new tax on the producers of good A will increase the cost of production, resulting in an increase in the price of good A (choice A). This could also result in a decrease in demand for good A, causing a reduction in consumers' surplus for the buyers of good A (choice B). Additionally, if the tax results in a significant decrease in demand for good A, producers may end up employing fewer workers in the production of good A (choice C). Therefore, all of the options mentioned in the question, i.e., A, B, and C, are valid unintended effects.

Question 13

A consequence of a negative externality is that social costs __________ private costs,and the efficient level of output __________.

Accepted Answer

A negative externality imposes costs on society beyond the costs borne by the producer or consumer. Therefore, social costs are greater than private costs. To align private costs with social costs and ensure an efficient outcome, the government must impose a tax on the producer or consumer responsible for the negative externality. This tax will discourage the production or consumption of the good at levels where social costs exceed private costs.

Question 14

Suppose that for Alicia the marginal benefit (MB)of producing is $75 and that the marginal cost (MC)of producing is $5.Suppose also that her marginal benefit of stealing is $85 and the marginal cost of stealing is $5.Is Alicia currently maximizing utility in terms of producing and stealing? If not,should she produce more and steal less,or produce less and steal more to move toward utility maximization?

Accepted Answer

Alicia is not maximizing utility because the marginal benefit per cost of stealing ($85/$5 = 17) is higher than that of producing ($75/$5 = 15). Therefore, to move toward utility maximization, she should steal more and produce less.

Question 15

A positive externality exists and government wants to impose a subsidy in order to bring about an efficient outcome.To accomplish its objective,government must set the subsidy equal to marginal

Accepted Answer

A positive externality means that there are external benefits experienced by third parties beyond the private benefits of the producer or consumer. In order to internalize these external benefits and bring about an efficient outcome, the government can impose a subsidy equal to the external benefit. This subsidy will encourage more production or consumption of the good, leading to a larger level of output than would occur in the absence of the subsidy, and also generating a positive externality for society as a whole.

Question 16

In the case of a positive externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

Accepted Answer

A positive externality means that there are external benefits associated with the consumption or production of a good. A subsidy will shift the supply or demand curve to the right, leading to an increase in production or consumption. To achieve efficiency, the government must set the subsidy equal to the marginal external benefit (MEB), which is the additional benefit that accrues to society from the production or consumption of one more unit of the good. By doing so, the marginal social cost (MSC) will align with the marginal social benefit (MSB), leading to an efficient equilibrium.

Question 17

A tax credit given to first-time home buyers would result in a _____________ shift in the ______________ curve for housing,which would lead to the unintended result of a(n)_____________ in the price of housing.

Accepted Answer

A tax credit for first-time home buyers increases their purchasing power, leading to a rightward shift in the demand curve for housing. This increased demand, without a corresponding increase in supply, typically results in higher housing prices.

Question 18

When a negative externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Accepted Answer

When a negative externality exists, social costs are greater than private costs, which means that market equilibrium is not efficient. Government intervention may be needed to internalize the external costs and reach an efficient outcome.

Question 19

A negative externality exists and government wants to impose a tax in order to bring about an efficient outcome.To accomplish its objective,government must set the tax equal to marginal

Accepted Answer

A negative externality exists when the production or consumption of a good or service imposes a cost on a third party who is not directly involved in the transaction. To correct for this and achieve an efficient outcome, the government should set the tax equal to the marginal external cost. This aligns the private cost with the social cost, leading to a more efficient allocation of resources.

Question 20

Which of the following statements is true?

Accepted Answer

Option C is true. By changing the payoff matrix, the government can change the incentives for individuals and possibly eliminate the prisoner's dilemma. Options A and B are false as the government can actually make individuals better off by removing them from a prisoner's dilemma through various interventions. Option D and E are partially correct but not the best answer as option C is the only true statement.

Quiz 23: Stocks,bonds,futures,and Options

Most economists believe that the market produce nonexcludable public goods because of the .

In the case of nonexcludable goods,economists contend that the market _ produce these goods because of the ______________.

Which of the following statements is false?

When a positive externality exists,_________ and thus _ intervention may be needed to achieve efficiency.

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy) be worse than the problem (the market failure) ?

Which of the following statements is false?

In the case of a negative externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

In the case of a negative externality,the government can use a to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a to turn an inefficient outcome into an efficient one.

Which of the following statements is false?

When a good is nonexcludable,then individuals

An unintended effect of a new tax placed on the producers of good A may include

A consequence of a negative externality is that social costs private costs,and the efficient level of output .

A positive externality exists and government wants to impose a subsidy in order to bring about an efficient outcome.To accomplish its objective,government must set the subsidy equal to marginal

In the case of a positive externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

A tax credit given to first-time home buyers would result in a _ shift in the curve for housing,which would lead to the unintended result of a(n) ___ in the price of housing.

When a negative externality exists,_________ and thus _ intervention may be needed to achieve efficiency.

A negative externality exists and government wants to impose a tax in order to bring about an efficient outcome.To accomplish its objective,government must set the tax equal to marginal

Which of the following statements is true?

Quiz 23: Stocks,bonds,futures,and Options

Most economists believe that the market __________ produce nonexcludable public goods because of the __________.

In the case of nonexcludable goods,economists contend that the market ___________ produce these goods because of the ________________________.

Which of the following statements is false?

When a positive externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy) be worse than the problem (the market failure) ?

Which of the following statements is false?

In the case of a negative externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

In the case of a negative externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.

Which of the following statements is false?

When a good is nonexcludable,then individuals

An unintended effect of a new tax placed on the producers of good A may include

A consequence of a negative externality is that social costs __________ private costs,and the efficient level of output __________.

A positive externality exists and government wants to impose a subsidy in order to bring about an efficient outcome.To accomplish its objective,government must set the subsidy equal to marginal

In the case of a positive externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

A tax credit given to first-time home buyers would result in a _____________ shift in the ______________ curve for housing,which would lead to the unintended result of a(n) _____________ in the price of housing.

When a negative externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

A negative externality exists and government wants to impose a tax in order to bring about an efficient outcome.To accomplish its objective,government must set the tax equal to marginal

Which of the following statements is true?

Most economists believe that the market produce nonexcludable public goods because of the .

In the case of nonexcludable goods,economists contend that the market _ produce these goods because of the ______________.

When a positive externality exists,_________ and thus _ intervention may be needed to achieve efficiency.

In the case of a negative externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

In the case of a negative externality,the government can use a to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a to turn an inefficient outcome into an efficient one.

A consequence of a negative externality is that social costs private costs,and the efficient level of output .

In the case of a positive externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

A tax credit given to first-time home buyers would result in a _ shift in the curve for housing,which would lead to the unintended result of a(n) ___ in the price of housing.

When a negative externality exists,_________ and thus _ intervention may be needed to achieve efficiency.