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Exam 4: Market Failures: Public Goods and Externalities

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Question 21

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A public good:

A) can be profitably produced by private firms.
B) is characterized by rivalry and excludability.
C) produces no positive or negative externalities.
D) is available to all and cannot be denied to anyone.

E) None of the above
F) A) and C)

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Question 22

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(Consider This)The principle that private negotiation can resolve potential externalities without resort to government intervention is known as the Coase theorem.

A) True
B) False

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Question 23

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Which of the following is an example of market failure?

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42.The minimum acceptable price to the seller,Nathan,was $30.Jennifer experiences:

An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:

(Consider This) Brinley is the hottest new pop singer,but his agent discovers that Internet sales of Brinley's music have been poor due to Internet piracy,but concerts are regularly sold out and merchandise (such as T-shirts) sells well.If Brinley wants to enhance profits,economists would most likely recommend that he:

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway.The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Upon learning that his auto transmission is about to fail,Ray Roma sells his car to an unsuspecting buyer.This circumstance illustrates the:

The market system does not produce public goods because:

Sellers will opt out of markets in which:

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of:

In response to the financial crisis that began in 2007,the government began to bail out 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:

Cost-benefit analysis is frequently difficult to apply because it is difficult to quantify the full benefits of a public good or service.

An efficiency loss (or deadweight loss) :

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

The trains of the Transcontinental Railway Company,when shipping goods,sometimes emit sparks that start fires along the tracks and damage the property of others.If Transcontinental does not pay for the damage it causes,what has occurred?

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:

Nonrivalry and nonexcludability are the main characteristics of:

Answer the question on the basis of the following information for a public good.P_a and P_b are the prices that individuals A and B are willing to pay for the last unit of a public good,rather than do without it.These people are the only two members of society. $\begin{array}{c}\begin{array}{c}\underline{\text {Q }}\\1 \\2 \\3 \\4 \\5\end{array}\begin{array}{c}\underline{\mathrm{Pa}_{\mathrm{a}} }\\\$ \\2\\1\\0\\0\end{array}\begin{array}{c}\underline{\mathrm{Pa}_{\mathrm{b}} }\\\$ 5 \\4 \\3 \\2 \\1\end{array}\end{array}$ Refer to the data.If this good were a private good instead of a public one,the total quantity demanded at a $3 market price would be:

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.