Exercise Questions Chapter 4 PDF

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Exercise Questions Chapter 4...

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Please choose the most appropriate answer to each question. 1. People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a: A. negative externality. B. supply-side market failure. C. demand-side market failure. D. government failure. 2. 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? A. Positive externality. B. Demand-side market failure. C. Supply-side market failure. D. All of these. 3. If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true? A. The benefit surpluses shared between consumers and producers will be maximized. B. The benefit surpluses received by consumers and producers will be equal. C. There will be no consumer or producer surplus. D. Consumer surplus will be maximized, and producer surplus will be minimized. 4. 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: A. a consumer surplus of $12 and Nathan experiences a producer surplus of $3. B. a producer surplus of $9 and Nathan experiences a consumer surplus of $3. C. a consumer surplus of $9 and Nathan experiences a producer surplus of $3. D. a producer surplus of $9 and Nathan experiences a producer surplus of $12. Use the graph to answer questions 5 through 7.

5. Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas: A. a + b. B. a + b + c + d. C. c + d. D. a + c. 6. Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas: A. a + b. B. a + b + c + d. C. c + d. D. a + c. 7. Refer to the diagram above. If actual production and consumption occur at Q1: A. efficiency is achieved. B. consumer surplus is maximized. C. an efficiency loss (or deadweight loss) of b + d occurs. D. an efficiency loss (or deadweight loss) of e + d occurs. 8. Which of the following is an example of a public good? A. A weather warning system. B. A television set. C. A sofa. D. A bottle of soda. 9. The market system does not produce public goods because: A. there is no need or demand for such goods. B. private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.

C. public enterprises can produce such goods at lower cost than can private enterprises. D. their production seriously distorts the distribution of income. 10. If one person's consumption of a good does not preclude another's consumption, the good is said to be: A. nonrival in consumption. B. rival in consumption. C. nonexcludable. D. excludable. 11. Nonexcludability describes a condition where: A. one person's consumption of a good does not prevent consumption of the good by others. B. there is no effective way to keep people from using a good once it comes into being. C. sellers can withhold the benefits of a good from those unwilling to pay for it. D. there is no potential for free-riding behavior. Use the table to answer question 12.

12. Answer the question on the basis of the following information for a public good. Pa and Pb 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. Refer to the data. The collective willingness of this society to pay for the second unit of this public good is:

A. B. C. D.

$2. $4. $6. $8.

13. Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that: A. the third unit should not be produced.

B. C. D.

the third unit should be produced. zero units should be produced. 4 units should be produced.

Use graph to answer question 14

14. Refer to the diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the first unit of this public good is: A. $18. B. $14. C. $10. D. $6. 15. A negative externality or spillover cost occurs when: A. firms fail to achieve allocative efficiency. B. firms fail to achieve productive efficiency. C. the price of the good exceeds the marginal cost of producing it. D. the total cost of producing a good exceeds the costs borne by the producer. Use the graph to answer question 16 and 17.

16. Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach: A. an optimal allocation of society's resources. B. an underallocation of resources to this product. C. an overallocation of resources to this product. D. a higher price than is consistent with an optimal allocation of resources. 17. Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should: A. not intervene because the market outcome is optimal. B. subsidize consumers so that the market demand curve shifts leftward. C. subsidize producers so that the market supply curve shifts leftward (upward). D. tax producers so that the market supply curve shifts leftward (upward). Use the graph to answer question 18 and 19.

18. Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. The shift of the supply curve from S to S1 in diagram (a) might be caused by a per-unit: A. subsidy paid to the producers of this product. B. tax on the producers of this product. C. subsidy paid to the buyers of this product. D. tax on the buyers of this product. 19. Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. The shift of the supply curve from S to S2 in diagram (b) might be caused by a per-unit: A. subsidy paid to the producers of this product. B. tax on the producers of this product. C. subsidy paid to the buyers of this product. D. tax on the buyers of this product.

Use graph to answer question 20

20. Refer to the diagram. With MB1 and MC1, society's optimal amount of pollution abatement is: A. Q1. B. Q2. C. Q3. D. Q4....