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Exam 4: Market Failures: Public Goods and Externalities

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Question 101

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When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

A) True
B) False

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Question 102

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Answer this question on the basis of the following information for a public good. P_a and P_b represent the prices that citizens (a) and (b) , the only two people in this nation, are willing to pay for additional units of a quantity (Q_c) of the public good. Q_s represents the quantity of the public good supplied by government at each of the collective prices. The collective willingness of this nation to pay for the fourth unit of the public good is

A) $7.
B) $6.
C) $5.
D) $3.

E) A) and B)
F) C) and D)

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Question 103

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Nonrivalry in the use or consumption of a good means that only one person is consuming the good without any rivals.

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for

The value that consumers get (from consuming a product) over and above what they actually paid for the product is called

At equilibrium in a market for a product, the total revenues received by sellers equal the

Allocative efficiency occurs only at that output where

The government receives all of the benefits associated with the production of a public good.

When the government bails out large banks when the banks become unstable, it could lead to a moral hazard problem in banking.

Supply-side market failures occur when

In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This response illustrates the

(Last Word) A cap-and-trade program

In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair, while Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of these shoes is $65. What is the total amount of the two girls' combined consumer surplus?

Answer this question on the basis of the following information for a public good. Pa and Pb represent the prices that citizens (a) and (b) , the only two people in this nation, are willing to pay for additional units of a quantity (Qc) of the public good. Qs represents the quantity of the public good supplied by government at each of the collective prices. In equilibrium, the marginal benefit and cost of the public good will be

Rivalry means that when one person buys and consumes a product, it is not available for purchase and consumption by another person.

TripAdvisor provides online reviews of hotels, restaurants, and attractions at tourist destinations around the world. When a traveler is planning a vacation, TripAdvisor helps the traveler avoid

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. The collective willingness of this society to pay for the second unit of this public good is

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

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. If the government intervenes and corrects the externality in the situation described above, we would expect

In a well-functioning cap-and-trade system for pollution rights, the right to pollute will go to those who are able to acquire the largest net benefit from using the scarce resource "clean air."