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If the price of a product increases:


A) the consumer surplus will decrease.
B) the consumer surplus will increase.
C) total revenue will increase if demand is price elastic.
D) total revenue will decrease if demand is price inelastic.

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

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A public good:


A) is not subject to rivalry and excludability.
B) entails no externalities.
C) is subject to rivalry and excludability.
D) can not be produced by private firms.

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

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Which of the following is correct?


A) Private goods are subject to rivalry and excludability
B) Private goods are indivisible.
C) Private goods are subject to the free-rider problem.
D) Private goods are produced in efficient or optimal amounts despite substantial externalities.

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

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The graphs below refer to 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) and from S to S2 in diagram (b) .We can conclude that the government is correcting for: The graphs below refer to two separate product markets.Assume that society's optimal level of output in each market is Q<sub>0</sub> and that government purposely shifts the market supply curve from S to S<sub>1</sub> in diagram (a) and from S to S<sub>2</sub> in diagram (b) .We can conclude that the government is correcting for: A) negative externalities in diagram (a) and positive externalities in diagram (b) . B) positive externalities in diagram (a) and negative externalities in diagram (a) . C) negative externalities in both diagrams. D) positive externalities in both diagrams.


A) negative externalities in diagram (a) and positive externalities in diagram (b) .
B) positive externalities in diagram (a) and negative externalities in diagram (a) .
C) negative externalities in both diagrams.
D) positive externalities in both diagrams.

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

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Refer to the below 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 1st unit of this public good is: Refer to the below 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 1<sup>st</sup> unit of this public good is: A) $18 B) $14 C) $10 D) $6


A) $18
B) $14
C) $10
D) $6

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

Correct Answer

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By levying taxes on households and businesses,governments:


A) reduce private demand for goods and services.
B) change the total utility realized by consumers.
C) decrease the amount of quasi-public goods offered.
D) decrease the amount of public goods offered.

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

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Society's optimal amount of pollution moderation is where society's marginal benefit of moderation is zero.

A) True
B) False

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Answer the next question on the basis of the following information is for 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: Answer the next question on the basis of the following information is for public good.P<sub>a</sub> and P<sub>b</sub> 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<sub>c</sub>) of the public good.Q<sub>s</sub> 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: A) $7 B) $6 C) $5 D) $3


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

E) B) and C)
F) All of the above

Correct Answer

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If the price of a product increases:


A) the consumer surplus will increase.
B) the producer surplus will increase.
C) the price increase has no effect on the producer surplus.
D) the consumer surplus will not change.

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

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The graphs below refer to 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) and from S to S2 in diagram (b) .The shift of the supply curve from S to S1 in diagram (a) might be caused by a per unit: The graphs below refer to two separate product markets.Assume that society's optimal level of output in each market is Q<sub>0</sub> and that government purposely shifts the market supply curve from S to S<sub>1</sub> in diagram (a) and from S to S<sub>2</sub> in diagram (b) .The shift of the supply curve from S to S<sub>1</sub> 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.


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.

E) All of the above
F) B) and C)

Correct Answer

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Answer the question based on the following information.Way-Below Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism.The university is now considering several alternative levels of crime control.This table shows the expected annual costs and benefits of these alternatives.The marginal benefits of crime control for Level Two are: Answer the question based on the following information.Way-Below Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism.The university is now considering several alternative levels of crime control.This table shows the expected annual costs and benefits of these alternatives.The marginal benefits of crime control for Level Two are: A) $20000 B) $40000 C) $60000 D) $140000


A) $20000
B) $40000
C) $60000
D) $140000

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

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Consumer surplus and the market price are positively related.

A) True
B) False

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If the production of a product or service involves external benefits,then the government can improve efficiency in the market by:


A) providing a subsidy to correct for an over-allocation of resources.
B) providing a subsidy to correct for an under-allocation of resources.
C) imposing a corrective tax to correct for an over-allocation of resources.
D) imposing a corrective tax to correct for an under-allocation of resources.

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

Correct Answer

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The MC curves in the diagram slope upward because of the law of: The MC curves in the diagram slope upward because of the law of: A) demand. B) conservation of matter and energy. C) diminishing marginal utility. D) diminishing returns.


A) demand.
B) conservation of matter and energy.
C) diminishing marginal utility.
D) diminishing returns.

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

Correct Answer

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Government must provide economically desirable public goods because:


A) private production of these goods would entail unacceptably high levels of external costs.
B) the availability of such goods yields no benefits to individual consumers.
C) the benefits yielded by such goods cannot be withheld from those who refuse to pay for them.
D) their provision is necessary if we are to reduce unemployment and inflation.

E) B) and C)
F) All of the above

Correct Answer

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A public good:


A) generally results in substantial negative externalities.
B) can never be provided by a nongovernmental organization.
C) can't be provided to one person without making it available to others as well.
D) costs essentially nothing to produce and thus is provided by the government at a zero price.

E) B) and D)
F) All of the above

Correct Answer

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The creation of markets for pollution rights would provide:


A) neither an incentive not to pollute nor revenue for environmental improvement.
B) funds for environmental improvement,but would not provide an incentive to refrain from polluting.
C) an incentive not to pollute,but would not provide funds for environmental improvement.
D) both an incentive not to pollute and revenue which could be devoted to environmental improvement.

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

Correct Answer

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Refer to the supply and demand graph for a public good.Which line segment would indicate the amount by which the marginal benefit of this public good is greater than the marginal cost? Refer to the supply and demand graph for a public good.Which line segment would indicate the amount by which the marginal benefit of this public good is greater than the marginal cost? A) de B) da C) ef D) ab


A) de
B) da
C) ef
D) ab

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

Correct Answer

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The following information is for four highway programs of increasing scope.All figures are in millions of dollars.The data indicate that: The following information is for four highway programs of increasing scope.All figures are in millions of dollars.The data indicate that: A) there is no highway program which is economically justifiable on the basis of cost-benefit analysis. B) the marginal cost and marginal benefit of Program A are $2 and $9 respectively. C) the marginal cost and marginal benefit of Program C are $12 and $21 respectively. D) the marginal cost and marginal benefit of Program A cannot be determined.


A) there is no highway program which is economically justifiable on the basis of cost-benefit analysis.
B) the marginal cost and marginal benefit of Program A are $2 and $9 respectively.
C) the marginal cost and marginal benefit of Program C are $12 and $21 respectively.
D) the marginal cost and marginal benefit of Program A cannot be determined.

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

Correct Answer

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Refer to the diagram.The area of consumer surplus would be represented by triangular area: Refer to the diagram.The area of consumer surplus would be represented by triangular area: A) a. B) b. C) c. D) d.


A) a.
B) b.
C) c.
D) d.

E) B) and D)
F) All of the above

Correct Answer

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