Question 1

The federal government and many state governments gave tax credits to first-time home buyers in 2009 and 2010.An effect of these tax credits was to

Accepted Answer

The tax credits effectively increased the purchasing power of first-time home buyers, leading to an increase in demand for houses. When demand increases, prices tend to rise, assuming the supply does not increase at the same rate. Therefore, the tax credits made the price of houses higher than they would have been without the tax credit.

Question 2

Consider a setting in which there is a negative externality,but no positive externality.It follows that

Accepted Answer

In the presence of a negative externality, the market outcome is inefficient because the social costs exceed the private costs (MSC > MPC), leading to overproduction or overconsumption of the good or service causing the externality.

Question 3

Which of the following statements is false?

Accepted Answer

All of the statements are true. Government intervention can be beneficial in resolving prisoner's dilemma situations, enforcing property rights, and helping individuals escape from the dilemma.

Question 4

Economist A believes that the case for government is a strong one,but she doesn't always say,when it comes to negative externalities,that government can turn an inefficient market outcome into an efficient outcome.Which statement is economist A most likely to make?

Accepted Answer

The answer of Economist A believes that the case for...

Question 5

The government can _______________ change an inefficient market outcome (in the case where there is a negative externality)into an efficient outcome by imposing a tax on the activity that generates the negative externality.

Accepted Answer

Imposing a tax on the activity that generates a negative externality can potentially correct the market inefficiency by internalizing the external cost, but its effectiveness depends on various factors such as the size of the tax, the elasticity of demand, and the ability to accurately measure the externality.

Question 6

Consider a setting in which there is a positive externality,but no negative externality.The market outcome is __________________; government can bring about the ___________________ outcome if it sets a subsidy equal to the __________________.

Accepted Answer

In a situation with a positive externality and no negative externality, the market outcome is inefficient because the social benefits of consumption or production exceed the private benefits, leading to underconsumption or underproduction from a societal perspective. The government can correct this inefficiency and achieve an efficient outcome by setting a subsidy equal to the Marginal External Benefit (MEB), encouraging increased consumption or production to the socially optimal level.

Question 7

Consider a setting in which there is a negative externality,but no positive externality.The market outcome is __________________; government can bring about the ___________________ outcome if it sets a tax equal to the __________________.

Accepted Answer

In a setting with a negative externality but no positive externality, the market outcome is inefficient (as negative externalities lead to overproduction and consumption of goods). The government can bring about an efficient outcome by setting a tax equal to the marginal external cost (MEC). Thus, the correct choice is C. Choices A, D, and E are incorrect because they either have the wrong market outcome or the wrong tax to bring about the efficient outcome. Choice B is incorrect because MEC is the correct tax to address negative externalities, not marginal external benefit (MEB).

Question 8

"I'm not going to pay for the good if,once produced,the good cannot be denied to anyone." This statement is most relevant to

Accepted Answer

This statement relates to a nonexcludable public good, where once produced, it cannot be denied to anyone. In this case, the individual is implying that they do not want to pay for a good that they cannot control its distribution because they are not able to exclude non-payers from accessing it.

Question 9

The answer is,"Because of the free rider problem." The question is:

Accepted Answer

The free rider problem occurs when individuals can benefit from a public good without paying for it, which leads to underproduction of the good in a market setting. As a result, the market cannot produce nonexcludable public goods efficiently.

Question 10

A nonexcludable public good is

Accepted Answer

A nonexcludable public good is one that cannot be restricted from use by anyone, regardless of whether they have paid for it or not. Nonrivalrous in consumption means that one person's use of the good does not diminish its availability for others to use. Therefore, the only option that fits both criteria is C, nonrivalrous in consumption and nonexcludable.

Question 11

Suppose health-care reform Y makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease and sets a fine for those people who do not buy insurance.It follows that if the fine is

Accepted Answer

The answer of Suppose health-care reform Y makes it unlawful...

Question 12

The strongest case for government with respect to a negative externality is that government needs to set the

Accepted Answer

When a negative externality exists, the market outcome leads to an inefficient allocation of resources. This is because the marginal social cost (which includes the private cost of production and the external cost imposed on third parties) exceeds the marginal social benefit (which includes the private benefit enjoyed by consumers and the external benefit generated for third parties). To correct this market failure, the government can intervene by imposing a tax on the activity generating the externality equal to the marginal external cost. This tax internalizes the externality and brings the market outcome closer to the socially optimal outcome. Therefore, choice D is the best answer.

Question 13

Which of the following statements is false?

Accepted Answer

All the statements are true. A government can address the free rider problem through taxation, adjust taxes or subsidies to correct market outcomes, and alter payoffs to change incentives in a prisoner's dilemma.

Question 14

Economist B thinks that it is important to identify the condition(s)under which the case for government is strongest.With respect to the provision of nonexcludable public goods,she says

Accepted Answer

People must actually want the nonexcludable public good that the government provides, as this ensures that the provision of such goods aligns with public interest and justifies government intervention.

Question 15

The essence of a prisoner's dilemma setting is that if both person A and person B do what is best for each of them,

Accepted Answer

In a prisoner's dilemma, if both individuals choose the option that is best for them individually (defecting), they end up in a situation that is worse than if they had cooperated, hence they would both prefer a different outcome where they had cooperated instead.

Question 16

If government removes two people from a prisoner's dilemma setting (and,in the process,requires that the two persons pay taxes for the service that government provides),it holds that on net

Accepted Answer

Removing two people from a prisoner's dilemma setting means that the remaining players may no longer face the dilemma and may be better off. However, requiring the two persons to pay taxes for the service that government provides may make them worse off. Therefore, the net effect on each person's utility may vary, and it is possible that one person is better off, and the other is worse off. Thus, the correct answer is D.

Question 17

Individuals want nonexcludable public good X,but the market does not provide it because of the free rider problem.Government overcomes the free rider problem by ______________ individuals and then either producing good X itself or paying someone to produce it.

Accepted Answer

The government overcomes the free rider problem by taxing individuals, which allows the government to fund the production of public good X either directly or through subsidies. By taxing individuals, everyone pays a share towards the production of the public good, which reduces the incentive to free ride.

Question 18

Government provides a nonexcludable public good that no one wants.This situation is most closely related with:

Accepted Answer

Government failure occurs when government intervention in the economy causes an inefficient allocation of resources and leads to a situation where the outcomes are not desirable, such as providing a public good that no one wants.

Question 19

Person A argues that government is unnecessary and often does more harm than good.Economist A disagrees.What does economist A --- who believes that there is a legitimate case that can be made for government --- most likely say to support his position?

Accepted Answer

Economist A is likely to argue that there are certain public goods or services that individuals cannot provide on their own, such as national defense or infrastructure. Therefore, government is necessary to provide those goods and services that the market cannot or will not provide.

Question 20

Suppose health-care reform X makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease.One unintended effect of this reform is that some people

Accepted Answer

The reform removes the risk for people with preexisting diseases to be denied insurance, which gives them an incentive to wait until they need the insurance to buy it. This behavior could lead to adverse selection, which is a situation where only people with a higher risk of getting sick sign up for insurance, driving up the costs for the insurance provider. Choices A and C could also happen, but they are not necessarily the most likely unintended effect of the reform in question.

Quiz 23: Stocks,bonds,futures,and Options

The federal government and many state governments gave tax credits to first-time home buyers in 2009 and 2010.An effect of these tax credits was to

Consider a setting in which there is a negative externality,but no positive externality.It follows that

Which of the following statements is false?

Economist A believes that the case for government is a strong one,but she doesn't always say,when it comes to negative externalities,that government can turn an inefficient market outcome into an efficient outcome.Which statement is economist A most likely to make?

The government can _______________ change an inefficient market outcome (in the case where there is a negative externality) into an efficient outcome by imposing a tax on the activity that generates the negative externality.

Consider a setting in which there is a positive externality,but no negative externality.The market outcome is ________; government can bring about the _ outcome if it sets a subsidy equal to the __________.

Consider a setting in which there is a negative externality,but no positive externality.The market outcome is ________; government can bring about the _ outcome if it sets a tax equal to the __________.

"I'm not going to pay for the good if,once produced,the good cannot be denied to anyone." This statement is most relevant to

The answer is,"Because of the free rider problem." The question is:

A nonexcludable public good is

Suppose health-care reform Y makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease and sets a fine for those people who do not buy insurance.It follows that if the fine is

The strongest case for government with respect to a negative externality is that government needs to set the

Which of the following statements is false?

Economist B thinks that it is important to identify the condition(s) under which the case for government is strongest.With respect to the provision of nonexcludable public goods,she says

The essence of a prisoner's dilemma setting is that if both person A and person B do what is best for each of them,

If government removes two people from a prisoner's dilemma setting (and,in the process,requires that the two persons pay taxes for the service that government provides) ,it holds that on net

Individuals want nonexcludable public good X,but the market does not provide it because of the free rider problem.Government overcomes the free rider problem by ______________ individuals and then either producing good X itself or paying someone to produce it.

Government provides a nonexcludable public good that no one wants.This situation is most closely related with:

Person A argues that government is unnecessary and often does more harm than good.Economist A disagrees.What does economist A --- who believes that there is a legitimate case that can be made for government --- most likely say to support his position?

Suppose health-care reform X makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease.One unintended effect of this reform is that some people