Question 1

In the case of a negative externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.

Accepted Answer

In the case of a negative externality, such as pollution, the government can use a tax to internalize the cost of the externality and correct the inefficient outcome. In the case of a positive externality, such as education, the government can use a subsidy to incentivize individuals to consume or produce more of the good/service and correct the inefficient outcome. Therefore, the best choice is A.

Question 2

When a good is nonexcludable,then individuals

Accepted Answer

When a good is nonexcludable, individuals can obtain the benefits of the good without paying for it, which creates an incentive to become free riders. As a result, individuals are likely to purchase more than the optimum amount, which could lead to a market failure.

Question 3

One of the objectives of the health-care reform bills passed in March 2010 was to bring _____________ people into the pool of insured persons so that insurance policies would become ________________.However,provisions in the bill are likely to make the average cost of an insurance policy _____________ than it would have been without reform.

Accepted Answer

The objective of the health-care reform bills passed in March 2010 was to bring more people into the pool of insured persons so that insurance policies would become cheaper. However, provisions in the bill are likely to make the average cost of an insurance policy higher than it would have been without reform.

Question 4

Which of the following statements is false?

Accepted Answer

In the case of a positive externality, applying a tax would not achieve efficiency. Instead, subsidies or other incentives that equal the marginal external benefits (MEB) are typically used to correct the market failure and achieve efficiency. Taxes are used to correct negative externalities, not positive ones.

Question 5

Suppose that for Jim the marginal benefit (MB)of producing is $60 and that the marginal cost (MC)of producing is $10.Suppose also that his marginal benefit of stealing is $50 and the marginal cost of stealing is $10.Is Jim currently maximizing utility in terms of producing and stealing? If not,should he produce more and steal less,or produce less and steal more to move toward utility maximization?

Accepted Answer

Jim is not maximizing utility because the marginal benefit to marginal cost ratio for producing (60/10 = 6) is greater than that for stealing (50/10 = 5), indicating he should produce more and steal less to increase his utility.

Question 6

A positive externality exists and government wants to impose a subsidy in order to bring about an efficient outcome.To accomplish its objective,government must set the subsidy equal to marginal

Accepted Answer

A positive externality means that there are external benefits experienced by third parties beyond the private benefits of the producer or consumer. In order to internalize these external benefits and bring about an efficient outcome, the government can impose a subsidy equal to the external benefit. This subsidy will encourage more production or consumption of the good, leading to a larger level of output than would occur in the absence of the subsidy, and also generating a positive externality for society as a whole.

Question 7

A tax credit given to first-time home buyers would result in a _____________ shift in the ______________ curve for housing,which would lead to the unintended result of a(n)_____________ in the price of housing.

Accepted Answer

A tax credit for first-time home buyers increases their purchasing power, leading to a rightward shift in the demand curve for housing. This increased demand, without a corresponding increase in supply, typically results in higher housing prices.

Question 8

Most economists believe that the market __________ produce nonexcludable public goods because of the __________.

Accepted Answer

The free rider problem occurs when individuals can reap the benefits of a public good without paying for it. This creates a lack of incentive for producers to invest in the production of the public good, as they cannot fully recoup their costs. Therefore, most economists believe that the market will not produce nonexcludable public goods.

Question 9

A negative externality exists and government wants to impose a tax in order to bring about an efficient outcome.To accomplish its objective,government must set the tax equal to marginal

Accepted Answer

A negative externality exists when the production or consumption of a good or service imposes a cost on a third party who is not directly involved in the transaction. To correct for this and achieve an efficient outcome, the government should set the tax equal to the marginal external cost. This aligns the private cost with the social cost, leading to a more efficient allocation of resources.

Question 10

In the case of a negative externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

Accepted Answer

When there is a negative externality, such as pollution, the social cost of production is higher than the private cost of production. To internalize this externality and achieve efficiency, the government can impose a tax on the producers equal to the marginal external cost. By doing so, the producers will take into account the social cost of production and will reduce their output to the socially optimal level. Therefore, setting the tax equal to the marginal external cost is the most appropriate option to correct the negative externality.

Question 11

A consequence of a negative externality is that social costs __________ private costs,and the efficient level of output __________.

Accepted Answer

A negative externality occurs when the production or consumption of a good or service imposes costs on a third party who is not involved in the transaction. The social cost of producing the good includes both private costs and the costs imposed on others. Therefore, social costs are greater than private costs. In order to reach the socially efficient level of output, which takes into account the external costs, a corrective measure is needed. One way to do this is by imposing a tax on the producer, which will increase the cost of production and reduce the amount of the good produced to the socially efficient level. Therefore, choice C is the best option as it correctly identifies the outcome of a negative externality and the corrective measure needed.

Question 12

Suppose that for Alicia the marginal benefit (MB)of producing is $75 and that the marginal cost (MC)of producing is $5.Suppose also that her marginal benefit of stealing is $85 and the marginal cost of stealing is $5.Is Alicia currently maximizing utility in terms of producing and stealing? If not,should she produce more and steal less,or produce less and steal more to move toward utility maximization?

Accepted Answer

Alicia is not maximizing utility because the marginal benefit per cost of stealing ($85/$5 = 17) is higher than that of producing ($75/$5 = 15). Therefore, to move toward utility maximization, she should steal more and produce less.

Question 13

In the case of nonexcludable goods,economists contend that the market ___________ produce these goods because of the ________________________.

Accepted Answer

Nonexcludable goods are those goods that cannot be excluded from any individuals’ consumption, regardless of whether or not they have paid for it. The free rider problem refers to the situation where some individuals can benefit from these goods without paying for it, which decreases the incentive for others to pay for it. Therefore, the market will not produce these goods because producers cannot monetarily benefit from them.

Question 14

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy)be worse than the problem (the market failure)?

Accepted Answer

If the subsidy is too large, it may cause the post-subsidy output to be farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. In this case, the solution (the subsidy) would be worse than the problem (the market failure). Therefore, it is important to ensure that the subsidy is carefully targeted to just offset the external benefit and not to overcompensate for it. Choice A is incorrect because if the subsidy is less than the marginal external benefit, this would not necessarily result in a worse outcome than the market failure. Choice B is incorrect because whether the post-subsidy output is closer to or farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output is not relevant to whether the solution is worse than the problem. Choice D is also incorrect because if the subsidy is less than the marginal external benefit, it would still lead to a more efficient outcome than the market failure, although it may not be the most efficient outcome possible.

Question 15

Which of the following statements is false?

Accepted Answer

In a prisoner's dilemma setting, it is possible for the government to define and enforce property rights that the individuals involved in the setting want to have defined and enforced. Therefore, statement B is false.

Question 16

In the case of a positive externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

Accepted Answer

In the case of a positive externality, the market equilibrium quantity is less than socially optimal quantity, as the demand doesn't take into account the external benefits received by society. Hence, the government needs to intervene by providing a subsidy equal to the marginal external benefit (MEB) at the socially optimal quantity. This will shift the supply curve to the right, aligning it with the social demand curve, and resulting in the socially optimal quantity and price.

Question 17

When a positive externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Accepted Answer

The answer of When a positive externality exists,_______________________ and thus...

Question 18

Which of the following statements is true?

Accepted Answer

Government can remove individuals from a prisoner's dilemma setting by changing the payoff matrix. Option A is incorrect because government can remove individuals from a prisoner's dilemma setting by changing the rules of the game. Option B is incorrect because it suggests that the government should charge individuals a tax for removing them from a prisoner's dilemma setting, which is not necessary. Option D and E are also incorrect for the same reason as option A.

Question 19

Which of the following statements is false?

Accepted Answer

One of the intended effects of the health-care reform bills passed in March 2010 was NOT for some people who had health insurance before the reform to choose to become uninsured after health-care reform. The objective was to increase the number of insured individuals and reduce the number of uninsured individuals.

Question 20

When a negative externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Accepted Answer

When a negative externality exists, social costs are greater than private costs. This means that the cost of the negative impact is being externalized and not accounted for by the parties involved in the transaction. Government intervention, such as taxes or regulations, may be necessary to internalize the cost and achieve efficiency. Option A is incorrect because external costs may not always be greater than private costs. Option B is incorrect because in the presence of a negative externality, social costs are not equal to private costs. Option C is incorrect because social costs are not less than private costs in the presence of a negative externality.

Quiz 24: Globalization and International Impacts on the Economy

In the case of a negative externality,the government can use a to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a to turn an inefficient outcome into an efficient one.

When a good is nonexcludable,then individuals

Which of the following statements is false?

A positive externality exists and government wants to impose a subsidy in order to bring about an efficient outcome.To accomplish its objective,government must set the subsidy equal to marginal

A tax credit given to first-time home buyers would result in a _ shift in the curve for housing,which would lead to the unintended result of a(n) ___ in the price of housing.

Most economists believe that the market produce nonexcludable public goods because of the .

A negative externality exists and government wants to impose a tax in order to bring about an efficient outcome.To accomplish its objective,government must set the tax equal to marginal

In the case of a negative externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

A consequence of a negative externality is that social costs private costs,and the efficient level of output .

In the case of nonexcludable goods,economists contend that the market _ produce these goods because of the ______________.

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy) be worse than the problem (the market failure) ?

Which of the following statements is false?

In the case of a positive externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

When a positive externality exists,_________ and thus _ intervention may be needed to achieve efficiency.

Which of the following statements is true?

Which of the following statements is false?

When a negative externality exists,_________ and thus _ intervention may be needed to achieve efficiency.

Quiz 24: Globalization and International Impacts on the Economy

In the case of a negative externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.

When a good is nonexcludable,then individuals

Which of the following statements is false?

A positive externality exists and government wants to impose a subsidy in order to bring about an efficient outcome.To accomplish its objective,government must set the subsidy equal to marginal

A tax credit given to first-time home buyers would result in a _____________ shift in the ______________ curve for housing,which would lead to the unintended result of a(n) _____________ in the price of housing.

Most economists believe that the market __________ produce nonexcludable public goods because of the __________.

A negative externality exists and government wants to impose a tax in order to bring about an efficient outcome.To accomplish its objective,government must set the tax equal to marginal

In the case of a negative externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

A consequence of a negative externality is that social costs __________ private costs,and the efficient level of output __________.

In the case of nonexcludable goods,economists contend that the market ___________ produce these goods because of the ________________________.

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy) be worse than the problem (the market failure) ?

Which of the following statements is false?

In the case of a positive externality,in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

When a positive externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Which of the following statements is true?

Which of the following statements is false?

When a negative externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

In the case of a negative externality,the government can use a to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a to turn an inefficient outcome into an efficient one.

A tax credit given to first-time home buyers would result in a _ shift in the curve for housing,which would lead to the unintended result of a(n) ___ in the price of housing.

Most economists believe that the market produce nonexcludable public goods because of the .

In the case of a negative externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

A consequence of a negative externality is that social costs private costs,and the efficient level of output .

In the case of nonexcludable goods,economists contend that the market _ produce these goods because of the ______________.

In the case of a positive externality,in order to achieve efficiency the government must set the _ equal to the marginal ____.

When a positive externality exists,_________ and thus _ intervention may be needed to achieve efficiency.

When a negative externality exists,_________ and thus _ intervention may be needed to achieve efficiency.