Question 1

An example of a good that is nonrival in consumption is

Accepted Answer

A)   a music CD.
B)   a radio broadcast of a song.
C)   a ticket to a concert.
D)   a guitar.E) C) and D)
F) All of the above

Question 2

Why can car insurance companies charge higher auto rates for new customers than for established customers, all else held constant?

Accepted Answer

The insurance company faces an asymmetri...

Question 3

Table 9.3
-In Table 9.3, Market 2 would be in equilibrium if buyers believed plums account for

Accepted Answer

A)   about 16.67% of the market.
B)   about 33.33% of the market.
C)   about 66.67% of the market.
D)   about 88.89% of the market.E) A) and B)
F) A) and C)

Question 4

Suppose Johnson's Rubber Factory belches black smoke into the air over the city of Bellowsville. If the city of Bellowsville attempts to internalize the external costs associated with the production of rubber with a pollution tax, then we expect

Accepted Answer

A)   at each price, a smaller quantity of rubber will be supplied by Johnson's Rubber Factory.
B)   at each price, a larger quantity of rubber will be supplied Johnson's Rubber Factory.
C)   Johnson's Rubber Factory will not change the amount of rubber supplied at each price.
D)   Johnson's production costs not to change.E) B) and C)
F) A) and D)

Question 5

Public Broadcasting reads the names of local contributors on the air. This is likely to ________ the free-rider problem and lead to a ________ level of contribution to the public good.

Accepted Answer

A)   increase; smaller
B)   increase; larger
C)   reduce; smaller
D)   reduce; largerE) None of the above
F) A) and B)

Question 6

Lemon laws that allow consumers to return low-quality used cars are designed to help solve the problem of ________ in used car markets.

Accepted Answer

A)   moral hazard
B)   thick markets
C)   experience ratings
D)   adverse selectionE) C) and D)
F) B) and D)

Question 7

The adverse selection problem suggests that

Accepted Answer

A)   the ratio of lemons (low quality)  to plums (high quality)  is likely to be high.
B)   the ratio of plums (high quality)  to lemons (low quality)  is likely to be high.
C)   the price of lemons (low quality)  will be below buyer's willingness to pay.
D)   plums (high quality)  will sell for more than most buyers' willingness to pay.E) None of the above
F) C) and D)

Question 8

Table 9.8
-Table 9.8 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If the two firms were to voluntarily trade pollution permits, how many permits would be swapped?

Accepted Answer

A)   0
B)   1
C)   2
D)   3E) B) and D)
F) B) and C)

Question 9

In some markets for used goods

Accepted Answer

A)   the seller has more information than the buyer about the quality of the good.
B)   the buyer has more information than the seller about the quality of the good.
C)   low-quality used goods will be underpriced.
D)   the quality of used goods sold in the market will typically rise over time.E) A) and B)
F) A) and C)

Question 10

Suppose that a state installs a toll booth on a highway and requires drivers to pay $1.00 before entering the highway. Installation of the toll booth changes

Accepted Answer

A)   a nonexcludable good into an excludable good.
B)   a nonrival good into a rival good.
C)   public good into a private good.
D)   a nonrival good into a nonexcludable good.E) B) and D)
F) All of the above

Question 11

Suppose buyers in the used car market are willing to pay $3,500 for a plum (high-quality)  used car and $1,500 for a lemon (low-quality)  used car. If buyers believe that 30% of the used cars on the market are lemons (low quality) , what would they be willing to pay for a used car?

Accepted Answer

A)   $2,000
B)   $2,500
C)   $2,900
D)   $3,500E) A) and D)
F) B) and C)

Question 12

If a typical consumer is willing to pay $3,000 for a plum and $1,000 for a lemon, and there is a 50% chance of getting a lemon, the typical consumer is willing to pay $2,000 for a used car.

Accepted Answer

A) True 
 B)False

Question 13

Under a Coase bargaining solution, deal making between the two parties continues until the marginal ________ to the harmed party equals the marginal ________ to the other party.

Accepted Answer

A)   benefit; benefit
B)   benefit; cost
C)   cost; benefit
D)   cost; costE) C) and D)
F) B) and D)

Question 14

Adverse selection in employment is more likely when

Accepted Answer

A)   jobs require specific training.
B)   everyone is equally qualified for the job.
C)   people's abilities are easy to measure.
D)   people's abilities are difficult for potential employers to observe.E) A) and B)
F) C) and D)

Question 15

Suppose a health insurance company notes that almost all of its customers are at a high risk of illness or injury. This is an example of

Accepted Answer

A)   public information.
B)   perfect information.
C)   a thick market.
D)   an adverse selection problem.E) All of the above
F) C) and D)

Question 16

A public good is a good that

Accepted Answer

A)   is excludable.
B)   is rival.
C)   is free.
D)   is available regardless of willingness to pay.E) A) and B)
F) None of the above

Question 17

If a local government gives out water filters to low-income families free of charge, they are

Accepted Answer

A)   public goods.
B)   private goods.
C)   external goods.
D)   spillover goods.E) A) and C)
F) C) and D)

Question 18

One assumption of the basic model of supply and demand is that

Accepted Answer

A)   buyers and sellers have enough information to make informed choices.
B)   buyers and sellers will benefit equally from a voluntary transaction.
C)   sellers will always have more information than buyers.
D)   buyers will always have more information than sellers.E) None of the above
F) A) and B)

Question 19

What is the economic rule for the optimal amount of pollution?

Accepted Answer

It is efficient to reduce poll...

Question 20

Figure 9.1
-Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality)  used bike and $50 for a lemon (low-quality)  used bike. If buyers believe that 50% of used bikes in the market are lemons (low quality) , what fraction of used bikes sold will actually be lemons (low quality) ?

Accepted Answer

A)   8/30
B)   22/30
C)   8/22
D)   30/30E) A) and B)
F) A) and D)

Exam 9: Imperfect Information, External Benefits, and External Costs

Suppose that a state installs a toll booth on a highway and requires drivers to pay $1.00 before entering the highway. Installation of the toll booth changes

Correct Answer
verified

Why can car insurance companies charge higher auto rates for new customers than for established customers, all else held constant?

Correct Answer
verified
The insurance company faces an asymmetri...
View Answer

If a typical consumer is willing to pay $3,000 for a plum and $1,000 for a lemon, and there is a 50% chance of getting a lemon, the typical consumer is willing to pay $2,000 for a used car.

Correct Answer
verified

Correct Answer
verified

Adverse selection in employment is more likely when

Correct Answer
verified

In some markets for used goods

Correct Answer
verified

An example of a good that is nonrival in consumption is

Correct Answer
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One assumption of the basic model of supply and demand is that

Correct Answer
verified

A public good is a good that

Correct Answer
verified

The adverse selection problem suggests that

Correct Answer
verified

Under a Coase bargaining solution, deal making between the two parties continues until the marginal to the harmed party equals the marginal to the other party.

Correct Answer
verified

If a local government gives out water filters to low-income families free of charge, they are

Correct Answer
verified

Table 9.3 -In Table 9.3, Market 2 would be in equilibrium if buyers believed plums account for

Correct Answer
verified

Public Broadcasting reads the names of local contributors on the air. This is likely to the free-rider problem and lead to a level of contribution to the public good.

Correct Answer
verified

What is the economic rule for the optimal amount of pollution?

Correct Answer
verified
It is efficient to reduce poll...
View Answer

Lemon laws that allow consumers to return low-quality used cars are designed to help solve the problem of ________ in used car markets.

Correct Answer
verified

Suppose a health insurance company notes that almost all of its customers are at a high risk of illness or injury. This is an example of

Correct Answer
verified

Table 9.8 -Table 9.8 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If the two firms were to voluntarily trade pollution permits, how many permits would be swapped?

Correct Answer
verified

Suppose buyers in the used car market are willing to pay $3,500 for a plum (high-quality) used car and $1,500 for a lemon (low-quality) used car. If buyers believe that 30% of the used cars on the market are lemons (low quality) , what would they be willing to pay for a used car?

Correct Answer
verified

Suppose Johnson's Rubber Factory belches black smoke into the air over the city of Bellowsville. If the city of Bellowsville attempts to internalize the external costs associated with the production of rubber with a pollution tax, then we expect

Correct Answer
verified

Exam 9: Imperfect Information, External Benefits, and External Costs

Suppose that a state installs a toll booth on a highway and requires drivers to pay $1.00 before entering the highway. Installation of the toll booth changes

Correct AnswerverifiedShow Answer

Why can car insurance companies charge higher auto rates for new customers than for established customers, all else held constant?

Correct AnswerverifiedThe insurance company faces an asymmetri...View AnswerShow Answer

If a typical consumer is willing to pay $3,000 for a plum and $1,000 for a lemon, and there is a 50% chance of getting a lemon, the typical consumer is willing to pay $2,000 for a used car.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Adverse selection in employment is more likely when

Correct AnswerverifiedShow Answer

In some markets for used goods

Correct AnswerverifiedShow Answer

An example of a good that is nonrival in consumption is

Correct AnswerverifiedShow Answer

One assumption of the basic model of supply and demand is that

Correct AnswerverifiedShow Answer

A public good is a good that

Correct AnswerverifiedShow Answer

The adverse selection problem suggests that

Correct AnswerverifiedShow Answer

Under a Coase bargaining solution, deal making between the two parties continues until the marginal ________ to the harmed party equals the marginal ________ to the other party.

Correct AnswerverifiedShow Answer

If a local government gives out water filters to low-income families free of charge, they are

Correct AnswerverifiedShow Answer

Table 9.3 -In Table 9.3, Market 2 would be in equilibrium if buyers believed plums account for

Correct AnswerverifiedShow Answer

Public Broadcasting reads the names of local contributors on the air. This is likely to ________ the free-rider problem and lead to a ________ level of contribution to the public good.

Correct AnswerverifiedShow Answer

What is the economic rule for the optimal amount of pollution?

Correct AnswerverifiedIt is efficient to reduce poll...View AnswerShow Answer

Lemon laws that allow consumers to return low-quality used cars are designed to help solve the problem of ________ in used car markets.

Correct AnswerverifiedShow Answer

Suppose a health insurance company notes that almost all of its customers are at a high risk of illness or injury. This is an example of

Correct AnswerverifiedShow Answer

Table 9.8 -Table 9.8 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If the two firms were to voluntarily trade pollution permits, how many permits would be swapped?

Correct AnswerverifiedShow Answer

Suppose buyers in the used car market are willing to pay $3,500 for a plum (high-quality) used car and $1,500 for a lemon (low-quality) used car. If buyers believe that 30% of the used cars on the market are lemons (low quality) , what would they be willing to pay for a used car?

Correct AnswerverifiedShow Answer

Suppose Johnson's Rubber Factory belches black smoke into the air over the city of Bellowsville. If the city of Bellowsville attempts to internalize the external costs associated with the production of rubber with a pollution tax, then we expect

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The insurance company faces an asymmetri...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Under a Coase bargaining solution, deal making between the two parties continues until the marginal to the harmed party equals the marginal to the other party.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Public Broadcasting reads the names of local contributors on the air. This is likely to the free-rider problem and lead to a level of contribution to the public good.

Correct Answer
verified

Correct Answer
verified
It is efficient to reduce poll...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified