Question 1

Because public goods are characterised by being collectively consumed:

Accepted Answer

A)   the government cannot produce them
B)   they are very expensive, thus the private sector cannot provide them
C)   the private sector may not provide them because they cannot exclude those who do not pay
D)   they are illegalE) None of the above
F) B) and C)

Question 2

Which of the following is NOT an advantage of taxing negative externalities?

Accepted Answer

A)   It is often difficult to accurately measure external costs such as pollution costs.
B)   The tax provides a financial incentive for a firm to decrease the level of the negative externality.
C)   Taxes force the producer of the externality to pay for the cost of the externality.
D)   The tax internalises the externality.E) A) and B)
F) All of the above

Question 3

Which of the following is NOT a source of 'failure' of the free market?

Accepted Answer

A)   imperfectly competitive markets
B)   external costs and benefits
C)   fast market adjustment to disequilibrium
D)   lack of knowledge by consumersE) A) and B)
F) All of the above

Question 4

Sporting facilities are considered by the Australian government to be merit goods.

Accepted Answer

A) True 
 B)False  True

Question 5

Public goods are non- rival in consumption and non- excludable.

Accepted Answer

A) True 
 B)False

Question 6

Bill sells Mary a worthless coin that Bill incorrectly told Mary 'belonged to an ancient Persian king and is of enormous value to coin collectors'. Economists would call this an:

Accepted Answer

A)   efficient exchange, assuming Bill was not intentionally trying to trick Mary
B)   inefficient exchange because there were externalities involved
C)   efficient exchange since any type of voluntary exchange promotes efficiency
D)   inefficient exchange since at least one party used false market informationE) None of the above
F) B) and C)

Question 7

A firm produces an output level at which price is greater than marginal cost. Explain why this is inefficient.

Accepted Answer

It is inefficient because the ...

Question 8

Your next- door neighbour has a beautiful flower garden. However, you are allergic to flowers and cannot use your patio because of the flower pollen that drifts into it. In this case, the flower garden is an example of:

Accepted Answer

A)   a good that provides an external benefit
B)   market power
C)   a good that imposes an external cost
D)   a public goodE) A) and B)
F) B) and C)

Question 9

Using examples, explain the difference between a public good and a merit good.

Accepted Answer

A public good has the characteristics of...

Question 10

General equilibrium occurs when__________ in all markets.

Accepted Answer

A)   prices are fair
B)   consumers are satisfied
C)   firms make profits
D)   demand equals supplyE) B) and D)
F) All of the above

Question 11

If an industry changes from being highly competitive to a monopoly, this change can be represented by the:

Accepted Answer

A)   loss in consumer surplus plus the loss in producer surplus
B)   loss in producer surplus minus the gain in consumer surplus
C)   gain in producer surplus plus the gain in consumer surplus
D)   loss in consumer surplus plus the gain in producer surplus plus the deadweight lossE) A) and B)
F) A) and C)

Question 12

Social efficiency occurs when:

Accepted Answer

A)   unemployment is low and prices are stable
B)   marginal social benefits of an activity are equal to the marginal social costs
C)   all markets are in equilibrium
D)   the marginal social cost of an activity is greater than the marginal social benefitE) A) and C)
F) All of the above B

Question 13

Explain the factors that can make it difficult for governments to set optimal levels of taxes and regulations to correct for pollution.

Accepted Answer

It is difficult to determine what societ...

Question 14

Explain how tradeable permits could be used to reduce carbon emissions. (Restrict your discussion to a national level).

Accepted Answer

The appropriate government department uses available scientific evidence to determine an acceptable level of carbon emissions for the nation as a whole, both in the present, and in terms of reductions over time. Individual carbon emitting entities are then allocated an allowed emission level for the present, which is normally reduced over time. Divisible permits are then allocated on the basis of the allowed emissions. If firms are able to reduce their emissions below the allocated level, they are able to sell their unused permits in tradeable permit markets. The permit prices should be determined by the interaction of demand and supply in the market for tradeable permits. Firms which can reduce emissions relatively cost effectively have an incentive to do so in order to profit from the sale of their permits. Those firms in industries where costs of emission reduction are higher may emit beyond their allocations by buying additional permits. This results in efficiency in emission reduction.

Question 15

Taxing externalities such as pollution provides a financial incentive for firms to decrease pollution.

Accepted Answer

A) True 
 B)False

Question 16

A profit- maximising monopolist will normally produce a socially efficient level of output.

Accepted Answer

A) True 
 B)False

Question 17

Governments often subsidise goods and services that society appears to value more highly than the individual consumer does. These goods and services are called:

Accepted Answer

A)   private goods
B)   merit goods
C)   charities
D)   public goodsE) A) and B)
F) B) and D)

Question 18

In order to induce a more socially optimal level of output governments can __________goods associated with negative externalities and__________ goods associated with positive externalities.

Accepted Answer

A)   tax; subsidise
B)   subsidise; tax
C)   subsidise; subsidise
D)   tax; taxE) A) and C)
F) A) and B)

Question 19

If non- payers cannot be excluded from consuming a good this gives rise to the:

Accepted Answer

A)   pubic good problem
B)   free rider problem
C)   private good problem
D)   fallacy of composition problemE) All of the above
F) C) and D)

Question 20

The goal of equity is realised when income is equally distributed amongst the citizens of a nation.

Accepted Answer

A) True 
 B)False

Exam 7: Market Failures and Government Policy

Because public goods are characterised by being collectively consumed:

Correct Answer
verified

Which of the following is NOT an advantage of taxing negative externalities?

Correct Answer
verified

Which of the following is NOT a source of 'failure' of the free market?

Correct Answer
verified

Sporting facilities are considered by the Australian government to be merit goods.

Correct Answer
verified
True

Public goods are non- rival in consumption and non- excludable.

Correct Answer
verified

Bill sells Mary a worthless coin that Bill incorrectly told Mary 'belonged to an ancient Persian king and is of enormous value to coin collectors'. Economists would call this an:

Correct Answer
verified

A firm produces an output level at which price is greater than marginal cost. Explain why this is inefficient.

Correct Answer
verified
It is inefficient because the ...
View Answer

Your next- door neighbour has a beautiful flower garden. However, you are allergic to flowers and cannot use your patio because of the flower pollen that drifts into it. In this case, the flower garden is an example of:

Correct Answer
verified

Using examples, explain the difference between a public good and a merit good.

Correct Answer
verified
A public good has the characteristics of...
View Answer

General equilibrium occurs when__________ in all markets.

Correct Answer
verified

If an industry changes from being highly competitive to a monopoly, this change can be represented by the:

Correct Answer
verified

Social efficiency occurs when:

Correct Answer
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B

Explain the factors that can make it difficult for governments to set optimal levels of taxes and regulations to correct for pollution.

Correct Answer
verified
It is difficult to determine what societ...
View Answer

Explain how tradeable permits could be used to reduce carbon emissions. (Restrict your discussion to a national level).

Taxing externalities such as pollution provides a financial incentive for firms to decrease pollution.

Correct Answer
verified

A profit- maximising monopolist will normally produce a socially efficient level of output.

Correct Answer
verified

Governments often subsidise goods and services that society appears to value more highly than the individual consumer does. These goods and services are called:

Correct Answer
verified

In order to induce a more socially optimal level of output governments can goods associated with negative externalities and goods associated with positive externalities.

Correct Answer
verified

If non- payers cannot be excluded from consuming a good this gives rise to the:

Correct Answer
verified

The goal of equity is realised when income is equally distributed amongst the citizens of a nation.

Correct Answer
verified

Exam 7: Market Failures and Government Policy

Because public goods are characterised by being collectively consumed:

Correct AnswerverifiedShow Answer

Which of the following is NOT an advantage of taxing negative externalities?

Correct AnswerverifiedShow Answer

Which of the following is NOT a source of 'failure' of the free market?

Correct AnswerverifiedShow Answer

Sporting facilities are considered by the Australian government to be merit goods.

Correct AnswerverifiedTrue

Public goods are non- rival in consumption and non- excludable.

Correct AnswerverifiedShow Answer

Bill sells Mary a worthless coin that Bill incorrectly told Mary 'belonged to an ancient Persian king and is of enormous value to coin collectors'. Economists would call this an:

Correct AnswerverifiedShow Answer

A firm produces an output level at which price is greater than marginal cost. Explain why this is inefficient.

Correct AnswerverifiedIt is inefficient because the ...View AnswerShow Answer

Your next- door neighbour has a beautiful flower garden. However, you are allergic to flowers and cannot use your patio because of the flower pollen that drifts into it. In this case, the flower garden is an example of:

Correct AnswerverifiedShow Answer

Using examples, explain the difference between a public good and a merit good.

Correct AnswerverifiedA public good has the characteristics of...View AnswerShow Answer

General equilibrium occurs when__________ in all markets.

Correct AnswerverifiedShow Answer

If an industry changes from being highly competitive to a monopoly, this change can be represented by the:

Correct AnswerverifiedShow Answer

Social efficiency occurs when:

Correct AnswerverifiedB

Explain the factors that can make it difficult for governments to set optimal levels of taxes and regulations to correct for pollution.

Correct AnswerverifiedIt is difficult to determine what societ...View AnswerShow Answer

Explain how tradeable permits could be used to reduce carbon emissions. (Restrict your discussion to a national level).

Taxing externalities such as pollution provides a financial incentive for firms to decrease pollution.

Correct AnswerverifiedShow Answer

A profit- maximising monopolist will normally produce a socially efficient level of output.

Correct AnswerverifiedShow Answer

Governments often subsidise goods and services that society appears to value more highly than the individual consumer does. These goods and services are called:

Correct AnswerverifiedShow Answer

In order to induce a more socially optimal level of output governments can __________goods associated with negative externalities and__________ goods associated with positive externalities.

Correct AnswerverifiedShow Answer

If non- payers cannot be excluded from consuming a good this gives rise to the:

Correct AnswerverifiedShow Answer

The goal of equity is realised when income is equally distributed amongst the citizens of a nation.

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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True

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It is inefficient because the ...
View Answer

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A public good has the characteristics of...
View Answer

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Correct Answer
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B

Correct Answer
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It is difficult to determine what societ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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In order to induce a more socially optimal level of output governments can goods associated with negative externalities and goods associated with positive externalities.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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