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Exam 4: Market Failures Caused by Externalities Asymmetric Information

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Question 51

Multiple Choice

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Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₂ and S₂. If there are substantial external benefits associated with the production of Z, then

A) efficient resource allocation occurs at output G and price B because the market mechanism does not measure all benefits.
B) an output smaller than G would improve resource allocation.
C) government should levy a per-unit excise tax on Z to shift the demand curve toward D₁.
D) an output greater than G would result in a more efficient allocation of resources.

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

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Question 52

Multiple Choice

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Refer to the diagram. With MB₁ and MC₁, society's optimal amount of pollution abatement is

A) Q₁.
B) Q₂.
C) Q₃.
D) Q₄.

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

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Question 53

Multiple Choice

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Market failure is said to occur whenever

What are the limitations to government's role in the economy?

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of

TripAdvisor provides online reviews of hotels, restaurants, and attractions at tourist destinations around the world. When a traveler is planning a vacation, TripAdvisor helps the traveler avoid

Which of the following would be considered an example of adverse selection?

The government should choose pollution abatement for all sources of pollution where the marginal benefit exceeds the marginal cost of that action.

Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

The minimum acceptable price for a product that producer Sam is willing to receive is 10. The price he could get for the product in the market is 15. How much is Sam's producer surplus?

Refer to the diagram of the market for product X. Curve Sₜ embodies all costs (including externalities) , and Dₜ embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the equilibrium output is Q₂, we can conclude that the existence of external

Refer to the diagram. Assuming equilibrium price P₁, consumer surplus is represented by areas

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of

What are some ways the private sector has found to overcome information difficulties without government intervention?

Allocative efficiency occurs where (for the last unit)maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the total amount of spending that consumers would be paying for the product is represented by the area

The adverse selection problem is the tendency for insured drivers to drive recklessly.

An improvement in the technology of pollution control is likely to increase society's optimal amount of pollution abatement.

Describe what is meant by the adverse selection problem.

In terms of consumer and producer surplus, when is economic efficiency achieved?