Question 1

A lump sum tax is an effective method to reduce monopoly profits.

Accepted Answer

A) True 
 B)False

Question 2

Often, when people buy a second- hand car, asymmetric information ensures that the seller is more likely to have more information.

Accepted Answer

A) True 
 B)False

Question 3

What effect will a lump sum tax have on a firm that has monopoly power?

Accepted Answer

A)   It will shift the firm's marginal cost and average cost curves downwards.
B)   It will shift the firm's average cost curve upwards, but will have no effect on the firm's marginal cost curve.
C)   It will shift the firm's marginal cost and average cost curves upwards.
D)   It will not affect the firm because it has monopoly power.
E)   It will shift the firm's marginal cost curve upwards, but will have no effect on the firm's average cost curve.F) B) and E)
G) B) and D)

Question 4

Which of the following explains the concept of non- rivalry?

Accepted Answer

A)   Where the private benefit from consuming a good or service exceeds the social benefit
B)   Where the consumption of a good or service by one person will not prevent others from enjoying it.
C)   When resources commonly available at no charge means that people are likely to overexploit them
D)   Where there is no competition in the market between firms
E)   Where it is not possible to provide a good or service to one person without it thereby being available for others to enjoyF) A) and C)
G) A) and E)

Question 5

If it is very difficult to exclude people from consuming its benefits, a good is

Accepted Answer

A)   a Pareto good.
B)   a public good.
C)   a merit good.
D)   a free good.
E)   a private good.F) B) and E)
G) A) and B)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a likely outcome from a firm adopting a socially responsible approach?

Accepted Answer

A)   Higher short- run revenue
B)   Higher long- run revenue
C)   Lower short- run costs
D)   Lower long- run costsE) B) and C)
F) A) and C)

Question 8

Government intervention to solve market failure is costless.

Accepted Answer

A) True 
 B)False

Question 9

The following diagram shows a price- taking firm that creates pollution when it produces. As a result, the firm's marginal social cost (MSC)  is above its marginal private cost (MC) .
   What is the optimum tax?

Accepted Answer

A)   cd
B)   ca
C)   ab
D)   daE) C) and D)
F) A) and B)

Question 10

What do economists mean when they argue that the rapid growth of the problem of pollution is caused by it being outside of the market system? What steps can the government take to help alleviate this problem, using market forces?

Accepted Answer

Pollution has grown, as it is an externa...

Question 11

Total private surplus is equal to total consumer surplus plus total producer surplus.

Accepted Answer

A) True 
 B)False

Question 12

Give some arguments for government intervention in the working of the economic system.

Accepted Answer

• To take account of the existence of ex...

Question 13

Extending property rights is not a sensible solution if many people are highly inconvenienced and there are only a few culprits imposing the costs.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not an example of a public good (or service) ?

Accepted Answer

A)   Museums
B)   Health care
C)   Primary education
D)   Secondary education
E)   All of the aboveF) B) and E)
G) A) and E)

Question 15

Extending private property rights will be impractical if there are many polluters and many victims.

Accepted Answer

A) True 
 B)False

Question 16

Corporate social responsibility involves firms

Accepted Answer

A)   minimising environmental emissions.
B)   taking into account the interests and concerns of a community rather than just its shareholders.
C)   introducing health and safety regulations.
D)   all of the aboveE) All of the above
F) None of the above

Question 17

A negative externality could be corrected with

Accepted Answer

A)   a tax on the externality itself.
B)   a subsidy on the product.
C)   banning the product.
D)   a tax on the product.E) B) and D)
F) B) and C)

Question 18

In the absence of externalities, a monopoly will charge a price above the level where MSC = MSB and produce an output below the level where MSC = MSB.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not an advantage of using taxes and subsidies to correct market imperfections?

Accepted Answer

A)   Firms are encouraged to find ways of increasing external benefits.
B)   Rates need to be frequently adjusted as external costs and benefits change.
C)   Rates can be adjusted according to the magnitude of the problem, thus enabling MSB to equal MSC.
D)   Firms are encouraged to find ways of reducing external costs.
E)   Taxes and subsidies internalise externalities.F) C) and D)
G) None of the above

Question 20

Markets fail to produce an efficient allocation of resources, but governments also fail because

Accepted Answer

A)   measurement of social costs and benefits is difficult and imprecise.
B)   the optimal level of public goods may be too expensive to produce.
C)   elected officials will act only in the public interest.
D)   managers of government agencies are trying to maximise the size of their agency.E) A) and B)
F) A) and C)

Exam 20: Reasons for Government Intervention in the Market

Extending private property rights will be impractical if there are many polluters and many victims.

Correct AnswerverifiedShow Answer

Markets fail to produce an efficient allocation of resources, but governments also fail because

Correct AnswerverifiedShow Answer

A lump sum tax is an effective method to reduce monopoly profits.

Correct AnswerverifiedShow Answer

If it is very difficult to exclude people from consuming its benefits, a good is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Give some arguments for government intervention in the working of the economic system.

Correct Answerverified• To take account of the existence of ex...View AnswerShow Answer

Extending property rights is not a sensible solution if many people are highly inconvenienced and there are only a few culprits imposing the costs.

Correct AnswerverifiedShow Answer

Which of the following is not a likely outcome from a firm adopting a socially responsible approach?

Correct AnswerverifiedShow Answer

In the absence of externalities, a monopoly will charge a price above the level where MSC = MSB and produce an output below the level where MSC = MSB.

Correct AnswerverifiedShow Answer

Government intervention to solve market failure is costless.

Correct AnswerverifiedShow Answer

Corporate social responsibility involves firms

Correct AnswerverifiedShow Answer

What effect will a lump sum tax have on a firm that has monopoly power?

Correct AnswerverifiedShow Answer

Which of the following is not an advantage of using taxes and subsidies to correct market imperfections?

Correct AnswerverifiedShow Answer

A negative externality could be corrected with

Correct AnswerverifiedShow Answer

Total private surplus is equal to total consumer surplus plus total producer surplus.

Correct AnswerverifiedShow Answer

Which of the following is not an example of a public good (or service) ?

Correct AnswerverifiedShow Answer

Which of the following explains the concept of non- rivalry?

Correct AnswerverifiedShow Answer

What do economists mean when they argue that the rapid growth of the problem of pollution is caused by it being outside of the market system? What steps can the government take to help alleviate this problem, using market forces?

Correct AnswerverifiedPollution has grown, as it is an externa...View AnswerShow Answer

The following diagram shows a price- taking firm that creates pollution when it produces. As a result, the firm's marginal social cost (MSC) is above its marginal private cost (MC) . What is the optimum tax?

Correct AnswerverifiedShow Answer

Often, when people buy a second- hand car, asymmetric information ensures that the seller is more likely to have more information.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
• To take account of the existence of ex...
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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Pollution has grown, as it is an externa...
View Answer

Correct Answer
verified

Correct Answer
verified