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Answer the next question on the basis of the following information is for public good.Pa and Pb represent the prices that citizens (a) and (b) ,the only two people in this nation,are willing to pay for additional units of a quantity (Qc) of the public good.Qs represents the quantity of the public good supplied by government at each of the collective prices.If only 1 unit of this public good is produced,then the marginal benefit is: Answer the next question on the basis of the following information is for public good.P<sub>a</sub> and P<sub>b</sub> represent the prices that citizens (a) and (b) ,the only two people in this nation,are willing to pay for additional units of a quantity (Q<sub>c</sub>) of the public good.Q<sub>s</sub> represents the quantity of the public good supplied by government at each of the collective prices.If only 1 unit of this public good is produced,then the marginal benefit is: A) $3 and the marginal cost is $9. B) $4 and the marginal cost is $7. C) $6 and the marginal cost is $3. D) $9 and the marginal cost is $5.


A) $3 and the marginal cost is $9.
B) $4 and the marginal cost is $7.
C) $6 and the marginal cost is $3.
D) $9 and the marginal cost is $5.

E) A) and C)
F) C) and D)

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The creation of a market for pollution rights would:


A) reduce air and water pollution to zero.
B) stimulate the search for pollution-reducing technologies.
C) induce an increase in the supply of pollution rights.
D) be in conflict with the concept of user charges.

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

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The following information is for a public good.Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good,rather than do without it.These people are the only two members of society.If this good were a private good instead of a public one,the total quantity demanded at a $3 market price would be: The following information is for a public good.P<sub>a</sub> and P<sub>b</sub> are the prices that individuals A and B are willing to pay for the last unit of a public good,rather than do without it.These people are the only two members of society.If this good were a private good instead of a public one,the total quantity demanded at a $3 market price would be: A) 2 units. B) 3 units. C) 6 units. D) 4 units.


A) 2 units.
B) 3 units.
C) 6 units.
D) 4 units.

E) B) and C)
F) B) and D)

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The right and efficient amount of a public good will be produced when:


A) the government follows the rule of MR = MB.
B) the government applies the rule of MB = MC.
C) the government makes the highest level of profit from producing it.
D) the government can exclude the payers from non-payers.

E) C) and D)
F) B) and C)

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The following table presents the demand schedule for product Z: The following table presents the demand schedule for product Z: Assuming that the price of Z at equilibrium is $12,what is the total consumer surplus? A) $12 B) $11 C) $8 D) $20 Assuming that the price of Z at equilibrium is $12,what is the total consumer surplus?


A) $12
B) $11
C) $8
D) $20

E) A) and B)
F) A) and C)

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When producing a good generates external or negative externalities,the private market for that good tends to produce too:


A) much of the product at too low a price.
B) much of the product at too high a price.
C) little of the product at too low a price.
D) little of the product at too high a price

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

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Refer to the information below.Which of the following policies would be most appropriate for dealing with this problem? It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.Operators of hydroelectric generating plants on the river find that they must clean up the river's water before it flows through their equipment.


A) Levy a tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources.
B) Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products.
C) Levy a tax on the producers of electricity and use the tax revenues to clean up the river.
D) Levy a tax on the producers of paper products and use the tax revenues to clean up the river.

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

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A negative externality or external cost occurs when:


A) firms fail to achieve allocative efficiency.
B) firms fail to achieve productive efficiency.
C) price exceeds marginal cost.
D) the total cost of producing a good exceeds the costs borne by the producer.

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

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The term "allocative efficiency" refers to:


A) the production of the product-mix most desired by society.
B) the allocation of resources to the production of a particular product.
C) the production of the product-mix most desired by producers.
D) the production of a good at the lowest average total cost.

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

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Demand-side market failure


A) arises in situations in which a firm does not have to pay the full cost of producing its output.
B) arises when it is impossible to charge consumers what they are willing to pay for a product.
C) exists in equilibrium with supply-side market failure.
D) happens only when the quantity of a good demanded is less than that which is supplied.

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

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The optimal reduction of an externality occurs when:


A) society's marginal cost of reducing that externality is greater than its marginal benefit.
B) public agencies could make a great deal of money.
C) society's marginal cost and marginal benefit of reducing that externality are equal.
D) society's marginal benefit of reducing that externality is greater than its marginal cost.

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

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Market for asparagus.At the market price of $2,area A represents: Market for asparagus.At the market price of $2,area A represents: A) total consumer utility. B) total revenue to sellers. C) consumer surplus. D) economic profit.


A) total consumer utility.
B) total revenue to sellers.
C) consumer surplus.
D) economic profit.

E) B) and D)
F) A) and B)

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The term "Efficiency losses" refers to:


A) the producer loss due to the high cost of production.
B) the reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product.
C) the consumer surplus minus the producer surplus.
D) the sum of consumer and producer surplus.

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

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The following information is for a public good.Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good,rather than do without it.These people are the only two members of society.Suppose the government has already produced 4 units of this public good.The amount individual B is willing to voluntarily pay for the 4th unit is: The following information is for a public good.P<sub>a</sub> and P<sub>b</sub> are the prices that individuals A and B are willing to pay for the last unit of a public good,rather than do without it.These people are the only two members of society.Suppose the government has already produced 4 units of this public good.The amount individual B is willing to voluntarily pay for the 4<sup>th</sup> unit is: A) $14 B) $5 C) $2 D) $0


A) $14
B) $5
C) $2
D) $0

E) B) and D)
F) B) and C)

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Near an ocean beach,a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building.The Coase Theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:


A) the owners themselves.
B) city government officials.
C) a zoning ordinance restricting high-rise buildings.
D) a government fine for the builder of the high-rise.

E) A) and B)
F) B) and D)

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The following information is for four highway programs of increasing scope.All figures are in millions of dollars.On the basis of the data we can say that: The following information is for four highway programs of increasing scope.All figures are in millions of dollars.On the basis of the data we can say that: A) Program D is the most efficient on economic grounds. B) Program C is the most efficient on economic grounds. C) Program B is the most efficient on economic grounds. D) Program A is the most efficient on economic grounds.


A) Program D is the most efficient on economic grounds.
B) Program C is the most efficient on economic grounds.
C) Program B is the most efficient on economic grounds.
D) Program A is the most efficient on economic grounds.

E) B) and C)
F) A) and D)

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The following data are for a series of increasingly extensive flood control projects: For Plan D marginal costs and marginal benefits are: The following data are for a series of increasingly extensive flood control projects: For Plan D marginal costs and marginal benefits are: A) $72,000 and $64,000 respectively. B) $28,000 and $12,000 respectively. C) $24,000 and $18,000 respectively. D) $16,000 and $28,000 respectively.


A) $72,000 and $64,000 respectively.
B) $28,000 and $12,000 respectively.
C) $24,000 and $18,000 respectively.
D) $16,000 and $28,000 respectively.

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

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Answer the question based on the following information.Way-Below Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism.The university is now considering several alternative levels of crime control.This table shows the expected annual costs and benefits of these alternatives.If Way-Below Normal undertakes Level Three: Answer the question based on the following information.Way-Below Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism.The university is now considering several alternative levels of crime control.This table shows the expected annual costs and benefits of these alternatives.If Way-Below Normal undertakes Level Three: A) total benefits will be less than total costs. B) marginal costs will exceed marginal benefits. C) there would be an under-allocation of resources to crime control. D) there would be an over-allocation of resources to crime control.


A) total benefits will be less than total costs.
B) marginal costs will exceed marginal benefits.
C) there would be an under-allocation of resources to crime control.
D) there would be an over-allocation of resources to crime control.

E) A) and B)
F) A) and C)

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Market failures


A) fall only on the demand-side.
B) fall only on the supply-side.
C) can fall on either the demand-side or the supply-side.
D) fall on non-competitive markets only.

E) B) and C)
F) A) and B)

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Refer to the below supply and demand graph.Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective.This supply and demand graph indicates that there is (are) : Refer to the below supply and demand graph.Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective.This supply and demand graph indicates that there is (are) : A) positive externalities to the production of this product. B) negative externalities to the production of this product. C) an overallocation of resources to the production of this product. D) a negative externality from the production of this product.


A) positive externalities to the production of this product.
B) negative externalities to the production of this product.
C) an overallocation of resources to the production of this product.
D) a negative externality from the production of this product.

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

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