Econ 201, Douglas
Fall 2006
QUIZ 7
PLEDGE: I have neither given nor received unauthorized help on this quiz.
SIGNED________________________PRINT NAME__________________________________
_____1. In a market economy, government intervention
a. will always improve market outcomes.
b. reduces efficiency in the presence of externalities.
c. can improve market outcomes in the presence of externalities.
d. is always necessary to help people choose the right outcome.
______2. Because there are positive externalities from higher education,
a. private markets will provide too few college classes.
b. private markets will provide too many college classes.
c. the government should impose a tax on college students.
d. government intervention cannot improve the market for college classes.
______3. For which of the following externalities does the Coase theorem suggest we are most likely to get a
successful private solution?
a. Richard is annoyed because his roommate smokes.
b. Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico.
c. Car exhaust in a small town is making one of its residents ill.
d. Industrialization around the world is causing acid rain.
______4. The effect of Pigovian taxes on welfare is different from most taxes because Pigovian taxes
a. enhance economic efficiency.
b. do not raise revenue from the government.
c. cause deadweight loss.
d. always burden only the seller.
______5. Tradable pollution permits
a. have prices that are set by the government.
b. are more likely to be purchased by firms for whom pollution reduction is very costly.
c. always allow a higher level of total pollution than command and control.
d. are less effective than Pigovian taxes in reducing pollution.
______6. A cheeseburger is
a. excludable and rival in consumption.
b. excludable and nonrival in consumption.
c. nonexcludable and rival in consumption.
d. nonexcludable and nonrival in consumption.
______7. The government provides public goods because
a. private markets are incapable of producing public goods.
b. free-riders make it difficult for private markets to supply the socially optimal quantity.
c. markets are always better off with some government oversight.
d. external benefits will accrue to private producers.
______8. Suppose that the small town of Tryon, NC, is considering hiring an additional police officer. The reduction
in crime is estimated to be worth $20 to each of Tryon's 3,000 residents. What should Tryon do, if it wants
to be socially efficient?
a. Hire the police officer because additional safety is priceless.
b. Hire the police officer if the cost of the new officer is less than $60,000.
c. Do not hire the police officer because the costs exceed the benefits.
d. Hire the police officer only if the benefit to the residents exceeds $3,000.
Econ 201, Douglas
ANSWERS to QUIZ 7:
1) C
2) A
3) A
4) A
5) B
6) A
7) B
8) B
Fall 2006