Reading Quiz # 13

Unit 5 : Reading Quiz # 13 : 14 points
1. Unlike a private good, a public good:
A) has no opportunity costs.
B) has benefits available to all, including non-payers.
C) produces no spillover benefits or spillover costs.
D) is characterized by rivalry and excludability.
E) is made by profit seeking firms.
2. Which of the following happens when there are market failures?
A. Firms compete more leading to more efficiency.
B. The invisible hand automatically lowers prices and increases
quality of products.
C. The private sector promotes competition
D. The public sector steps in to better allocate resources
E. Firms temporarily seek society’s goals rather than maximize
3.Negative externalities result in:
A) spillover benefits to society.
B) the government providing subsidies
C) under-allocation of resources
D) over-allocation of resources
E) efficient use of society’s resources
4. Suppose that Chris and George are the only two members
of society and are willing to pay $10 and $8, respectively, for
the 3rd unit of a public good. Also, assume that the marginal
cost of the 3rd unit is $17. We can conclude that:
A) the 3rd unit should not be produced.
B) the 3rd unit should be produced.
C) zero units should be produced.
D) 4 units should be produced.
5. The direct way to reduce negative externalities from a certain activity
and/or industry production:
A. is to pass legislation limiting the activity or production.
B. is to immediately increase production and increase price
C. is to immediately decrease production and decrease price
D. none of the above.
6. A negative externality or spillover cost occurs when:
A) firms fail to achieve allocative efficiency.
B) firms form a monopoly and purposely holds back production.
C) the total cost of producing a good exceeds the cost of the producer.
D) the supply curve for a firm equals the marginal cost curve above
average variable cost.
7. Assume society's optimal level in each market is Q0 and that
government purposely shifts the market supply curve from S to
S1 in diagram. Which of the following is NOT true:
A) the government is correcting spillover costs
B) at Qe the good is being overproduced
C) the government could be taxing producers
D) at Qe, the Marginal Social Benefit is greater than the
Marginal Social Cost
E) the government is fixing a market failure