In a competitive market economy with no externalities, allocative efficiency would exist if correct answers prices equal marginal costs in all markets.
Refer to Figure 16-4. What is the optimal provision of this public good? correct answers Q4
In the context of government intervention in the ...
in a competitive market economy with no externalit
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In a competitive market economy with no externalities, allocative efficiency would exist if correct
answers prices equal marginal costs in all markets.
Refer to Figure 16-4. What is the optimal provision of this public good? correct answers Q4
In the context of government intervention in the economy, an example of paternalism is correct answers
laws requiring the use of bicycle helmets.
Refer to Figure 16-2. Suppose that the marginal benefit curve (MB) includes all social benefits and that
there is a negative externality in production. In this case, ________ for allocative efficiency. correct
answers the price P1 is too low and the quantity Q1 is too high
Attempts by professional lobbyists in Ottawa to influence the government's subsidy to the shipbuilding
industry, even when such a subsidy is not in the national interest, represents correct answers rent seeking.
Consider a product (say, tulip bulbs) that generates positive externalities when it is consumed (other
people enjoy looking at them). In this case, correct answers too few tulips will be produced and consumed
unless external benefits are internalized.
Common-property fishing grounds are correct answers often overexploited because individual fishermen
do not consider the reduced availability of fish for subsequent fishermen.
Which of the following statements about free-market economies is false? correct answers In a free-market
economy there is no role for government intervention.
Examples of market responses to moral hazard (hidden action) problems include:
1. Paying salespeople on commission (percentage of sales) rather than a set salary.
2. Insurance companies only offering policies with partial insurance for losses (large deductibles or
paying only a percentage of the loss).
3. Offering sports stars contracts that only renew for the next year after the athlete has achieved a "good
year" this year. correct answers 1, 2 and 3.
, Economic losses in an industry are a signal that correct answers will lead resources to leave the industry
(until the losses disappear).
The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2.
Refer to Figure 17-5. Suppose Firm 1 and Firm 2 are each abating 0 units of pollution. If the government
imposed an emissions tax of $40 per unit of emissions, and this tax rate was known to equal the social
marginal cost of pollution (the marginal benefit of abatement), then we can predict with confidence that
correct answers the resulting level of pollution would be optimal.
Which of the following taxes is most likely to be progressive? correct answers A personal income tax
where marginal tax rates rise as income rises.
When comparing a system of emission taxes to a system of tradable pollution permits, the same amount
of pollution could be abated in each as long as correct answers the cap on emissions was chosen such that
the equilibrium price of the permits, p*, was equal to the emissions tax rate, t.
Refer to Figure 18-3. Suppose that supply is perfectly elastic and the price of this good is initially P1. If
an excise tax raises the price from P1 to P2, the direct burden of the tax is area correct answers P2 B F P1
Which of the following statements suggests that property taxes might be progressive as opposed to being
regressive? correct answers Higher-income people live in more expensive houses than do low-income
people.
The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y.
Refer to Figure 17-4. Ignore the horizontal line at t. Suppose the government requires each firm to reduce
pollution by the same amount, QR. The result will be correct answers economically inefficient because
Firm Y is then abating pollution at a higher marginal cost than Firm X.
Refer to Figure 18-3. Suppose that supply is perfectly elastic and the price of this good is initially P2. If
an excise tax raises the price from P2 to P3, the excess burden of the tax is area correct answers ABD
If emissions permits are traded freely between profit-maximizing firms in the private market, correct
answers marginal abatement costs will be equalized across firms.
The diagram below shows a market for tradable pollution permits
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