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Because of free riders,the demand for a public good:


A) gets expressed in the market,but the good does not get produced by private sellers.
B) does not get expressed in the market,but the good does get produced by private sellers.
C) does not get expressed in the market,and the good does not get produced by private sellers.
D) gets expressed in the market,and the good does get produced by private sellers.

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

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At the output where the combined amounts of consumer and producer surplus are largest:


A) the areas of consumer and producer surplus necessarily are equal.
B) the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
C) consumer surplus exceeds producer surplus by the greatest amount.
D) marginal benefit exceeds marginal cost by the greatest amount.

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

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The free-rider problem makes a good profitable to provide by a private firm.

A) True
B) False

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Which of the following statements is true?


A) A competitive market can achieve allocative efficiency without achieving productive efficiency.
B) A competitive market can achieve productive efficiency without achieving allocative efficiency.
C) A competitive market economy cannot achieve both productive efficiency and allocative efficiency simultaneously.
D) A competitive market cannot achieve productive efficiency without also achieving allocative efficiency.

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

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With allocative efficiency:


A) the state of technology-or methods used to produce output-does not change.
B) the available supplies of factors of production are fixed in both quantity and quality.
C) production of any particular mix of goods and services occurs in the least costly way.
D) production of any particular mix of goods and services is that mix most wanted by society.

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

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The Lojack is an example of a product that:


A) produces a positive externality.
B) produces a negative externality.
C) contributes to global warming.
D) contributes to illegal gambling on cards.

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

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If an activity results in a spillover benefit,then in a pure market economy the:


A) quantity produced is too low.
B) quantity produced is too high.
C) market supply is too low.
D) market supply is too high.

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

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Waybelow 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. Waybelow 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. Refer to the above information.The marginal costs of additional levels of crime control are: A) $60,000 for Level Two. B) $20,000 for Level Three. C) $5,000 for Level Five. D) $10,000 for Levels Two,Three,Four,and Five. Refer to the above information.The marginal costs of additional levels of crime control are:


A) $60,000 for Level Two.
B) $20,000 for Level Three.
C) $5,000 for Level Five.
D) $10,000 for Levels Two,Three,Four,and Five.

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

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Which antipollution policy would be least likely to make use of cost-benefit analysis?


A) Creating a market for pollution rights
B) Charging polluters an emission fee
C) Enacting legislation that bans pollution
D) Using private bargaining when the property rights are clearly defined,the number of people involved is small,and negotiation costs are small

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

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Refer to the above 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.If government decides to correct this spillover problem by subsidizing producers,then the: A) demand curve will shift from D<sub>1</sub> to D<sub>2</sub>. B) supply curve will shift from S<sub>1</sub> to S<sub>2</sub>. C) supply curve will shift from S<sub>2</sub> to S<sub>1</sub>. D) demand curve will shift from D<sub>2</sub> to D<sub>1</sub>. Refer to the above 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.If government decides to correct this spillover problem by subsidizing producers,then the:


A) demand curve will shift from D1 to D2.
B) supply curve will shift from S1 to S2.
C) supply curve will shift from S2 to S1.
D) demand curve will shift from D2 to D1.

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

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An organization that provides a public good is:


A) the United Parcel Service.
B) Federal Express.
C) DHL Overnight.
D) the U.S.Post Office.

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

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Which of the following conditions does not need to occur for a market to achieve allocative efficiency?


A) Consumers' maximum willingness to pay equals producers' minimum acceptable price.
B) The sum of producer and consumer surplus is maximized.
C) The total revenue received by producers equals the total cost of production.
D) The marginal benefit of the last unit produced equals the marginal cost of producing that unit.

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

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Waybelow 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. Waybelow 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. Refer to the above information.Based on cost-benefit analysis,Waybelow should undertake: A) Level Two. B) Level Three. C) Level Four. D) Level Five. Refer to the above information.Based on cost-benefit analysis,Waybelow should undertake:


A) Level Two.
B) Level Three.
C) Level Four.
D) Level Five.

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

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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 they must clean up the river's water before it flows through their equipment. Refer to the above information.Which of the following policies would be most appropriate for dealing with this problem?


A) Levy a tax on the consumers of paper goods 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 goods.
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 goods and use the tax revenues to clean up the river.

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

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Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed,the supply of pollutant rights will be perfectly elastic.

A) True
B) False

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A government is considering undertaking one or more construction projects.The estimated marginal cost and benefit of each project are given in the table. A government is considering undertaking one or more construction projects.The estimated marginal cost and benefit of each project are given in the table. Refer to the above table and information.What is the total cost and total benefit of projects 1,2,and 3? A) Total cost is $18 million and total benefit is $19 million. B) Total cost is $24 million and total benefit is $27 million. C) Total cost is $37 million and total benefit is $41 million. D) Total cost is $65 million and total benefit is $66 million. Refer to the above table and information.What is the total cost and total benefit of projects 1,2,and 3?


A) Total cost is $18 million and total benefit is $19 million.
B) Total cost is $24 million and total benefit is $27 million.
C) Total cost is $37 million and total benefit is $41 million.
D) Total cost is $65 million and total benefit is $66 million.

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

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Refer to the above diagram illustrating a market for pollution rights in which government has fixed the supply of rights at 1,000 tons.If the demand for pollution rights were to increase as a result of economic growth,the: A) volume of pollutants discharged would increase. B) price of pollution rights would increase. C) supply curve would shift to the right. D) demand curve would shift to the left. Refer to the above diagram illustrating a market for pollution rights in which government has fixed the supply of rights at 1,000 tons.If the demand for pollution rights were to increase as a result of economic growth,the:


A) volume of pollutants discharged would increase.
B) price of pollution rights would increase.
C) supply curve would shift to the right.
D) demand curve would shift to the left.

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

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Most economists believe that:


A) all spillover costs should be eliminated.
B) the control of spillovers is costless.
C) spillover costs do not cause a misallocation of resources.
D) spillover costs should be considered in determining optimal output.

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

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Graphically,if the supply and demand curves are linear,consumer surplus is measured as the triangle:


A) under the demand curve and below the actual price.
B) under the demand curve and above the actual price.
C) above the supply curve and above the actual price.
D) above the supply curve and below the actual price.

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

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Which of the following statements is correct about measuring collective demand for public and private goods?


A) Public good demand is found by horizontally adding individual demand curves;private good demand is found by vertically adding individual demand curves.
B) Private good demand is found by horizontally adding individual demand curves;public good demand is found by vertically adding individual demand curves.
C) Both public and private good demand are found by horizontally adding individual demand curves.
D) Both public and private good demand are found by vertically adding individual demand curves.

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

Correct Answer

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