Quiz 5 of ECON251 Purdue University In Tutorial Library

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TITLE: Quiz 5 of ECON251 Purdue University


CLASS / COURSE: ECON 25100: Microeconomics


Quiz 5 (Chapter 5)
1. Economists consider governments to be "wasteful:" 
 A. whenever they over- or underallocate resources to a project.    
B. only when they overallocate resources to a project.  
C. only when they underallocate resources to a project.  
D. whenever they attempt to correct a market failure.  
2. (Consider This) According to the Coase theorem: 
A. government should levy excise taxes on firms that generate spillover or external costs.  
B. taxes should be levied such that they change private behavior as little as possible.  
 C. private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.    
D. private firms should not provide public goods.  
3. Public goods are those for which there: 
A. is no free-rider problem.  
B. are no externalities.  
 C. is nonrivalry and nonexcludability.    
D. is rivalry and excludability.  
4. Consumer surplus: 
 A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.    
B. is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.  
C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.  
D. rises as equilibrium price rises.  
5. The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of: 
A. increasing costs.  
 B. diminishing returns.  
C. diminishing marginal utility.    
D. conservation of matter and energy.  
6. People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a: 
A. negative externality  
B. supply-side market failure  
 C. demand-side market failure    
D. government failure  
7. If a good that generates positive externalities were produced and priced to take into account these spillover benefits, then its: 
 A. price and output would increase.    
B. output would increase but price would remain constant.  
C. price would increase and output would decrease.  
D. price would increase but output would remain constant.  
8. A producer's minimum acceptable price for a particular unit of a good: 
A. is the same for all units of the good.  
B. will, for most units produced, equal the maximum that consumers are willing to pay for the good.  
 C. equals the marginal cost of producing that particular unit.    
D. must cover the wages, rent, and interest payments necessary to produce the good, but need not include profit.  
9. 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.  
10. If one person's consumption of a good does not preclude another's consumption, the good is said to be: 
 A. nonrival in consumption.    
B. rival in consumption.  
C. nonexcludable.  
D. excludable.  
11. From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically: 
A. generates more of a benefit than it costs to produce.  
B. produces a benefit exactly equal to the cost of producing the last unit.  
C. maximizes the net benefit to society.  
 D. costs more to produce than it provides in benefits.    
12. At the optimal quantity of a public good: 
A. marginal benefit exceeds marginal cost by the greatest amount.  
B. total benefit equals total cost.  
 C. marginal benefit equals marginal cost.    
D. marginal benefit is zero.  
13. Unlike a private good, a public good: 
A. has no opportunity costs.  
 B. has benefits available to all, including nonpayers.    
C. produces no positive or negative externalities.  
D. is characterized by rivalry and excludability.  
14. Alex, Kara, and Susie are the only three people in a community and Alex is willing to pay $20 for the 5th unit of a public good; Kara, $15, and Susie, $25. Government should produce the 5th unit of the public good if the marginal cost is less than or equal to: 
A. $25.  
B. $15.  
 C. $60.    
D. $300.  
15. Market failure is said to occur whenever: 
 A. private markets do not allocate resources in the most economically desirable way.    
B. prices rise.  
C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay.  
D. government intervenes in the functioning of private markets.  
16. (Consider This) Suppose that Susie creates a work of art and displays it in a public place. Economists would expect: 
A. those enjoying the art to contribute money to compensate Susie for her costs.  
 B. those enjoying the art to "free ride" since they cannot be made to bear any of the cost.    
C. government to tax those entering the public place in order to pay Susie for her efforts.  
D. imperfect information to lead some to pay Susie while others do not.  
17. Refer to the above diagram. If actual production and consumption occur at Q1: 
A. efficiency is achieved.  
B. consumer surplus is maximized.  
 C. an efficiency loss (or deadweight loss) of b + d occurs.    
D. an efficiency loss (or deadweight loss) of e + d occurs.  
18. Refer to the above diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is: 
A. a + b + c + d + e + f.  
B. c + d + f.  
C. a + b + e.  
 D. a + b + c + d.    
19. The following data are for a series of increasingly extensive flood control projects:
Refer to the above data. On the basis of cost-benefit analysis government should undertake: 
A. Plan D.  
B. Plan C.  
 C. Plan B.    
D. Plan A.  
20. Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.
On the basis of the above 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.  

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