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- 1. Multiple Choice
Society achieves allocative efficiency when
marginal social benefits > marginal social cost
marginal social benefits < marginal social cost
marginal social benefits = marginal social cost
marginal private benefits = marginal private cost
- 2. Multiple Choice
The price mechanism may allocate resources efficiently in the case of
public goods
private goods
non-excludable goods
non-rivalrous goods
- 3. Multiple Choice
Which of the following is not a cause of market failure?
the presence of common pool resources such as forests and oceans
the existence of public goods
the presence of externalities
the presence of maximum social surplus
- 4. Multiple Choice
An externality is present when
there is an efficient allocation of resources
the economy reaches an equilibrium when MSB = MSC
activities of producers and consumers prevent the economy from reaching an equilibrium
activities of producers and consumers affect the well being of third parties whose interests are not taken into account
- 5. Multiple Choice
A negative externality arising from the production of good Z leads to
an overallocation of resources to the production and consumption of good Z
an underallocation of resources to the production and consumption of good Z
higher costs of production for good Z
lower demand for good Z
- 6. Multiple Choice
Negative production externalities due to the use of fossil fuels arise because
the private costs of production are greater than the social costs
environmental regulations are strongly enforced
firms are not aware of environmental regulations
firms ignore the costs they impose on bystanders
- 7. Multiple Choice
Market-based policies to reduce the external costs arising from the use of fossil fuels do not include
tradable permits
carbon taxes
indirect taxes
collective self - governance
- 8. Multiple Choice
The use of cars usually leads to ________ because ________
negative production externalities / MSC < MPC
negative consumption externalities / MSC > MPC
positive consumption externalities / MSB > MPB
negative consumption externalities / MPB > MSB
- 9. Multiple Choice
Demerit goods are often _____________________ due to _____________________.
non-excludable / their high prices
underprovided by the market / positive consumption externalities
overprovided by the market / negative consumption externalities
underprovided by the market / negative production externalities
- 10. Multiple Choice
Negative consumption externalities are unlikely to be dealt with through the use of
indirect taxes
legislation
advertising
tradable permits
- 11. Multiple Choice
The positive externalities provided by education arise because
they give rise to incentives to labour to be more productive
free education is provided by the government
the private benefits of education are greater than the social benefits
the social benefits of education are greater than the private benefits
- 12. Multiple Choice
Which one of the following characterises a merit good?
It is non-rivalrous
It is always provided to low income consumers free of charge
It may be under-provided by the market
It is often provided by the government due to its non-excludability
- 13. Multiple Choice
Positive consumption externalities can be corrected by _____________________ and
_____________________.
subsidies to producers / indirect taxes on consumers
advertising to promote consumption of a product / indirect taxes on producers
advertising to promote consumption of a product / subsidies to producers or consumers
direct government provision / indirect taxes on consumers or producers
- 14. Multiple Choice
Public goods are
non-rivalrous
provided by the government
subject to free rider problem
all of the above
- 15. Multiple Choice
What do public goods and common pool resources have in common?
They are both non-rivalrous
They are both non-excludable
They are both free goods
They are both made available by the government
- 16. Multiple Choice
Common pool resources are resources that
having no ownership, are not sold in markets
are subject to overuse therefore leading to unsustainable development
are non-excludable therefore freely available for anyone to use
all of the above
- 17. Multiple Choice
Asymmetric information means that
the information of buyers and sellers is subject to uncertainties
buyers and sellers do not possess the same information
information is freely available
information is available at a price
- 18. Multiple Choice
Sustainability refers to the idea that
economic activity is not subject to ups and downs
future generations will have fewer resources with which to satisfy their needs
future generations will not have fewer resources with which to satisfy their needs
resources are used at a rate that leads to their depletion
- 19. Multiple Choice
Pigouvian taxes can be used to correct
positive consumption externalities
negative production externalities
positive production externalities
any kind of externality
- 20. Multiple Choice
Tradable permits have
perfectly inelastic supply
perfectly inelastic demand
perfectly elastic supply
perfectly elastic demand
- 21. Multiple Choice
Market-based policies used to correct externalities
rely on command approach
are based on the idea of collective self-governance
use advertising to create awareness
are based on the idea of changing incentives
- 22. Multiple Choice
The free rider problem occurs in regard to
free goods
private goods
demerit goods
public goods
- 23. Multiple Choice
Assume marginal social costs are higher than marginal private costs by $3 per unit produced, the optimal quantity is 8,000 units but the market produces 11,000 units. The welfare loss is. (HL)
4500
9000
33000
24000
- 24. Multiple ChoiceGovernment regulation may negatively affect businesses in the following ways byIncreasing input costsIncreasing profitsLowering consumer pricesAll of the above
- 25. Multiple ChoiceWhat does it mean to internalise an externality?Trade permits between firms until the externailty decreases to zero through an shift upwards of the MSC curve to intersect at the new optimal level of productionThe costs that were previously imposed on society are made internal because they are now paid for by the two parties to the transaction; the producers and the consumersThe costs that were previously imposed on society are made internal because they are now paid for by the producers entirelyThe costs that were previously imposed on society are made internal because they are now paid for by the consumers entirely
- 26. Multiple Choice
From an economic standpoint, government intervention is justified
When the private sector is larger than public sector.
Because the government will encourage the production of private goods.
Because the government can increase the level of market power of private businesses.
When the market mechanism fails to achieve the optimal mix of output.
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