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University of Washington - Department of Economics Econ200N - Introduction to Microeconomics (Winter 2010) Second Exam Questions - Test Version B (February 17, Wednesday, 7-8:30pm) 1. In the absence of externalities, the ''invisible hand'' leads a market to maximize A) producer profit from that market. B) total benefit to society from that market. C) both equality and efficiency in that market. D) output of goods or services in that market. 2. When externalities are present in a market, the well-being of a market participants A) and market bystanders are both directly affected. B) and market bystanders are both indirectly affected. C) is directly affected, and market bystanders are indirectly affected. D) is indirectly affected, and market bystanders are directly affected. 3. Private markets fail to account for externalities because A) externalities don't occur in private markets. B) sellers include costs associated with externalities in the price of their product. C) decisionmakers in the market fail to include the costs of their behavior to third parties. D) the government cannot easily estimate the optimal quantity of pollution. 4. Which of the following is NOT an example of a negative externality? A) air pollution from a manufacturing plant. B) disrupted sleep from a neighbor's loud music. C) an illness caused by secondhand cigarette smoke. D) a decrease in your property value from neglecting your lawn and garden. 5. A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the A) supply curve for paper would shift to the right. B) supply curve for paper would shift to the left. C) demand curve for paper would shift to the right. D) demand curve for paper would shift to the left. 6. Which of the following is true of markets characterized by positive externalities? A) Social value exceeds private value, and market quantity exceeds the socially optimal quantity. B) Social value is less than private value, and market quantity exceeds the socially optimal quantity. C) Social value exceeds private value, and market quantity is less than the socially optimal quantity. D) social value seldom exceeds private value; therefore, social quantity is less than private quantity. 7. Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? A) The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. B) The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs.... View Full Document

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