Chapter 5 Review Questions

Chapter 5 Review Questions - Principles of Microeconomics...

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Principles of Microeconomics Chapter 5 Review Questions 1. Negative externalities arise: A) when firms pay more than the opportunity cost of resources. B) when the demand curve for a product is located too far to the left. C) when firms "use" resources without being compelled to pay for their full costs. D) only in capitalistic societies. Answer: C 2. Positive externalities benefits refer to: A) benefits that accrue to parties other than the producer and buyer of a good. B) the benefits that resource suppliers obtain from the production and sale of a good. C) the benefit that a consumer receives from buying a good. D) the combined benefits that buyer and seller receive from a voluntary market transaction. Answer: A 3. An external cost or external benefit is also known as a(n): A) marginal benefit. B) principal-agent problem. C) transfer payment. D) externality. Answer: D 4. When externalities cause substantial positive benefits for third parties, a competitive market: A) underallocates resources to the production of the good. B) overallocates resources to the production of the good. C) is allocatively efficient. D) compensates people for the value of the benefits that these third parties receive. Answer: A 5. Suppose the production of a certain good creates substantial positive externalities. If government adopts a policy that adjusts demand to take these benefits into account, then: A) firms in this industry will go out of business. B) the output of the product will increase. C) the output of the product will decrease. D) the price of the product will decrease. Answer: B 6. If an industry creates externalities so that resources are overallocated to the industry: A) a principal-agent problem must be present. B)
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This note was uploaded on 02/09/2010 for the course ECON 112 taught by Professor Sam during the Spring '10 term at UCLA.

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Chapter 5 Review Questions - Principles of Microeconomics...

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