Pre-Test Chap 16 e18 Student: ___________________________________________________________________________ 1. Which would be considered an example of adverse selection? A. Malpractice insurance may increase the amount of malpractice B. Drivers may be less cautious because they have airbags installed in a car C. Those individuals who most need insurance are the ones most likely to buy it D. A work contract that gives a set number of sick days may encourage workers to claim they are sick more often 2. Which produces market failure problems in private markets? A. The maximization of consumer satisfaction B. Positive and negative externalities C. Allocative efficiency D. Productive efficiency 3. Refer to the above supply and demand graph for a public good. Line segment ad represents the amount at Q 1by which the: A. Marginal benefit of this public good is less than the marginal cost B. Total benefit of this public good is less than the total cost C. Marginal benefit of this public good is greater than the marginal cost D. Total benefit of this public good is greater than the total cost 4. Public goods differ from private goods in two ways. What are the two characteristics that differentiate public goods from private goods? A. Asymmetric information and moral hazard B. The Coase theorem and adverse selection C. Negative externality and positive externality D. Nonrivalry and nonexcludability
5. The moral hazard problem arises primarily because of: A. Individual bargaining B. Negative externalities C. Asymmetric information D. Poorly defined property rights 6. 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. The amount of the subsidy to be given to producers to correct this externality problem would be: A. AB B. GH C. EF D. IJ 7. By how much in degrees Fahrenheit has the earth's surface warmed over the last century? A. 0 degrees B. 1 degree C. 2 degrees D. 3 degrees
8. Suppose consumers do not know the safety risks associated with a particular good, and that the free-market equilibrium is at E as shown in the diagram above. If an agency now provides information about the harmful characteristics of the product, then: A. The supply curve will shift to the left B. The supply curve will shift to the right C. Both the new equilibrium price and quantity will be lower D. The new equilibrium price will be higher but the equilibrium quantity will be either higher or lower 9. Refer to the above supply and demand graph. In the graph, point
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