Chapter 16 QUIZ ANSWERS

Chapter 16 QUIZ ANSWERS - Chapter 16 QUIZ ANSWERS Public...

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Chapter 16 QUIZ ANSWERS Public Goods, Externalities, and Information Asymmetries
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1. The two main characteristics of a public good are: A. production at constant marginal cost and rising demand. B. nonexcludability and production at rising marginal cost. C. nonrivalry and nonexcludability. D. nonrivalry and large negative externalities. 2. 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. 3. Which of the following is an example of a public good? A. a weather warning system B. a television set C. a sofa D. a bottle of soda 4. The market system does not produce public goods because: A. there is no need or demand for such goods. B. private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them. C. public enterprises can produce such goods at lower cost than can private enterprises. D. their production seriously distorts the distribution of income. 5. Because of the free-rider problem: A. the market demand for a public good is overstated. B. the market demand for a public good is nonexistent or understated. C. government has increasingly yielded to the private sector in producing public goods. D. public goods often create moral hazard and adverse selection problems. 6. 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. 7. 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: A. $25. B. $15. C. $60. D. $300.
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8. Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the 1st unit of this public good is: A. $18. B. $14. C. $10. D. $6.
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9. Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be: A. 1 unit. B.
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This note was uploaded on 10/03/2010 for the course ECON 0453 taught by Professor Dongwahu during the Spring '09 term at Shoreline.

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Chapter 16 QUIZ ANSWERS - Chapter 16 QUIZ ANSWERS Public...

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