Price Theory and Resource Allocation

Question 1

An example of common resource is
a. fish in the ocean
b. the Ambassador Bridge
c. air traffic control
d. national defence
e. the internet

Answer 1

a fish in the ocean

Question 2

Minimum differentiation among the political parties suggest that
a. platforms of parties tend to have few new ideas
b. parties offer few ideas on minimizing size and scope of government
c.

Answer 2

the platforms of the parties will tend to become similar as they try to appeal to a majority of voters

Question 3

When the production of a good has an external cost, the equilibrium quantity

Answer 3

in an unregulated, competitive market has a marginal social cost greater than the marginal social benefit

Question 4

When a good is rival and excludable, it is a

Answer 4

private good

Question 5

All of the following statements regarding rational ignorance are true except

Answer 5

It leads to an efficient outcome

Question 6

Governments provide public goods such as national defence because

Answer 6

of the** free-rider problem** which results in underproduction by private firms

Question 7

The figure shows the private marginal cost curve, the social marginal cost curve, and the market demand curve. If the market is unregulated, then the** quantity produced** is

Answer 7

Q3

Question 8

The figure shows the private marginal cost curve, the social marginal cost curve, and the market demand curve. If the market is unregulated, then at the equilibrium output the marginal social cost of production is

Answer 8

greater than the marginal benefit to consumers

Question 9

One way to solve negative externality problems is

Answer 9

issue marketable permits to polluting firms

Question 10

Which of the following is NOT a statutory intellectual property right?

Answer 10

trade secrets

Question 11

Common resources are overused because

Answer 11

the marginal social benefit is not taken into consideration by producers

Question 12

Which of the following achieves the efficient use of a common resource?

Answer 12

property rights, quotas, and individual transferable quotas

Question 13

Which one of the following goods is nonexcludable?

Answer 13

the atmosphere

Question 14

Effective strategies for addressing the problem of negative externalities include

Answer 14

imposing taxes on the activity that generates the pollution

Question 15

An example of an activity that creates a positive consumption externality is

Answer 15

flu vaccination

Question 16

Refer to figure. The unregulated outcome in the paper market is

Answer 16

a quantity of 50 tonnes and a price of $12 a tonne

Question 17

Figure 4 shows the demand curve, the marginal private cost curve, and the marginal social cost curve of good. A. production of the 6th unit of output generates a marginal external

Answer 17

cost of $3

Question 18

One way to alleviate the tragedy of the commons is to

Answer 18

make the resource private property

Question 19

When the marginal social cost of the production of Good A is greater than the marginal private cost of the production of Good A, then

Answer 19

a competitive, unregulated market produces more than the efficient quantity of Good A

Question 20

The tragedy of the commons refers to

Answer 20

the absence of incentives to prevent the oversue and depletion of a commonly used resource

Question 21

A public good is

Answer 21

nonrival and nonexcludable

Question 22

An economy’s marginal social benefit curve for a private good is obtained by summing the individual marginal

Answer 22

benefit curves horizontally

Question 23

Suppose Brian Adams wants to perform a concert in the City Park in Corner Brook Newfoundland. The city officials argue that the only way the concert can be given permission to be performed in the City Park is if it is free of charge. If Brian Adams agrees to performing free of charge, then the concert is

Answer 23

Nonexcludable

Question 24

A well-maintained water-fromt property that is enjoyed by other property owners is an example of

Answer 24

a positive consumption externality

Question 25

In the equilibrium for a common resource with no government regulation

Answer 25

marginal private benefit equals marginal cost

Question 26

For a private good, the economy’s marginal social benefit curve is the ___ sum of the individual marginal benefit curves and for a public good, the economy’s marginal social benefit curve is the ___sum of the individual marginal benefit curves

Answer 26

horizontal; vertical

Question 27

An externality is defined as

Answer 27

a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer

Question 28

The average total cost curve for a knowledge-based firm is

Answer 28

U shaped

Question 29

According to public choice theory, a voter will favour a candidate whose political program is

Answer 29

perceived by the voter to be in his self-interest

Question 30

Public choice theory predicts that

Answer 30

voters are rationally ignorant