Question 1

The First Fundamental Theorem of Welfare Economics states that:

Group of answer choices

1. in a competitive equilibrium, when demand equals supply, social efficiency is maximized
2. social efficiency can never be attained by government intervention
3. the government must always intervene whenever there is a market failure
4. free and private negotiations between two parties can reduce externalities

Question 2

Any expenditure or spending by the government is primarily financed through which of the following:

Group of answer choices

1. proceedings from private sales
2. altruism
3. donations
4. tax revenue

Question 3

A government entity often intervenes in a free market with the intention of:

1. addressing market failures
2. creating negative externalities
3. providing every single good to its residents
4. achieving perfect competition in the market

Question 4

Which of the following isNOTan assumption that is required for the First Fundamental Theorem of Welfare Economics to hold?

1. All producers and consumers are "price takers"
2. Each economic agent has perfect information
3. A market exists for each and every commodity
4. The consumers need to be homogeneous in their purchasing power

Question 5

In a private market, apositive production externalitywill lead to __________:

Group of answer choices

1. SMC > PMC
2. SMC < PMC
3. SMC = PMC
4. SMB < PMB

Question 6

In any negative consumption externality, the benefit to society (or the social benefit) is much greater than any private benefit.

Group of answer choices

1. True
2. False

Question 7

_____________ tend to reduce the price for private sales or purchases of those goods that are underproduced and could be used by the government to encourage more consumption.

Group of answer choices

1. Tariffs
2. Public goods
3. Subsidies
4. Taxes

Question 8

The type of effects of government intervention that arise due to individuals changing their behavior in response to the interventions are known as ____________.

Group of answer choices

1. indirect effects
2. direct effects
3. suboptimal effects
4. desired effects

Question 9

When social efficiency in an economy is completely maximized, we have:

Group of answer choices

1. reduced deadweight loss
2. average deadweight loss
3. maximum deadweight loss
4. the absence of deadweight loss

Question 10

In the area of mitigating externalities, when is quantity restriction or regulation directed at production plants, by the government, likely to not be very effective?

Group of answer choices

1. when some plants find it more efficient to reduce pollution compared to other plants
2. when each plant is identical in every single respect
3. when each plant can reduce pollution by the same quantity
4. none of these options

Question 11

In any Pigouvian taxation, the tax on the producer (that causes negative production externalities) must equal:

Group of answer choices

1. the demand curve
2. the marginal damage
3. the private marginal cost
4. the social marginal cost

Question 12

In a negative production externality, we maintain that PMB = D = SMB because:

Group of answer choices

1. the government only cares about the supply side of the market
2. the consumers of the product remain unaffected
3. no producer actually cares about any consumers
4. none of these options

Question 13

In order to achieve maximized total social welfare, one must equate ________ with ________.

Group of answer choices

1. social marginal benefit; social marginal cost
2. total social benefit; total social cost
3. private marginal benefit; private marginal cost
4. social marginal benefit; private marginal cost

Question 14

When an individual's consumption activity increases the well being of others, but the individual is not compensated by those others, we have a ____________________.

Group of answer choices

1. Positive consumption externality
2. Negative production externality
3. Positive production externality
4. Negative consumption externality

Question 15

In a private market, a positive production externality will lead to SMC being greater than PMC.

Group of answer choices

1. True
2. False

Question 16

Which of the following relates to the trade off between equity and efficiency?

Group of answer choices

1. policies that promote equity often come at the cost of decreased efficiency
2. policies that promote efficiency often result in increased equity.
3. policies that promote equity often come at the cost of increased efficiency

Question 17

Whenever there is a negative production externality:

Group of answer choices

1. the private cost curve is higher than the social cost curve at every unit produced in the market
2. the social cost curve is equal to the private cost curve at every unit produced in the market
3. the social cost curve is higher than the private cost curve at every unit produced in the market

Question 18

Social welfare (or the level of well being in society) is determined by both how much gets produced in an economy and how that is distributed in the economy.

Group of answer choices

1. True
2. False

Question 19

Which of the following is not a practical problem attached to Coasian solutions?

Group of answer choices

1. free rider problem
2. crowding out
3. holdout problem
4. assignment problem

Question 20

In the presence of a positive production externality, ________ is produced in the private market relative to the optimal level for society.

Group of answer choices

1. any of these can be true.
2. the right amount
3. too little
4. too much

Question 21

Suppose the government taxes the rich to distribute money to the poor. Which of the following is an example ofan indirect effect?

Group of answer choices

1. Rich people take home less of the money from their jobs because of the tax.
2. Rich people reduce their work efforts because of the tax.
3. Poor people are better off because of the redistribution.
4. Poor people work just as hard because they still need to make ends meet.

Question 22

Producer surplus can be defined as the difference between:

Group of answer choices

the supply curve and the demand curve

the supply curve and the price of the good.

the demand curve and the price of the good.

the price charged by sellers and the price paid by buyers.

Question 23

Coasian solutions often cannot help with large-scale, global externalities involving millions of agents because of the practical issues surrounding ____________.

Group of answer choices

1. private negotiations
2. government regulation
3. water shortage
4. human capital

Question 24

When the government uses taxes or subsidies to intervene in a market, it is operating through _______________________.

Group of answer choices

1. public financing of private provision
2. the price mechanism
3. mandates
4. public provision

Question 25

When it comes to externalities, the free market generally ignores any kind of_____________ that the private production or the consumption process creates per unit of activity.

Group of answer choices

1. private costs
2. marginal damage
3. negotiations
4. marginal utility

Question 26

Pigouvian taxes (or corrective taxation) internalizes the externality by increasing the _______________and thus removing the inefficiency of the negative production externality.

Group of answer choices

1. private marginal cost
2. price of the good
3. social marginal cost
4. social marginal benefit

Question 27

In aprivate market, when PMC = PMB, the equilibrium quantity of a good will be produced.

Group of answer choices

1. True
2. False

Question 28

In anyconsumption externality, we always assume that _______________ because there are no externalities of production.

Group of answer choices

1. PMB = SMB
2. PMC = SMC
3. PMC > SMC
4. PMC < SMC

Question 29

If several individuals have shared property rights, then that gives each owner power over all the others. Each person has some amount of veto power and could demand enormous payments and break down negotiations. This is the _______________ problem when it comes to Coasian solutions.

Group of answer choices

1. holdout
2. free rider
3. corrective
4. assignment

Question 30

The Second Fundamental Theorem of Welfare Economics states that society can attain any socially efficient outcome by suitably redistributing resources among individuals and then allowing them to trade freely.

Group of answer choices

1. True
2. False

Question 31

Suppose you hear someone argue that the proper role of government is toincrease the size of the pie. Which justification for government intervention in the economy is this person referring to?

Group of answer choices

1. promoting social justice
2. preventing competition
3. improving efficiency
4. increasing equality in the economy

Question 32

With respect to solving a problem of a negative externality, the assignment problem could generally refer to the difficulty in determining who:

Group of answer choices

1. is unaffected by an externality.
2. is to blame for an externality.
3. who has not contributed to a public good
4. to tax or subsidize.

Question 33

Social efficiency consists of which of the following:

Group of answer choices

1. all the revenue extracted from sales tax
2. the sum of consumer and producer surplus
3. the total demand and supply of a good in the market
4. the sum of private marginal cost and marginal damage

Question 34

A problem that causes the market economy to deliver an outcome that does not maximize social efficiency is called a(n):

1. market failure
2. social welfare
3. externality
4. internality

Question 35

Social marginal cost is the private marginal cost to producers plus any costs associated with the production of the good that are imposed on others. These additional costs imposed on others are also called:

1. financial costs
2. fixed costs
3. external costs
4. sunk costs