1) An example of a negative externality is the:
A. decrease in your real income that results when photographic equipment you purchase increases in price because of increased demand by others for these items.
B. cost you bear when your neighbor has a noisy party and does not compensate you for your discomfort.
C. benefit you receive without paying when your neighbor installs a smoke detector.
D. decrease in income to farmers that results from a drought.
2) Richard Vedder argues that the states that have spent the most on higher education in the past 25 years have experienced the least economic growth. One might conclude that higher education:
A. does not have important positive externalities.
B. does not have important negative externalities.
C. is a non-excludable service.
D. has problems of adverse selection
3) The inefficiency associated with negative externalities is most likely the result of:
A. special interest groups.
B. the fallacy of composition.
C.government intervention.
D.poorly specified property rights.
4) When positive externalities exist in the consumption of a good, the marginal social benefit:
A.equals the marginal benefit received by consumers of the good minus the marginal benefit to third parties.
B.equals the marginal cost of producing the good plus the marginal cost to third parties.
C.equals the marginal benefit received by consumers of the good plus the marginal benefit to third parties.
D.could be either greater than or less than the marginal benefit received by consumers of the good depending on the equilibrium price determined in competitive markets.
5) The best example of a public good is:
A.competition.
B.government-subsidized lunches.
C.pollution.
D.national defense
6) With regard to public goods provided by the government,
A.individuals reveal their demand when they buy the good.
B.a free rider problem is unlikely.
C.individuals have an incentive to conceal their willingness to buy the good.
D.individuals have an incentive to exaggerate their willingness to buy the good
7) If the benefit of a public good is small to each individual in a society of millions of individuals:
A.it will never be efficient for government to provide the public good.
B.the total benefit will be large since social benefit is the sum of all individual benefits.
C.the total benefit will be small since individuals cannot share the benefits of public goods.
D.it cannot really be a public good since the benefit of public goods is always large
9) Opponents of government intervention in the economy argue that government's attempts to correct informational problems:
A.are justified in most cases, though politically difficult to implement.
B.are not necessary since an efficiently operating market system ensures that adequate information will be provided.
C.often create greater problems, such as FDA restrictions on experimental drugs for AIDS which could save lives.
D. will make market transactions much more efficient.
10) Which of the following is not a question raised by critics of medical licensure?
A.Why, if licensed medical treatment is so great, do we even need formal restrictions to keep other types of medicine from being practiced?
B.Whom do these restrictions benefit: the general public or the doctors who practice mainstream medicine?
C.What have the long-run effects of licensure been?
D.Why does the public need to have accurate information about a doctor's competency?