Chapter 9 Market Failure: Imperfect Information, External Benefits, and External Costs

| November 9, 2018

29)
An external benefit is the benefit experienced by people who
A)
do not decide how much of the good to produce or consume.
B)
did not know why they are experiencing the benefit.
C)
decide how much of the good to produce or consume.
D)
consume the good.

30)
The free-rider problem implies that
A)
each person will pay the full cost of the public good.
B)
nobody wants the public good.
C)
everybody will pay a portion of the cost of the public good.
D)
each person will try to benefit from the public good without paying for it.

31)
When people try to benefit from a public good without paying for it we call it
the
A)
free-rider problem.
B)
duopolists’ dilemma.
C)
public goods problem.
D)
taxation problem.

32)
The free-rider problem occurs for
A)
private goods and public goods.
B)
private goods but not public goods.
C)
public goods but not private goods.
D)
neither public nor private goods.

33)
The free-rider problem arises because
A)
once provided, a public good is available to all regardless of whether they
paid for it.
B)
poor people cannot afford to contribute to public goods.
C)
enforcement of tax laws is inadequate.
D)
people disagree with how the government spends it s money.

34)
Suppose 100 townspeople value a statue of the local hero at $1 each, and
construction of the statue would cost $90. Which of the following is true:
A)
It would be efficient to build the statue, but it may not be built because some
of the townspeople who value the statue will not contribute to its
construction.
B)
It would be efficient to build the statue and it will be built because at least
ninety of the townspeople will contribute to its construction.
C)
the statue will not be built because it is not efficient to build a statue that
costs $90 if the townspeople value it at only $1.
D)
the statue will not be built because the local government does not have the
power to tax only those who value it.

35)
When the government provides a public good by taxing citizens and using tax
money to provide the good
A)
the result is efficient if the total value of the public good is greater than
the cost of providing it.
B)
the result is inefficient because the government is an inefficient provider of
goods and services.
C)
the result is inefficient because if it were efficient the good would have been
provided in a free market.
D)
the result is efficient only if voters specifically agreed to provision of that
good.

36)
During pledge week your local public television station asks viewers to
contribute to the station. People who watch public television but do NOT
contribute are
A)
free-riding.
B)
engaged in moral hazard.
C)
those who do not value public television.
D)
causing adverse selection.

37)
Which of the following is likely to overcome the free-rider problem?
A)
offer people a private gift for contributing
B)
arrange for matching contributions
C)
appeal to peoples’ sense of civic or moral responsibility
D)
all of the above

38)
Which of the following is least likely to overcome the free-rider problem?
A)
offer people a private gift for contributing
B)
arrange for matching contributions
C)
appeal to peoples’ sense of civic or moral responsibility
D)
maintain anonymity of contributions

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