King: Economics Chapter 13 Instructions Answer the following questions and then press 'Submit' to get your score. Question 1 A drunken passenger on a train sets off the alarm for no good reason, and the train comes to a halt. There is then a long delay before it sets off again. This delights a small boy who enjoys the kerfuffle, but it irritates the other passengers and holds up a freight train behind. Which of the following externalities from consumption has the passenger not created? a) An external benefit to consumers. b) An external cost to consumers. c) An external benefit to producers. d) An external cost to producers. Question 2 Suppose both the production and the consumption of a product generate externalities. At which of the following outputs would output be at the Pareto-efficient level. a) Where marginal private cost equals marginal private benefit. b) Where marginal private cost equals marginal social benefit. c) Where marginal social cost equals marginal private benefit. d) Where marginal social cost equals marginal social benefit. Question 3 Suppose a large city has several power stations which all emit CO2. The government wants to reduce CO2 emissions, but knows that it will cost some power stations more than others to reduce their emissions. In order to secure the most reduction from the stations which would find it cheapest to cut back, which of the following policies would be best? a) A regulation limiting how much CO2 a power station can emit per megawatt of electricity generated. b) A tax on electricity. c) A tax on emissions of CO2. d) Giving power stations the property right to emit CO2, and relying on people affected to bribe them to cut back. Question 4 Return to the city in the last question. Suppose the government wishes to reduce CO2 emissions but does not want to measure them. Which of the following policies would be best? a) A regulation limiting how much CO2 a power station can emit per megawatt of electricity generated. b) A tax on electricity. c) A tax on emissions of CO2. d) Giving power stations the property right to emit CO2, and relying on people affected to bribe them to cut back. Question 5 Which of the following statements is true? a) When Wimbledon's Centre Court has the legal maximum number of 15,000 spectators, watching a match there is non-rival because so many people are watching it. b) A tennis racket is non-rival, because one person can use it today while another can use it tomorrow. c) All motorways are excludable, because people could be charged tolls for using them. d) National Health Service hospitals are non-excludable, because patients are not charged for using them. Question 6 Which of the following statements is true?1. A common resource is rival and non-excludable.2. A public good is non-rival and non-excludable. a) Both 1 and 2 b) 1 only c) 2 only d) Neither 1 nor 2 Question 7 Consider a fishing ground. Which of the following statements is false? a) The fish may be driven to extinction. b) The efficient yield may be more than the maximum sustainable yield. c) More boats may fish in it than are needed for the maximum sustainable yield. d) Fewer boats may fish in it than are needed for the maximum sustainable yield. Question 8 Which of the following problems may be caused by asymmetric information?1. It may lead to an adverse selection of used cars being offered for sale.2. It may lead to an adverse selection of borrowers applying for loans at a bank.3. It may lead to an adverse selection of drivers applying for comprehensive car insurance. a) 1 and 2 and 3 b) 1 and 2 only c) 1 and 3 only d) 2 and 3 only Question 9 Which of the following statements is false? a) Investing in pension schemes may be regarded as a merit good because many people underestimate the need to save for retirement. b) Controlled substances may be seen as demerit goods because people may become addicted to them, despite the damage to their health. c) If healthcare was provided by private suppliers, and people financed it by taking out private insurance, then unhealthy people might end up facing the highest premiums. d) It is fair for students to meet the full cost of higher education, because they get all the benefits. Question 10 Which of the following statements is false? a) The median voter theorem states that competing parties select their policies on any issue to meet the preferences of the median voter on that issue. b) It is rational for voters to be ignorant. c) Bureaucrats may push for government spending at levels above the efficient level. d) Rent-seekers may push for government spending at levels below the efficient level.