Question

13.  Which of the following is not a public good?

            A. Health care

            B. Street lighting

            C. National defense

            D. Environmental protection

15.  Whenever a good exhibits a positive externality in a market with no government interference:

            A.  there is an overallocation of that good.

            B.  there is an underallocation of that good.

            C.  the free market outcome is socially optimal.

            D.  the free rider problem is prevalent.

16.  What is the best policy to deal with the production of a good with a negative externality that is produced and consumed by many different entities?

            A.  Private negotiation and bargaining

            B.  Dissemination of information

            C.  Cap-and-trade program (permits to pollute)

            D.  Pigouvian tax

17.  The graph of perfectly inelastic demand is represented by:

            A.  a vertical line.

            B.  a horizontal line.

            C.  a line bowed out from the origin.

            D.  None of the above.

Answer 1

13.  Which of the following is not a public good?

            A. Health care

            B. Street lighting

            C. National defence

            D. Environmental protection

Health care is not a public good because those who don't pay don't get to consume it.

14.  Refer to the above graph. If the demand increased:

A.  price and quantity would increase

B.  price and quantity would decrease

C.  price would stay the same and quantity would decrease

D.  price would stay the same and quantity would increase

You didn't mention the diagram if the supply curve is upward sloping then demand increase would lead to more price and more quantity.

15.  Whenever a good exhibits a positive externality in a market with no government interference:

A.  there is an overallocation of that good.

   B.  there is an under allocation of that good.

   C.  the free market outcome is socially optimal.

   D.  the free-rider problem is prevalent.

because if there is positive externalities the marginal social benefit is more than the marginal private benefit. hence allocation is based on private benefits hence the under allocation will happen.

16.  What is the best policy to deal with the production of a good with a negative externality that is produced and consumed by many different entities?

            A.  Private negotiation and bargaining

            B.  Dissemination of information

            C.  Cap-and-trade program (permits to pollute)

            D.  Pigouvian tax

Pigouvian tax will set the quantity produced at the socially optimal level if it is levied according to the marginal external cost.

17.  The graph of perfectly inelastic demand is represented by:

            A.  a vertical line.

            B.  a horizontal line.

            C.  a line bowed out from the origin.

            D.  None of the above.

vertical demand curve means quantity will not change even if the price changes indefinitely hence it will mean that demand is not responsive of the price hence the inelastic demand.