Question

Question 9 (2.5 points)

Consider a good for which there is a positive externality. If this good were provided by the market, then

Question 9 options:

	1) trade would have to take place at a price of $0
	2) less than the efficient amount of the good would be traded
	3) every single unit of the good for which any consumer has a positive reservation price would be traded
	4) None of the above answers are correct

Question 10 (2.5 points)

If Nick drives less carefully after obtaining car insurance

Question 10 options:

	1) that person is feeling buyer's remorse
	2) the reason is adverse selection
	3) there are no information costs
	4) a moral hazard exists

Question 11 (2.5 points)

________is a good that is non-excludable and rival in consumption

Question 11 options:

	1) public good
	2) private good
	3) common good
	4) club good

Question 12 (2.5 points)

___________is a claim that the government should aim to maximize the well-being of the worst off person in society

Question 12 options:

	1) Utilitarian Justice.
	2) Labor Theory of Value
	3) Maximin Criterion
	4) None of the above answer is correct

Answer 1

9 )

Answer: (2)

Market does not take into account the prevailing Marginal external benefit. Thus, demand curve does not include marginal external benefit.

So market will under-produce.

10 )

Answer: (4)

Asymmetric information presence reduces the chances of detecting rash behavior of Nick. Nick behavior has changed after being insured. He has become more risky, so it is called moral hazard.

11)

Answer: (3)

Common goods are non-excludable but these are rival in consumption.

12)

Answer: (1)

Utilitarian justice advocates for development of all section of society.