Name __________________________________ ID# _______________________Your TA ________________________________Instructor: Vijaya SharmaPrinciples of Microeconomics, Econ 2010, University of Colorado, Summer 2000Exam 4Answer all 18 multiple-choice questions.1. Consider two goods  one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce: a. Too much of both goods.b. Too little of both goods.c. Too much of the good that generates external benefits, and too little of the good that generates external costs.d. Too little of the good that generates external benefits, and too much of the good that generates external costs.2. Which of the following provide an example of a "spillover" effect or "externality"? a. The air pollution you generate when you drive your car. b. The good smells and attractive appearance passersby enjoy from a rose garden. c. The free concerts neighbors receive when an accomplished musician practices at home.d. All of the above.3. The reason why pollution control costs are lower with emission taxes than with uniform command-and-control policies is that a. large polluters clean up the most, which is always the lowest cost.b. all firms reduce pollution equally and fairly.c. firms that are able to clean up at lowest cost do so; others pay taxes.d. small polluters clean up the most, which is generally the cheapest.4. If education of citizens provides spillover benefits to society, citizens in a market economy would acquirea. less than efficient levels of education.b. more than efficient levels of education.c. efficient levels of education.d. how much education is unclear.5. Which is an example of a pure public good?a. Telephone serviceb. National defensec. city bus serviced. electricity generated by a city-owned public utility6. When once provided to one person, what is the marginal cost of providing a pure public good to another person? a. negativeb. zeroc. positived. unknownS + external costs = MSCPrice a S=MPC b c Figure 1 d D 0 Q1 Q2 Quantity Note: If Figure 1 does not show up in the html file, draw yourself using the following information. Draw a graph with quantity in the horizontal axis and price in the vertical axis. Draw a downward-sloping demand curve (D) and an upward-sloping supply curve (S=MPC). Let the two curves (D and S) intersect at quantity Q2 (write Q2 in the horizontal axis), and label the intersection point as c. Draw another upward-sloping curve, above and parallel to the S-curve, and label this curve (S+external costs=MSC). Let the MSC curve intersect D-curve at b, and let the corresponding quantity in the horizontal axis be Q1 (to the left of Q2). Draw a vertical dotted line from b to Q1 and label its intersection with S-curve as Point d. Also draw a vertical dotted line from c to Q2 and extend the line to intersect the MSC-curve at Point a. 7. See Figure 1. Which of the following correctly identifies efficient level of production of a good with negative externality and welfare loss associated with market level of production?a. Efficient level: Q1, Welfare loss with market level: abcb. Efficient level: Q1, Welfare loss with market level: bdcc. Efficient level: Q2, Welfare loss with market level: bdcd. Efficient level: Q2, Welfare loss with market level: abc8. Consumption by all without depleting the goods and inability to exclude nonpaying consumers from using the goods are characteristics of what kinds of goods?a. durableb. nondurablec. privated. public9. Where a free rider problem exists, goods tend to bea. under produced.b. over produced.c. available only to the rich.d. available only to the poor.10. Public choice theory assumes that voters and politicians are likely to be influenced bya. personal self-interest.b. altruism.c. public interest only.d. none of the above.11. How does the rational ignorance effect influence the decision making of voters? a. It causes them to be uninformed on many issues.b. It causes them to expand their knowledge on a range of issues.c. It causes people to be ignorant of the potential private gains attainable through thepolitical process.d. It causes people to vote for the front-running candidate since, presumably, more informed people favor the front runner.12. Which is correct of a special interest issue? a. Both benefits and costs are shared among large population.b. Both benefits and costs are shared among a small number of people.c. Benefits are shared among large population, but costs are borne by a small number of people.d. Benefits are shared among a small number of people, but costs are borne by a large population.13. According to the Coase theorem, granting private property rights over an environmental resource and leaving the owner and potential users of the resource to negotiate can lead to efficient level of pollution whena. property rights are well defined and enforceable.b. all benefits and costs of owning the resource goes exclusively to owner and owneronly.c. bargaining or negotiation costs are small.d. all of the above are true.14. When labor is the only variable input, a profit-maximizing firm would layoff workers when a. MRP>wage rate. b. MRP<wage rate. c. MRP = wage rate. d. none of the above.15. With improvement in labor productivity (marginal product of labor), a profit-maximizing firm is likely to a. hire additional workers.b. layoff workers.c. keep the same number of workers.d. do any of the above.16. According to the backward-bending labor supply curve, a. labor supplied always increases with increase in wage rate.b. labor supplied always decreases with increase in wage rate.c. labor supplied always remains unchanged with increase in wage rate.d. labor supplied may increase or decrease or remain unchanged, depending upon relative strength of substitution effect vis-à-vis income effect of wage increase.17. Which is correct about rent? a. Price of input in fixed supply.b. Increase in rent does not increase quantity supplied of input.c. Demand determines rent.d. All of the above18. An act that imposes a ceiling on interest rate in a loanable funds market is likely to result ina. efficient level of lending and borrowing.b. surplus loanable funds.c. shortage of loanable funds.d. no surplus, no shortage of loanable funds.Answer Key (Principles of Microeconomics, Summer 2000, Exam 3)1d, 2d, 3c, 4a, 5b, 6b, 7a, 8d, 9a, 10a, 11a, 12d, 13d, 14b, 15a, 16d, 17d,