1. Suppose a public good that is worth $1 billion is not produced by the market,
ID: 1101162 • Letter: 1
Question
1. Suppose a public good that is worth $1 billion is not produced by the market, so the government provides it, but at a cost of $3 billion. This attempt to correct a market failure has:
A. been successful since the public good is now produced.
B. given rise to the problem of free riders.
C. resulted in a government failure since use of resources is now less efficient.
D. resulted in an information asymmetry for the government.
2. When negative externalities exist in the production of a good, the marginal social cost of producing the good:
A. is equal to the marginal benefit received by consumers if competitive markets exist and there is no government intervention.
B. equals the marginal cost borne by the firm minus the marginal external cost resulting from the production and consumption of the good.
C. is less than the marginal cost borne by the firm.
D. equals the marginal cost borne by the firm plus the marginal cost borne by third parties from the production and consumption of the good.
3. Once vaccinated, a person cannot catch a cold nor give a cold to someone else. As a result the marginal social benefit resulting from consumption of the vaccine:
A. exceeds the marginal benefit received by consumers of the vaccine.
B. equals the marginal social cost of producing the vaccine in a competitive equilibrium.
C. equals the marginal benefit received by consumers of the vaccine in a competitive equilibrium.
D. is less than the marginal benefit received by consumers of the vaccine.
Explanation / Answer
1. C
2. D
3. A
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