AB 302 MICROECONOMICS

FINAL EXAMINATION 2nd Sem SY 2019 - 2020

Name: ___________________________
Section: _________
Score: ____________

Multiple Choice Questions. Write the letter of the best answer in a separate sheet and submit in the google drive.
 

1. Public goods differ from private goods in two ways. What are the two characteristics that differentiate public goods
from private goods? 
A. Asymmetric information and moral hazard
B. The Coase theorem and adverse selection
C. Negative externality and positive externality
D. Nonrivalry and nonexcludability

2. Private firms cannot profitably produce a public good because of: 

A. Liability rules and lawsuits
B. Inflation and unemployment
C. Nonrivalry and nonexcludability
D. Moral hazard and adverse selection

3. Because of free riders, the demand for a public good: 

A. Does get expressed in the market, but the good does not get produced
B. Does not get expressed in the market, but the good does get produced
C. Does not get expressed in the market, and the good does not get produced
D. Does get expressed in the market, and the good does get produced

4. A public good: 
A. Generally results in substantial negative externalities
B. Can never be provided by a nongovernmental organization
C. Can't be provided to one person without making it available to others as well
D. Costs essentially nothing to produce and thus is provided by the government at a zero price

5. Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she
helps pay for it. This characteristic is associated with: 
A. Rival goods
B. Complementary goods
C. Public goods
D. Capital goods

6. Which of the following statements concerning a pure public good is false? 

A. It is impossible to exclude nontaxpayers from the receipt of the public good
B. All benefits associated with the production and use of a public good are received by the government
C. The availability of a public good to one person simultaneously makes it available to all members of society
D. The private sector does not have an economic incentive to produce a socially optimal amount of a public good

7. From the economist's perspective, "market failures" basically arise when: 

A. The quantity demanded for a good or service is greater than the quantity supplied of the good or service
B. The quantity supplied of a good or service is greater than the quantity demanded for a good or service
C. Demand and supply do not accurately reflect all the benefits and all the costs of production
D. The market system is unable to adapt to or to accommodate change

8. Which is an example of a market failure? 

A. There are not enough tickets available to concerts of extremely popular performers
B. The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and techniques
C. Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get
them
D. Extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer industry

9. If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity
ought to be: 
A. Taxed
B. Prohibited
C. Subsidized
D. Left alone

10. If the production of a product or service involves external benefits, then the government can improve efficiency in
the market by: 
A. Providing a subsidy to correct for an overallocation of resources
B. Providing a subsidy to correct for an underallocation of resources
C. Imposing a corrective tax to correct for an overallocation of resources
D. Imposing a corrective tax to correct for an underallocation of resources

11. When producing a good generates external costs, the private market for that good tends to produce too: 
A. Much of the product at too low a price
B. Much of the product at too high a price
C. Little of the product at too low a price
D. Little of the product at too high a price

12. When external benefits occur in the production of a particular product, the private market tends to provide: 
A. None of the product
B. Too much of the product
C. Too little of the product
D. The socially optimal amount of the product

13. Most economists believe that: 

A. All external costs should be eliminated
B. The control of externalities is costless
C. External costs do not cause a misallocation of resources
D. External costs should be considered in determining optimal output

14. Suppose that the ABC industry produces a product which results in significant external costs to society. Such
production suggests that: 
A. Resources are underallocated to the industry
B. Resources are overallocated to the industry
C. The firms in this industry aren't maximizing profits
D. At the market price, quantity demanded is less than quantity supplied

15. Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the
residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise
buildings would best be resolved by: 
A. The owners themselves
B. City government officials
C. A zoning ordinance restricting high-rise buildings
D. A government fine for the builder of the high-rise

16. The overgrazing of cattle on public range lands would be an example of: 
A. A moral hazard problem
B. An adverse selection problem
C. The tragedy of the commons
D. The market for pollution

17. To internalize the external costs of pollution is to: 

A. Levy taxes on manufacturing firms located in crowded urban areas
B. Auction off pollution rights to those willing to pay the most for them
C. Make the polluter pay all of the costs associated with the polluting activity
D. Require that private citizens rather than taxpayers pay for the harmful effects of pollution

18. It has been proposed that a government agency be charged with the responsibility for determining the amount of
pollution which the atmosphere or a body of water can safely recycle, and sell these limited rights to polluters. What would be the
advantage of such a market for pollution rights? 
A. Government agencies can make a great deal of money
B. Pollution would be eliminated because nobody would want to pay for such a right
C. The quality of water or air can be maintained at some acceptable standard through economic incentives
D. The social consciousness of people would be raised as they obtain more appreciation for the importance of conservation

19. If there were a market for pollution rights established by a public agency which determined the amount of pollution
that the atmosphere or a body of water can safely assimilate, and the agency sold these rights to polluters, we could expect that: 
A. The price of these pollution rights would increase over time
B. There would be a surplus of pollution rights
C. There would be a shortage of pollution rights
D. There would be a black market for pollution rights

20. By requiring car producers to install emission control devices on cars, the government forces these producers to
internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars: 
A. Decreasing and the quantity increasing
B. Decreasing and the quantity decreasing
C. Increasing and the quantity increasing
D. Increasing and the quantity decreasing

21. Which would be an example of where the government has intervened to correct a market failure caused by
inadequate information about sellers? 
A. Providing unemployment compensation insurance
B. Sponsoring legislation to reduce pollution
C. Licensing of medical doctors and surgeons
D. Requiring car drivers to buy auto insurance

22. The franchising of fast-food restaurants would be an example of how business: 

A. Overcomes market information problems
B. Solves the moral hazard problem in insurance
C. Expands the limits of the Coase theorem
D. Corrects the tragedy of the commons

23. Inadequate information about buyers can cause market failure in the form of: 
A. An increase in the number of market sellers
B. An increase in the number of market buyers
C. An underallocation of resources to the provision of the product
D. An overallocation of resources to the provision of the product

24. There is an adverse selection problem in the market for used cars because: 
A. Owners of poor-quality cars have a strong incentive to sell their cars, while owners of high-quality used cars have more
incentive to keep their cars
B. Owners of high-quality cars will have a strong incentive to sell their cars to obtain the higher prices, while owners of poor-quality
cars will have more incentive to keep theirs
C. Most people prefer new cars, but the high prices for new cars force most of them to buy used cars
D. Government actions to pass "lemon" laws have reduced information on used cars
 25. Which action would counteract the tendency for poor-quality products to drive out high-quality products in a
market? 
A. The increased use of the market to sell products
B. The availability of transferable warranties for products
C. Less information from the government
D. Less information from sellers

26. An artist creates an innovative sculpture that costs P2,0000 to make. She arranges to have the sculpture displayed in
the public square of a town and it attracts large crowds. Will the artist be likely to capture the individual benefits from enjoyment of
it? 
A. Yes, because most people will voluntarily pay for their enjoyment
B. Yes, because the large crowds will produce a private donor to pay for it
C. No, because individuals will not pay for it when most other people do not have to pay it
D. No, because the marginal cost of making the sculpture is greater than the marginal benefit of it

27. What economic concepts can be used to explain the reason that a new car purchased by a consumer and driven off a
new car lot decrease in value almost immediately compared with the value of the same make and model of a car still on the new car
lot? 
A. Positive and negative externalities
B. Liability rules and lawsuits
C. The Coase theorem and moral hazard
D. Asymmetric information and adverse selection

28. Private car alarm systems with red blinking lights would tend to: 
A. Decrease the likelihood of car thefts to all car owners
B. Increase the likelihood of car thefts to all car owners
C. Redistribute the likelihood of a car theft from those car owners with such a device to those car owners without such a
device
D. Offer a positive externality to those car owners who did not pay for the devic

29. Public choice theory: 

A. Is based primarily on the insights of the median-voter model
B. Is most concerned with giving the public more choices about the goods and services provided by government
C. Applies economic analysis to explain government decision-making
D. Considers government to be allocatively and productively efficient in its decision-making

30. The economic analysis of government decision making is primarily the subject of public: 
A. Works
B. Choice
C. Opinion
D. Information

31. Assume that Ricardo, Sam, and Teresa are the only citizens in a community. A proposed public good has a total cost
of P1000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good is P500 for Ricardo, P250
for Sam, and P250 for Teresa. In a majority vote, this proposal will most likely be: 
A. Accepted and resources will be under allocated to this public good
B. Defeated and resources will be over allocated to this public good
C. Accepted and resources will be over allocated to this public good
D. Defeated and resources will be under allocated to this public good

32. The term government failure refers to the: 

A. Large losses suffered by publicly owned water, gas, and electric companies
B. Large number of bankruptcies that have occurred recently among local governments
C. Belief that there are inherent deficiencies in economic decision making through political processes
D. Inability of government agencies to provide adequate police protection in low-income neighborhoods

33. The concept of limited choices, as used in public choice theory, refers to the fact that: 
A. Politicians may not be objective in evaluating economic policy programs
B. Because of the importance of television and other modern communication techniques, the best and brightest candidates may not be
selected by voters
C. Voters must select a candidate who represents a "bundle" of various public policy programs and who can't register support
or opposition for specific programs
D. The most economically efficient public policy programs may not be selected because political leaders do not know enough about
economics

34. A general principle behind the income tax structure is that: 

A. Since everyone benefits from the public goods provided by the government, everyone should pay the same amount in taxes
B. Regardless of the benefits received, everyone would pay the same proportion of their income as taxes
C. As income increases, individuals should pay more taxes because they have the ability-to-pay more
D. Everyone should be willing to pay their fair share

35. With a tax of P2,000 on P20,000 of income and P3,000 on P30,000 of income, the average tax rate is: 
A. Progressive
B. Proportional
C. Regressive
D. Marginal

36. If a tax takes a larger percentage of a high income than it takes of a low income, the tax is said to be a: 
A. Regressive tax
B. Proportional tax
C. Progressive tax
D. Sales tax

37. The incidence of taxation refers to: 

A. Who in society actually pays the tax
B. The structure of basic income tax rates
C. Whether taxes are progressive or regressive
D. Whether or not the benefits-received principle applies

38. If the tax on gasoline is increased, gas stations are most likely to pass most of this increase to the consumer if the
price elasticity of demand is: 
A. Unitary
B. Less than one
C. Greater than one
D. Zero

39. Which statement is correct? 

A. Given supply, the more inelastic the demand for the product, the larger the portion of the tax shifted forward to consumers
B. Given supply, the more elastic the demand for the product, the larger the portion of the tax shifted forward to consumers
C. Given demand, the more elastic the supply, the larger the portion of the tax borne by the producers
D. Given demand, the more inelastic the supply, the larger the portion of the tax borne by consumers

40. The tax which would be most difficult to shift to others would be the: 
A. Personal income tax
B. Corporate income tax
C. Specific excise taxes
D. Business property taxes