Chapter 17

  1. If the production of a good or service entails rather sizeable spillover benefits, government might correct the:

    A. Under allocation of resources to its production by granting a subsidy.
  2. A subsidy:

    D. Should be provided when there are external benefits.
  3. External costs arise:

    D. When firms 'use' resources without being compelled to pay for them.
  4. The market system fails to produce public goods because:

    D. Private firms cannot restrict the benefits of such goods to consumers who are willing to pay for them.
  5. If a product entails substantial spillover costs and goverment adopts a policy that forces producers to pay these costs, the:

    C. Equilibrium quantity of the product will decrease.
  6. If a good's production entails substantial spillover benefits and no spillover costs, then:

    C. Too little of the good will be produced, unless firms are subsidised.
  7. External benefits refer to:

    D. Benefits that accrue to parties other than the producer and buyer of a good.
  8. Pollution:

    D. Is an example of a spillover or external cost.
  9. If there are important spillover benefits associated with the consumption of a product, it can be said that:

    B. The market demand curve understates the relative importance of the product; and resources are therefore under allocated to its production.
  10. In a competitive market:

    C. None of the answers given hold true.
Card Set
Chapter 17
external goods, public goods and spillover benefits