Question

Mara gets a free flu shot from her campus clinic. As a result, she and her roommates avoid the flu all season. Which statement is true?

Question 6 options:

a)	The externality is created by producers for producers

b)	Flu shots create an external cost.

c)	If flu shots were not free, the number of people getting them would be larger than what is socially optimal.

d)	The externality generated by flu shots is more similar to that provided by landscaping than the externality generated by smoking.

Reasons for market failure include:

Question 7 options:

a)	common property resources.

b)	public goods.

c)	products or services that create externalities.

d)	All of these are reasons for market failure.

When people place a high value on ensuring a cleaner environment for future generations, which statement is true?

Question 9 options:

a)	The present value of future environmental benefits is lower

b)	Environmental damage suffered in the future would be of less concern today

c)	The present value of future environmental benefits would equal the discount rate

d)	The future is discounted at a relatively low rate

Producer surplus is:

Question 10 options:

a)	equal to accounting profit.

b)	the difference between how much a consumer would be willing to pay to consume a good and the amount actually paid to purchase the good.

c)	the difference between the actual price of a good and the amount a producer is willing to accept given its costs.

d)	equal to economic profit.

Answer 1

6. the correct answer is: a)

Reason: the free flu shot creates positive externalities by producers for producers.

7. the correct answer is: d)

Reason: in case of public goods, there is a problem of free-riders. When common property resources are not well -defined, there is a market failure. When there is some externalities in production, the private optimum deviates from the social optimum and hence, there is market failure.

9. the correct answer is: a)

Reason: the present value of future benefits is lower due to the presence of some subjective discount rate.

10. the correct answer is: c)

Reason: by definition, producer surplus is the difference between the actual price of a good and the amount a producer is willing to accept given its costs.

Thanks!