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23 terms

econ test 2 ch. 5 true/false

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A cost that spills over onto individuals not directly involved in an activity is called a positive externality.
false
If a negative externality results from the production of chemicals, an external cost is imposed on parties not directly involved in the market for the chemical
true
If mining companies are able to shift some of their production costs onto outside parties, the actual output of mines is likely to fall short of society's ideal.
false
When negative externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable
false
When positive externalities are present, it leads to an underallocation of resources in that area relative to that which is socially desirable.
true
Inoculation against communicable diseases is an example of an activity that generates positive externalities.
true
Positive externalities include benefits received the seller but not benefits received by the buyer.
false
A public good is nonrivalrous and excludable
false
A public good or service can be consumed by paying and nonpaying customers alike.
true
An example of a public good is a flood control project that protects all the homes and properties near a river.
true
Admission to Disney World is an example of a private good from which nonpaying individuals can be excluded.
true
Someone who does not contribute toward covering the cost of a good he desires, and yet he cannot be excluded from receiving the good, is called a free rider.
true
Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defined.
true
The over hunting of U.S. buffalo that nearly caused their extinction would be an example of the tragedy of the commons.
true
The failure of private incentives to provide adequate maintenance of public resources leads to the tragedy of the commons.
true
Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.
false
One way to overcome an adverse selection problem when buying a used car is to hire an independent mechanic to inspect the car before making a purchase.
true
Moral hazard occurs when an informed party benefits in an exchange by taking advantage of knowing more than the other party.
false
The self-interest assumption is central to the analysis of behavior in both private and public sectors.
true
When decisions are made by majority rule, the individual consumption-payment link is broken.
true
The median voter model predicts a strong tendency for both candidates to choose a position away from the middle of distribution.
false
The idea of rational ignorance implies that people are fully informed about their market purchases but uninformed about political issues.
false
The motivation for an individual citizen to spend the necessary time and effort to resist an interest group is minimal, even if she had a guarantee that this resistance would be effective.
true