A lawyer who drives a beat-up car and wears frumpy clothes may have a hard time getting clients.

1. A lawyer who drives a beat-up car and wears frumpy clothes may have a hard time getting clients. Potential clients may conclude from his appearance that he is poor, and if he is poor, he probably is not very good. If the above is true for a lawyer dressing in expensive and stylish clothing is a way of: a) internalizing externalities. b) changing a nonrival good into a rival good. c) changing a nonexcludable good into an excludable good. d) signaling quality. 2. A market for information is more likely to develop even in the absence of government regulation of information as long as the marginal: a) cost of information is zero. b) benefit of information is zero. c) cost of information exceeds the marginal benefit. d) benefit of information exceeds the marginal cost. 3. Opponents to government intervention argue that government makes decisions based upon a) marginal social costs and marginal social benefits. b) marginal political costs and marginal political benefits. c) irrational choices. d) total costs and total benefits 4. An effluent fee is an example of a) voluntary approach to pollution. b) direct regulation of pollution. c) a tax incentive policy. d) a market incentive policy. 5. All of the following are justifications for government intervention except: a) too much competition. b) informational problems. c) externalities. d) public goods. 6. Which of the following is not a characteristic of a public good? a) Nonexclusive. b) Available to non-buyers. c) Nonrival in consumption. d) Can only be consumed once. 7. The efficient amount of pollution control is: a) the amount for which the total social benefit equals the total social cost of pollution. b) the amount for which the marginal social benefit equals the marginal social cost of pollution. c) always zero. d) always 100% abatement. 8. In November 2004, the Environment Ministry in Japan proposed a new carbon tax in order to meet Japan’s obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would be levied on producers and importers of fossil fuels and raise the cost of using fossil fuels. How do most economists view a tax such as this? a) They prefer direct regulation to taxes because taxes create deadweight loss. b) They prefer voluntary programs to taxes because they reduce the role of compulsion. c) They do not believe any government intervention is necessary because the invisible hand of the market will correct the problem. d) They support taxes on pollution as a way of making decision makers consider all costs.

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