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.
The solution clearly and concisely provides an answer to the problem. A brief answer is given which helps for students who are just looking to confirm their understanding of the problem.