Economics 463 Midterm Exam

Answer each of the following questions.  Remember to emphasize intuition over jargon.  Your
answer will be scored entirely on your explanation.  Simply answering true, false or uncertain
earns no credit.  Be sure to define terms as part of your answer/explanation.

1.  True, false or uncertain.  Explain.  An economy which satisfies the production efficiency
condition must also satisfy the top level efficiency condition.  


2.  True, false or uncertain.  Explain.  Governmental attempts to increase the supply of a
public good by direct governmental provision always backfire as taxpayers undo the effects of
the government program by changing their behavior.

3.  True, false or uncertain.  Explain.  Inefficient provision of public goods arises because
public goods are nonexcludable; efficient provision of private goods occurs because they are
excludable.

4.  True, false or uncertain.  Explain.  Pigouvian taxes and subsidies are equally effective
methods of resolving environmental problems.