Question 1

An externality is

Accepted Answer

A) the amount by which price exceeds marginal private cost. 
B) the amount by which price exceeds marginal social cost. 
C) the effect of government regulation on market price and output. 
D) someone who consumes a good without paying for it. 
E) a cost or benefit that arises from an activity but affects people not part of the original activity. 
A) the amount by which price exceeds marginal private cost. 
B) the amount by which price exceeds marginal social cost. 
C) the effect of government regulation on market price and output. 
D) someone who consumes a good without paying for it. 
E) a cost or benefit that arises from an activity but affects people not part of the original activity. E

Question 2

Which of the following illustrates the concept of external cost?

Accepted Answer

A) Bad weather reduces the size of the wheat crop. 
B) A reduction in the size of the wheat crop causes income of wheat farmers to fall. 
C) Smoking harms the health of the smoker. 
D) Smoking harms the health of nearby nonsmokers. 
E) Public health services reduce the transmission of disease. 
A) Bad weather reduces the size of the wheat crop. 
B) A reduction in the size of the wheat crop causes income of wheat farmers to fall. 
C) Smoking harms the health of the smoker. 
D) Smoking harms the health of nearby nonsmokers. 
E) Public health services reduce the transmission of disease. D

Question 3

Use the table below to answer the following questions.
Table 16.3.1
 $$\begin{array} { c c c c } 
\hline\begin{array} { c } 
\text { Output } \
\text { (units) }
\end{array} & \begin{array} { c } 
\text { Marginal Private } \
\text { Benefit } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Marginal Social } \
\text { Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Marginal Social } \
\text { Benefit } \
\text { (dollars) }
\end{array} \
\hline 0 & 80 & 20 & 100 \
1 & 70 & 30 & 90 \
2 & 60 & 40 & 80 \
3 & 50 & 50 & 70 \
4 & 40 & 60 & 60 \
5 & 30 & 70 & 50 \
6 & 20 & 80 & 40\\hline
\end{array}$$
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.Choose the correct statement.

Accepted Answer

A) The marginal external benefit is $20 per unit. 
B) The marginal external cost is $10 per unit. 
C) There are no externalities associated with this market. 
D) The marginal external benefit is $10 per unit. 
E) There is not enough information provided to determine whether or not there are externalities. 
A) The marginal external benefit is $20 per unit. 
B) The marginal external cost is $10 per unit. 
C) There are no externalities associated with this market. 
D) The marginal external benefit is $10 per unit. 
E) There is not enough information provided to determine whether or not there are externalities. A

Question 4

Use the figure below to answer the following questions.
   Figure 16.2.3
-Refer to Figure 16.2.3.A tax of ________ per tonne is necessary to achieve the efficient output of ________ tonnes of paper.

Accepted Answer

A) $14;50 
B) $14;30 
C) $13;40 
D) $2;50 
E) $2;40 
A) $14;50 
B) $14;30 
C) $13;40 
D) $2;50 
E) $2;40

Question 5

Most governments subsidize basic education because

Accepted Answer

A) there are external costs associated with well educated citizens. 
B) the marginal social benefit from education is greater than the marginal private benefit. 
C) of the existence of private schools. 
D) the marginal social cost of education is greater than the marginal private cost. 
E) otherwise too many students will receive educations. 
A) there are external costs associated with well educated citizens. 
B) the marginal social benefit from education is greater than the marginal private benefit. 
C) of the existence of private schools. 
D) the marginal social cost of education is greater than the marginal private cost. 
E) otherwise too many students will receive educations.

Question 6

The Coase theorem tells us that in the presence of external costs in production,

Accepted Answer

A) the government must intervene in the market to assure that the efficient level of output is produced. 
B) private parties can negotiate to produce the good at a level where marginal willingness to pay for the good by consumers is zero. 
C) private parties can never arrive at the efficient solution. 
D) then under certain conditions,private parties can arrive at the efficient solution without government involvement. 
E) and if transactions costs are high,then only the private sector will be able to produce the efficient amount of the good. 
A) the government must intervene in the market to assure that the efficient level of output is produced. 
B) private parties can negotiate to produce the good at a level where marginal willingness to pay for the good by consumers is zero. 
C) private parties can never arrive at the efficient solution. 
D) then under certain conditions,private parties can arrive at the efficient solution without government involvement. 
E) and if transactions costs are high,then only the private sector will be able to produce the efficient amount of the good.

Question 7

A voucher can eliminate the deadweight loss and lead to an efficient outcome if the value of the voucher equals the ________ of the good.

Accepted Answer

A) marginal external cost 
B) marginal social benefit 
C) marginal private benefit 
D) marginal social cost 
E) marginal external benefit 
A) marginal external cost 
B) marginal social benefit 
C) marginal private benefit 
D) marginal social cost 
E) marginal external benefit

Question 8

Use the figure below to answer the following questions.
   Figure 16.2.3
-Refer to Figure 16.2.3.The unregulated outcome in the paper market is

Accepted Answer

A) a quantity of 40 tonnes and a price of $11 a tonne. 
B) a quantity of 40 tonnes and a price of $13 a tonne. 
C) a quantity of 50 tonnes and a price of $12 a tonne. 
D) a quantity of 50 tonnes and a price of $14 a tonne. 
E) a quantity of 60 tonnes and a price of $13 a tonne. 
A) a quantity of 40 tonnes and a price of $11 a tonne. 
B) a quantity of 40 tonnes and a price of $13 a tonne. 
C) a quantity of 50 tonnes and a price of $12 a tonne. 
D) a quantity of 50 tonnes and a price of $14 a tonne. 
E) a quantity of 60 tonnes and a price of $13 a tonne.

Question 9

Use the figure below to answer the following questions.
   Figure 16.3.1
-Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is

Accepted Answer

A) zero. 
B) Q1. 
C) Q2. 
D) Q3. 
E) between 0 and Q1. 
A) zero. 
B) Q1. 
C) Q2. 
D) Q3. 
E) between 0 and Q1.

Question 10

Use the figure below to answer the following questions.
   Figure 16.3.3
-Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.Society's external benefit from university graduates is $10,000 each.With no subsidy

Accepted Answer

A) no students go to university. 
B) less than 10 million students go to university. 
C) 10 million students go to university. 
D) more than 10 million students go to university. 
E) none of the above. 
A) no students go to university. 
B) less than 10 million students go to university. 
C) 10 million students go to university. 
D) more than 10 million students go to university. 
E) none of the above.

Question 11

A patent is an example of

Accepted Answer

A) a subsidy. 
B) a marketable permit. 
C) a voucher. 
D) a tax. 
E) a legal device for creating property rights. 
A) a subsidy. 
B) a marketable permit. 
C) a voucher. 
D) a tax. 
E) a legal device for creating property rights.

Question 12

An externality is defined as

Accepted Answer

A) an additional cost imposed by the government on producers. 
B) an additional gain received by consumers from decisions made by the government. 
C) a cost or benefit that arises from production and falls on someone other than the producer,or a cost or benefit that arises from consumption and falls on someone other than the consumer. 
D) a marginal social cost. 
E) the additional amount consumers have to pay to consume an additional amount of a good or service. 
A) an additional cost imposed by the government on producers. 
B) an additional gain received by consumers from decisions made by the government. 
C) a cost or benefit that arises from production and falls on someone other than the producer,or a cost or benefit that arises from consumption and falls on someone other than the consumer. 
D) a marginal social cost. 
E) the additional amount consumers have to pay to consume an additional amount of a good or service.

Question 13

Pollution occurs when lumber is produced.If the lumber market is unregulated,there would be

Accepted Answer

A) overproduction of lumber compared to the efficient amount. 
B) underproduction of lumber compared to the efficient amount. 
C) sometimes overproduction and sometimes underproduction of lumber compared to the efficient amount. 
D) an external benefit from producing lumber. 
E) no deadweight loss from production. 
A) overproduction of lumber compared to the efficient amount. 
B) underproduction of lumber compared to the efficient amount. 
C) sometimes overproduction and sometimes underproduction of lumber compared to the efficient amount. 
D) an external benefit from producing lumber. 
E) no deadweight loss from production.

Question 14

Use the figure below to answer the following questions.
   Figure 16.3.1
-Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the price is

Accepted Answer

A) P1. 
B) P3. 
C) P2. 
D) greater than P4. 
E) P4. 
A) P1. 
B) P3. 
C) P2. 
D) greater than P4. 
E) P4.

Question 15

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then I.there is no pollution
II.resources are used efficiently

Accepted Answer

A) I only 
B) II only 
C) neither I nor II 
D) both I and II 
E) sometimes I and sometimes II,but never both simultaneously 
A) I only 
B) II only 
C) neither I nor II 
D) both I and II 
E) sometimes I and sometimes II,but never both simultaneously

Question 16

A system of marketable permits is used to reduce acid rain caused by emissions from electric power utilities.Which of the following statements is true?

Accepted Answer

A) Market forces determine both the demand for marketable permits and their supply. 
B) Public choice determines both the demand for marketable permits and their supply. 
C) Market forces determine the demand for marketable permits,and property rights determine their supply. 
D) Property rights determine the demand for marketable permits,and the government determines their supply. 
E) Market forces determine the demand for marketable permits,and the government determines their supply. 
A) Market forces determine both the demand for marketable permits and their supply. 
B) Public choice determines both the demand for marketable permits and their supply. 
C) Market forces determine the demand for marketable permits,and property rights determine their supply. 
D) Property rights determine the demand for marketable permits,and the government determines their supply. 
E) Market forces determine the demand for marketable permits,and the government determines their supply.

Question 17

Use the figure below to answer the following questions.
   Figure 16.2.1
-Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If a constant per unit tax is imposed that generates an efficient allocation of resources,then consumers pay a per unit price of

Accepted Answer

A) zero. 
B) P1. 
C) P2. 
D) P3. 
E) P4. 
A) zero. 
B) P1. 
C) P2. 
D) P3. 
E) P4.

Question 18

Means of coping with negative externalities include all of the following except

Accepted Answer

A) emission charges. 
B) patents. 
C) property rights. 
D) Pigovian taxes. 
E) marketable permits. 
A) emission charges. 
B) patents. 
C) property rights. 
D) Pigovian taxes. 
E) marketable permits.

Question 19

According to the Coase theorem,if transactions costs are low and property rights exist,

Accepted Answer

A) negative externalities cause deadweight losses. 
B) positive externalities cause deadweight losses. 
C) private transactions are efficient. 
D) public transactions are efficient. 
E) the efficient level of pollution will be zero. 
A) negative externalities cause deadweight losses. 
B) positive externalities cause deadweight losses. 
C) private transactions are efficient. 
D) public transactions are efficient. 
E) the efficient level of pollution will be zero.

Question 20

Use the table below to answer the following questions.
Table 16.3.1
 $$\begin{array} { c c c c } 
\hline\begin{array} { c } 
\text { Output } \
\text { (units) }
\end{array} & \begin{array} { c } 
\text { Marginal Private } \
\text { Benefit } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Marginal Social } \
\text { Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Marginal Social } \
\text { Benefit } \
\text { (dollars) }
\end{array} \
\hline 0 & 80 & 20 & 100 \
1 & 70 & 30 & 90 \
2 & 60 & 40 & 80 \
3 & 50 & 50 & 70 \
4 & 40 & 60 & 60 \
5 & 30 & 70 & 50 \
6 & 20 & 80 & 40\\hline
\end{array}$$
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.If production is left to the private market,then at the profit-maximizing output level marginal

Accepted Answer

A) social cost equals marginal private benefit. 
B) private cost is less than marginal private benefit. 
C) social cost is less than marginal private benefit. 
D) social cost is greater than marginal private benefit. 
E) social benefit is less than marginal private benefit. 
A) social cost equals marginal private benefit. 
B) private cost is less than marginal private benefit. 
C) social cost is less than marginal private benefit. 
D) social cost is greater than marginal private benefit. 
E) social benefit is less than marginal private benefit.

An externality is

Which of the following illustrates the concept of external cost?

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.A tax of per tonne is necessary to achieve the efficient output of tonnes of paper.

Most governments subsidize basic education because

The Coase theorem tells us that in the presence of external costs in production,

A voucher can eliminate the deadweight loss and lead to an efficient outcome if the value of the voucher equals the ________ of the good.

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.The unregulated outcome in the paper market is

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is

Use the figure below to answer the following questions. Figure 16.3.3 -Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.Society's external benefit from university graduates is $10,000 each.With no subsidy

A patent is an example of

An externality is defined as

Pollution occurs when lumber is produced.If the lumber market is unregulated,there would be

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the price is

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then I.there is no pollution II.resources are used efficiently

A system of marketable permits is used to reduce acid rain caused by emissions from electric power utilities.Which of the following statements is true?

Means of coping with negative externalities include all of the following except

According to the Coase theorem,if transactions costs are low and property rights exist,

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities,preferences,and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Filters

Exam 16: Externalities

An externality is

Which of the following illustrates the concept of external cost?

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.A tax of ________ per tonne is necessary to achieve the efficient output of ________ tonnes of paper.

Most governments subsidize basic education because

The Coase theorem tells us that in the presence of external costs in production,

A voucher can eliminate the deadweight loss and lead to an efficient outcome if the value of the voucher equals the ________ of the good.

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.The unregulated outcome in the paper market is

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is

Use the figure below to answer the following questions. Figure 16.3.3 -Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.Society's external benefit from university graduates is $10,000 each.With no subsidy

A patent is an example of

An externality is defined as

Pollution occurs when lumber is produced.If the lumber market is unregulated,there would be

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the price is

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then I.there is no pollution II.resources are used efficiently

A system of marketable permits is used to reduce acid rain caused by emissions from electric power utilities.Which of the following statements is true?

Means of coping with negative externalities include all of the following except

According to the Coase theorem,if transactions costs are low and property rights exist,

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities,preferences,and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Filters

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.A tax of per tonne is necessary to achieve the efficient output of tonnes of paper.