Question 1

When it comes to public goods, it is important to remember

Accepted Answer

A)  that government intervention necessarily solves the market failure. 
B)  only one level of output can be realized, and consumers are willing to pay different amounts for that level. 
C)  the free rider problem is difficult to overcome, but the drop-in-the-bucket problem is not. 
D)  all goods provided by the government are public goods. 
A)  that government intervention necessarily solves the market failure. 
B)  only one level of output can be realized, and consumers are willing to pay different amounts for that level. 
C)  the free rider problem is difficult to overcome, but the drop-in-the-bucket problem is not. 
D)  all goods provided by the government are public goods.

Question 2

The ________ cost to society of producing an additional unit of a good or service is the marginal social cost.

Accepted Answer

A)  private 
B)  subsidized 
C)  total 
D)  damage 
A)  private 
B)  subsidized 
C)  total 
D)  damage

Question 3

You accidentally jump the curb and run over your neighbor's extensive garden gnome collection. Your neighbor sues you and you are required to pay $3,000 to replace the gnomes. This is an example of

Accepted Answer

A)  the Coase theorem. 
B)  a liability rule. 
C)  an injunction. 
D)  the free-rider problem. 
A)  the Coase theorem. 
B)  a liability rule. 
C)  an injunction. 
D)  the free-rider problem.

Question 4

Refer to the data provided in Table 16.3 below to answer the following question(s).
Table 16.3 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.3
 \[\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \
\hline \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm A }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm B }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} \
\hline 1 & \$ 8 & \$ 8 & 1 & \$ 16 & \$ 16 \
\hline 2 & 12 & 20 & 2 & 24 & 40 \
\hline 3 & 18 & 38 & 3 & 32 & 72 \
\hline 4 & 26 & 64 & 4 & 40 & 112 \
\hline 5 & 36 & 100 & 5 & 48 & 160 \
\hline
\end{array}\]
-Refer to Table 16.3. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, what is the total cost of the pollution reduction?

Accepted Answer

A)  $0 
B)  $60 
C)  $104 
D)  110 
A)  $0 
B)  $60 
C)  $104 
D)  110

Question 5

If there are external costs of production and firms do not have to account for these costs, then the firms will ________ and ________ compared with the efficient values.

Accepted Answer

A)  underproduce; underprice 
B)  underproduce; overprice 
C)  overproduce; underprice 
D)  overproduce; overprice 
A)  underproduce; underprice 
B)  underproduce; overprice 
C)  overproduce; underprice 
D)  overproduce; overprice

Question 6

Refer to Scenario 16.2 below to answer the question(s) that follow.
SCENARIO 16.2: The marginal benefit for a particular food is described by MB = 60 - q, where q refers to the quantity of the food. The marginal cost of producing the food is described by MC = 3q. There is a negative externality associated with food production and the marginal social cost of food production is MSC = 5q.
-Refer to Scenario 16.2. The competitive output level is ________ and the competitive price is ________.

Accepted Answer

A)  15 units of food; $45 
B)  10 units of food; $50 
C)  0 units of food; $0 
D)  10 units of food; $20 
A)  15 units of food; $45 
B)  10 units of food; $50 
C)  0 units of food; $0 
D)  10 units of food; $20

Question 7

The optimal level of emissions of most pollutants is zero.

Accepted Answer

A) True 
 B)False

Question 8

A ________ is rival in consumption and viewers are excludable.

Accepted Answer

A)  television signal sent by cable 
B)  fireworks show in a local park 
C)  television signal broadcast through the air 
D)  solar eclipse 
A)  television signal sent by cable 
B)  fireworks show in a local park 
C)  television signal broadcast through the air 
D)  solar eclipse

Question 9

Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.   Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the airlines, then the airlines and the residents engage in negotiations. The ________ of air travel is 100 units.

Accepted Answer

A)  minimum allowable level 
B)  resulting efficient level 
C)  government-regulated level 
D)  maximum allowable level 
A)  minimum allowable level 
B)  resulting efficient level 
C)  government-regulated level 
D)  maximum allowable level

Question 10

If the marginal cost of producing a public good is greater than society's total willingness to pay per unit, then

Accepted Answer

A)  the optimal amount of the public good is being produced. 
B)  less than the optimal amount of the public good is being produced. 
C)  more than the optimal amount of the public good is being produced. 
D)  the amount of output being produced could be either greater than or less than the optimal amount. 
A)  the optimal amount of the public good is being produced. 
B)  less than the optimal amount of the public good is being produced. 
C)  more than the optimal amount of the public good is being produced. 
D)  the amount of output being produced could be either greater than or less than the optimal amount.

Question 11

Assuming there are no externalities, if a firm is producing at an output level where the benefits to consumers exceed the cost to the suppliers to produce it, then price

Accepted Answer

A)  equals marginal cost. 
B)  is greater than marginal cost. 
C)  is less than marginal cost. 
D)  is less than marginal revenue. 
A)  equals marginal cost. 
B)  is greater than marginal cost. 
C)  is less than marginal cost. 
D)  is less than marginal revenue.

Question 12

If the government taxes a steel company by an amount equal to the damages of each marginal ton of steel, then the steel company's marginal cost curve is the same as the marginal

Accepted Answer

A)  damage cost curve. 
B)  social cost curve. 
C)  private cost curve. 
D)  benefit cost curve. 
A)  damage cost curve. 
B)  social cost curve. 
C)  private cost curve. 
D)  benefit cost curve.

Question 13

Refer to the information in Figure 16.5 below to answer the question(s) that follow.   Figure 16.5
Figure 16.5 shows the marginal benefits of emitting pollution for the only two chemical companies in an industry, Alpha Chemicals and Beta Chemicals. Before any tax on pollution emissions is imposed, each company views pollution as being free.
-Refer to Figure 16.5. The government decides to impose a tax on pollution emissions to cut total emissions in this industry in half, and based on this decision it has set the tax at $100 per ton of emissions. For Alpha, the tax is ________ than the marginal benefit it gets from polluting, and for Beta, the tax is ________ than the marginal benefit it gets from polluting.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 14

Refer to the information in Figure 16.5 below to answer the question(s) that follow.   Figure 16.5
Figure 16.5 shows the marginal benefits of emitting pollution for the only two chemical companies in an industry, Alpha Chemicals and Beta Chemicals. Before any tax on pollution emissions is imposed, each company views pollution as being free.
-Refer to Figure 16.5. The government decides to impose a tax on pollution emissions to cut total emissions in this industry in half, and based on this decision it has set the tax at $100 per ton of emissions. Following the implementation of this tax, the total amount of tax revenue collected by the government from this tax will be

Accepted Answer

A)  $5,000. 
B)  $7,500. 
C)  $10,000. 
D)  $20,000. 
A)  $5,000. 
B)  $7,500. 
C)  $10,000. 
D)  $20,000.

Question 15

You love Christmas and elaborately decorate your home and yard. It is such a spectacle that hundreds of people drive by your house each day to enjoy the display. The noise and traffic disturb your neighbors who sue you, and you are required to take down your display permanently. This is an example of

Accepted Answer

A)  the Coase theorem. 
B)  a liability rule. 
C)  an injunction. 
D)  the free-rider problem. 
A)  the Coase theorem. 
B)  a liability rule. 
C)  an injunction. 
D)  the free-rider problem.

Question 16

Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.   Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to ________. No negotiations occur between the parties. The resulting level of air travel is 0 units.

Accepted Answer

A)  the airlines 
B)  both the airlines and the residents of Playa Del Rey in a 50-50 split 
C)  the residents of Playa Del Rey 
D)  indeterminate from the given information. 
A)  the airlines 
B)  both the airlines and the residents of Playa Del Rey in a 50-50 split 
C)  the residents of Playa Del Rey 
D)  indeterminate from the given information.

Question 17

If one person's enjoyment of the benefits of a good ________ with another's consumption of it, the good is nonrival in consumption. This is a characteristic of a ________ good.

Accepted Answer

A)  interferes; public 
B)  interferes; private 
C)  does not interfere; private 
D)  does not interfere; public 
A)  interferes; public 
B)  interferes; private 
C)  does not interfere; private 
D)  does not interfere; public

Question 18

Second hand cigarette smoke is an example of a(n)

Accepted Answer

A)  economy of scale. 
B)  externality. 
C)  public good. 
D)  government failure. 
A)  economy of scale. 
B)  externality. 
C)  public good. 
D)  government failure.

Question 19

Once a firm is made to internalize a negative externality, the price will

Accepted Answer

A)  increase and output will decrease. 
B)  increase and output will increase. 
C)  decrease and output will decrease. 
D)  decrease and output will increase. 
A)  increase and output will decrease. 
B)  increase and output will increase. 
C)  decrease and output will decrease. 
D)  decrease and output will increase.

Question 20

LoJacks convey ________ to third parties.

Accepted Answer

A)  positive externalities 
B)  negative externalities 
C)  economies of scale 
D)  public goods 
A)  positive externalities 
B)  negative externalities 
C)  economies of scale 
D)  public goods

When it comes to public goods, it is important to remember

The ________ cost to society of producing an additional unit of a good or service is the marginal social cost.

You accidentally jump the curb and run over your neighbor's extensive garden gnome collection. Your neighbor sues you and you are required to pay $3,000 to replace the gnomes. This is an example of

If there are external costs of production and firms do not have to account for these costs, then the firms will and compared with the efficient values.

The optimal level of emissions of most pollutants is zero.

A ________ is rival in consumption and viewers are excludable.

If the marginal cost of producing a public good is greater than society's total willingness to pay per unit, then

Assuming there are no externalities, if a firm is producing at an output level where the benefits to consumers exceed the cost to the suppliers to produce it, then price

If the government taxes a steel company by an amount equal to the damages of each marginal ton of steel, then the steel company's marginal cost curve is the same as the marginal

If one person's enjoyment of the benefits of a good with another's consumption of it, the good is nonrival in consumption. This is a characteristic of a good.

Second hand cigarette smoke is an example of a(n)

Once a firm is made to internalize a negative externality, the price will

LoJacks convey ________ to third parties.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Exam 16: Externalities, Public Goods, and Common Resources

When it comes to public goods, it is important to remember

The ________ cost to society of producing an additional unit of a good or service is the marginal social cost.

You accidentally jump the curb and run over your neighbor's extensive garden gnome collection. Your neighbor sues you and you are required to pay $3,000 to replace the gnomes. This is an example of

If there are external costs of production and firms do not have to account for these costs, then the firms will ________ and ________ compared with the efficient values.

The optimal level of emissions of most pollutants is zero.

A ________ is rival in consumption and viewers are excludable.

If the marginal cost of producing a public good is greater than society's total willingness to pay per unit, then

Assuming there are no externalities, if a firm is producing at an output level where the benefits to consumers exceed the cost to the suppliers to produce it, then price

If the government taxes a steel company by an amount equal to the damages of each marginal ton of steel, then the steel company's marginal cost curve is the same as the marginal

If one person's enjoyment of the benefits of a good ________ with another's consumption of it, the good is nonrival in consumption. This is a characteristic of a ________ good.

Second hand cigarette smoke is an example of a(n)

Once a firm is made to internalize a negative externality, the price will

LoJacks convey ________ to third parties.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

If there are external costs of production and firms do not have to account for these costs, then the firms will and compared with the efficient values.

If one person's enjoyment of the benefits of a good with another's consumption of it, the good is nonrival in consumption. This is a characteristic of a good.