Question 1

Negative externalities are created when

Accepted Answer

A) an increase in the price of butterfat drives up the price of ice cream. 
B) a driver leaves his car in a parking space after the meter expires and receives a ticket. 
C) a driver drives recklessly on a busy highway. 
D) a driver pulls over to help a stranded motorist fix a flat tire. 
A) an increase in the price of butterfat drives up the price of ice cream. 
B) a driver leaves his car in a parking space after the meter expires and receives a ticket. 
C) a driver drives recklessly on a busy highway. 
D) a driver pulls over to help a stranded motorist fix a flat tire. C

Question 2

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, the optimal level of trash in the park can be achieved if

Accepted Answer

A) someone is assigned property rights to the park. 
B) government limits the use of the park. 
C) nobody catches Al leaving the trash. 
D) Bert moves. 
A) someone is assigned property rights to the park. 
B) government limits the use of the park. 
C) nobody catches Al leaving the trash. 
D) Bert moves. A

Question 3

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. Is social welfare greater under monopoly or under competition?

Accepted Answer

First, the socially optimal quantity of paper is found by setting MC^p + MC^e = p or
10 + Q + Q = 100 - Q. Rearranging yields Q = 30. The competitive equilibrium is found by setting MC^p = p or 10 + Q = 100 - Q. Rearranging yields Q = 45. The deadweight loss of those additional units equals (45 - 30)∗ (70-40)/2 = 225. Under monopoly, the firm sets
MC^p = 100 - 2Q or Q = 30. The monopoly produces the socially optimal quantity, and therefore has no deadweight loss. Social welfare is greater under monopoly.

Question 4

Suppose that the market for steel is shown in the above figure. Is social welfare greater under monopoly or under competition?

Accepted Answer

Under competition, the deadweight loss e

Question 5

Explain why the optimal amount of pollution is often not zero.

Accepted Answer

The optimal amount of pollution occurs w

Question 6

If a production process generates pollution, then a competitive market will produce more of the good than is socially optimal because

Accepted Answer

A) firms take all costs into consideration. 
B) firms incur all costs of production but ignore some of them. 
C) firms ignore the costs of production that they do not incur. 
D) firms set price equal to social marginal cost. 
A) firms take all costs into consideration. 
B) firms incur all costs of production but ignore some of them. 
C) firms ignore the costs of production that they do not incur. 
D) firms set price equal to social marginal cost.

Question 7

To alleviate the commons problem, the government can

Accepted Answer

A) apply a tax. 
B) set a quota. 
C) assign property rights. 
D) All of the above. 
A) apply a tax. 
B) set a quota. 
C) assign property rights. 
D) All of the above.

Question 8

Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 - Q. If subs cost $100 each to produce, what is the efficient quantity of submarines?

Accepted Answer

The market demand is SMB = 1000 - 100Q.

Question 9

In which of the following situations would the Coase theorem more likely to be applied?

Accepted Answer

A) Two neighbors: a farmer and a beekeeper. 
B) Highway drivers and the dwellers of neighborhoods crossed by the highway. 
C) A railroad and its adjacent land owners. 
D) None of the above. 
A) Two neighbors: a farmer and a beekeeper. 
B) Highway drivers and the dwellers of neighborhoods crossed by the highway. 
C) A railroad and its adjacent land owners. 
D) None of the above.

Question 10

Two neighboring farmers must each decide whether to contribute to a fence that separates their properties. The fence costs a total of $20. Both farmers currently have a profit of $30 each. With a fence to keep each farmer's animals from wandering onto the other's property, both farmers would experience a $15 rise in profits. Draw the payoff matrix and discuss the possible outcomes.

Accepted Answer

@#IMG-DLM& See the above figure. This is a prisone

Question 11

If a production process creates pollution, a competitive market produces excessive pollution because

Accepted Answer

A) the firms do not include the social cost of the pollution in their profit-maximizing decisions. 
B) the firms place too high a price on society's cost of inflation. 
C) people are not injured by the pollution. 
D) zero pollution is optimal. 
A) the firms do not include the social cost of the pollution in their profit-maximizing decisions. 
B) the firms place too high a price on society's cost of inflation. 
C) people are not injured by the pollution. 
D) zero pollution is optimal.

Question 12

Your new neighbor does not mow his lawn or prune the trees in his front yard. As a result, your house value decreases. Your neighbor generated

Accepted Answer

A) a negative externality. 
B) a positive externality. 
C) no externality. 
D) a non-rival good. 
A) a negative externality. 
B) a positive externality. 
C) no externality. 
D) a non-rival good.

Question 13

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. What is the competitive market level of output?

Accepted Answer

A) 20 
B) 25 
C) 30 
D) 45 
A) 20 
B) 25 
C) 30 
D) 45

Question 14

The median voter votes yes for a project if

Accepted Answer

A) the value of the project for him is larger than the tax he needs to pay. 
B) the value of the project for him is smaller than the tax he needs to pay. 
C) the total benefits are positive. 
D) the total cost is zero. 
A) the value of the project for him is larger than the tax he needs to pay. 
B) the value of the project for him is smaller than the tax he needs to pay. 
C) the total benefits are positive. 
D) the total cost is zero.

Question 15

-The above figure shows the market for steel ingots. An externality can be seen because

Accepted Answer

A) the social marginal cost exceeds the private marginal cost. 
B) the private marginal cost exceeds the social marginal cost. 
C) the optimal quantity of steel is zero. 
D) not enough steel gets produced by the competitive market. 
A) the social marginal cost exceeds the private marginal cost. 
B) the private marginal cost exceeds the social marginal cost. 
C) the optimal quantity of steel is zero. 
D) not enough steel gets produced by the competitive market.

Question 16

Which of the following is NOT a common property?

Accepted Answer

A) a city park 
B) a main street 
C) a public beach 
D) a movie screening 
A) a city park 
B) a main street 
C) a public beach 
D) a movie screening

Question 17

A monopoly might produce less than the socially optimal amount of pollution because

Accepted Answer

A) it likes to be a good citizen. 
B) it sets price above marginal cost. 
C) it earns economic profit. 
D) it internalizes the external costs. 
A) it likes to be a good citizen. 
B) it sets price above marginal cost. 
C) it earns economic profit. 
D) it internalizes the external costs.

Question 18

In terms of cost-benefit analysis, explain why a competitive market with an externality produces too much pollution.

Accepted Answer

At the socially optimal level of product

Question 19

In the case of a good that has no exclusion and no rivalry, private markets fail because

Accepted Answer

A) of free-ridership. 
B) this is a natural monopoly. 
C) profit is driven down to zero. 
D) the quantity produced will exceed the social optimum. 
A) of free-ridership. 
B) this is a natural monopoly. 
C) profit is driven down to zero. 
D) the quantity produced will exceed the social optimum.

Question 20

-The above figure shows the market for steel ingots. At the social optimum level of output, the total welfare is

Accepted Answer

A) $1,875. 
B) $1,575. 
C) $2,500. 
D) $3,000. 
A) $1,875. 
B) $1,575. 
C) $2,500. 
D) $3,000.

Negative externalities are created when

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, the optimal level of trash in the park can be achieved if

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. Is social welfare greater under monopoly or under competition?

Suppose that the market for steel is shown in the above figure. Is social welfare greater under monopoly or under competition?

Explain why the optimal amount of pollution is often not zero.

If a production process generates pollution, then a competitive market will produce more of the good than is socially optimal because

To alleviate the commons problem, the government can

Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 - Q. If subs cost $100 each to produce, what is the efficient quantity of submarines?

In which of the following situations would the Coase theorem more likely to be applied?

If a production process creates pollution, a competitive market produces excessive pollution because

Your new neighbor does not mow his lawn or prune the trees in his front yard. As a result, your house value decreases. Your neighbor generated

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the competitive market level of output?

The median voter votes yes for a project if

-The above figure shows the market for steel ingots. An externality can be seen because

Which of the following is NOT a common property?

A monopoly might produce less than the socially optimal amount of pollution because

In terms of cost-benefit analysis, explain why a competitive market with an externality produces too much pollution.

In the case of a good that has no exclusion and no rivalry, private markets fail because

-The above figure shows the market for steel ingots. At the social optimum level of output, the total welfare is

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 18: Externalities, Open-Access, and Public Goods

Negative externalities are created when

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, the optimal level of trash in the park can be achieved if

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. Is social welfare greater under monopoly or under competition?

Suppose that the market for steel is shown in the above figure. Is social welfare greater under monopoly or under competition?

Explain why the optimal amount of pollution is often not zero.

If a production process generates pollution, then a competitive market will produce more of the good than is socially optimal because

To alleviate the commons problem, the government can

Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 - Q. If subs cost $100 each to produce, what is the efficient quantity of submarines?

In which of the following situations would the Coase theorem more likely to be applied?

If a production process creates pollution, a competitive market produces excessive pollution because

Your new neighbor does not mow his lawn or prune the trees in his front yard. As a result, your house value decreases. Your neighbor generated

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. What is the competitive market level of output?

The median voter votes yes for a project if

-The above figure shows the market for steel ingots. An externality can be seen because

Which of the following is NOT a common property?

A monopoly might produce less than the socially optimal amount of pollution because

In terms of cost-benefit analysis, explain why a competitive market with an externality produces too much pollution.

In the case of a good that has no exclusion and no rivalry, private markets fail because

-The above figure shows the market for steel ingots. At the social optimum level of output, the total welfare is

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. Is social welfare greater under monopoly or under competition?

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the competitive market level of output?