Question 1

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Accepted Answer

A) marginal benefit to the median voter. 
B) marginal benefit to each individual. 
C) sum of all individual marginal benefits. 
D) sum of all individual marginal benefits divided by the number of voters. 
A) marginal benefit to the median voter. 
B) marginal benefit to each individual. 
C) sum of all individual marginal benefits. 
D) sum of all individual marginal benefits divided by the number of voters.

Question 2

Explain why state governments may charge a fee for beach access to address the commons problem.

Accepted Answer

A fee may be charged to impose some of t

Question 3

If a production process generates pollution, then a competitive market will

Accepted Answer

A) produce more of the good than is socially optimal. 
B) produce less of the good than is socially optimal. 
C) produce the socially optimal quantity of that good. 
D) produce zero output. 
A) produce more of the good than is socially optimal. 
B) produce less of the good than is socially optimal. 
C) produce the socially optimal quantity of that good. 
D) produce zero output.

Question 4

Changing the price of a good will usually result in a negative externality.

Accepted Answer

A) True 
 B)False

Question 5

-The above figure shows the payoff matrix for two firms. A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake. A private beach on the lake must decide whether to operate or not. Increased pollution reduces the number of people who wish to visit the beach. If nobody owns the lake, then

Accepted Answer

A) joint profits are zero. 
B) joint profits are maximized. 
C) joint profits are not maximized. 
D) the beach will not operate because of too much pollution. 
A) joint profits are zero. 
B) joint profits are maximized. 
C) joint profits are not maximized. 
D) the beach will not operate because of too much pollution.

Question 6

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output, and the marginal cost to the surrounding neighbors. The marginal cost of production is zero for the firm. If property rights are not defined, how much pollution will occur?

Accepted Answer

A) 0 units 
B) 500 units 
C) 1000 units 
D) more than 1000 units 
A) 0 units 
B) 500 units 
C) 1000 units 
D) more than 1000 units

Question 7

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is

Accepted Answer

A) a. 
B) b. 
C) c. 
D) zero. 
A) a. 
B) b. 
C) c. 
D) zero.

Question 8

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape. Why?

Accepted Answer

A) It will make over-fishing less likely. 
B) They can't come up with better traps. 
C) They are not educated enough to maximize profit. 
D) They catch more lobsters this way. 
A) It will make over-fishing less likely. 
B) They can't come up with better traps. 
C) They are not educated enough to maximize profit. 
D) They catch more lobsters this way.

Question 9

-The above figure shows the payoff matrix for two firms. A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake. A private beach on the lake must decide whether to operate or not. Increased pollution reduces the number of people who wish to visit the beach. If the chemical firm owns the lake and the beach owner must pay the chemical firm $10 to produce only one ton of pollution, what is the outcome? If the beach owner owns the lake and the chemical firm must pay $10 per ton of pollution, what is the outcome? Compare this result to the case where nobody owns the lake.

Accepted Answer

If the chemical firm owns the lake, the

Question 10

When majority rule voting is used to determine whether to purchase a public good,

Accepted Answer

A) the efficient outcome is assured. 
B) the median voter gets her way. 
C) the sum of the marginal benefits must equal marginal cost. 
D) the marginal benefit of the good to the median voter equals the good's marginal cost. 
A) the efficient outcome is assured. 
B) the median voter gets her way. 
C) the sum of the marginal benefits must equal marginal cost. 
D) the marginal benefit of the good to the median voter equals the good's marginal cost.

Question 11

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output, and the marginal cost to the surrounding neighbors. The marginal cost of production is zero for the firm. According to Coase's Theorem, which of the following scenarios is most likely to lead to the socially optimal level of pollution?

Accepted Answer

A) The firm owns the river and there are a thousand surrounding neighbors. 
B) The firm owns the river and there is just one nearby neighbor. 
C) The river is jointly owned by one thousand surrounding neighbors. 
D) The firm owns the river, and therefore produces the social optimum no matter what. 
A) The firm owns the river and there are a thousand surrounding neighbors. 
B) The firm owns the river and there is just one nearby neighbor. 
C) The river is jointly owned by one thousand surrounding neighbors. 
D) The firm owns the river, and therefore produces the social optimum no matter what.

Question 12

If children go to school and become productive members of society,

Accepted Answer

A) a negative externality is created by the schools. 
B) a positive externality is created by the schools. 
C) no externality is created by the schools. 
D) an externality is created that may be positive or negative. 
A) a negative externality is created by the schools. 
B) a positive externality is created by the schools. 
C) no externality is created by the schools. 
D) an externality is created that may be positive or negative.

Question 13

Firms that are most likely to buy marketable pollution rights are those that produce the most pollution per unit of output produced.

Accepted Answer

A) True 
 B)False

Question 14

To maximize welfare in a competitive market that has a negative externality in production, government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.

Accepted Answer

A) True 
 B)False

Question 15

The price of pie increases. Some people who purchased pie before the price increase no longer purchase pie. This is

Accepted Answer

A) a positive externality. 
B) a negative externality. 
C) a positive externality for some consumers and a negative externality for others. 
D) not an externality. 
A) a positive externality. 
B) a negative externality. 
C) a positive externality for some consumers and a negative externality for others. 
D) not an externality.

Question 16

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

Accepted Answer

If the monopoly is producing more output

Question 17

In the presence of no externalities,

Accepted Answer

A) social marginal cost exceeds private marginal cost. 
B) social marginal cost is less than private marginal cost. 
C) social marginal cost equals private marginal cost. 
D) social marginal cost and private marginal cost cannot be compared. 
A) social marginal cost exceeds private marginal cost. 
B) social marginal cost is less than private marginal cost. 
C) social marginal cost equals private marginal cost. 
D) social marginal cost and private marginal cost cannot be compared.

Question 18

Assume a country agrees to a free-trade act with another country. In the process, some individuals are displaced from their jobs, thus the free-trade act results in a negative externality.

Accepted Answer

A) False 
B) True 
C) Only if those who were displaced are not compensated with another job or income transfer. 
D) Only if those who were displaced were compensated with another job or income transfer. 
A) False 
B) True 
C) Only if those who were displaced are not compensated with another job or income transfer. 
D) Only if those who were displaced were compensated with another job or income transfer.

Question 19

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities, then

Accepted Answer

A) welfare is greater under monopoly. 
B) welfare is greater under competition. 
C) welfare is the same for both market structures. 
D) the social optimum must be zero. 
A) welfare is greater under monopoly. 
B) welfare is greater under competition. 
C) welfare is the same for both market structures. 
D) the social optimum must be zero.

Question 20

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 socially optimal level of output?

Accepted Answer

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

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Explain why state governments may charge a fee for beach access to address the commons problem.

If a production process generates pollution, then a competitive market will

Changing the price of a good will usually result in a negative externality.

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output, and the marginal cost to the surrounding neighbors. The marginal cost of production is zero for the firm. If property rights are not defined, how much pollution will occur?

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape. Why?

When majority rule voting is used to determine whether to purchase a public good,

If children go to school and become productive members of society,

Firms that are most likely to buy marketable pollution rights are those that produce the most pollution per unit of output produced.

To maximize welfare in a competitive market that has a negative externality in production, government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.

The price of pie increases. Some people who purchased pie before the price increase no longer purchase pie. This is

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

In the presence of no externalities,

Assume a country agrees to a free-trade act with another country. In the process, some individuals are displaced from their jobs, thus the free-trade act results in a negative externality.

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities, then

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 socially optimal level of output?

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

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Explain why state governments may charge a fee for beach access to address the commons problem.

If a production process generates pollution, then a competitive market will

Changing the price of a good will usually result in a negative externality.

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output, and the marginal cost to the surrounding neighbors. The marginal cost of production is zero for the firm. If property rights are not defined, how much pollution will occur?

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape. Why?

When majority rule voting is used to determine whether to purchase a public good,

If children go to school and become productive members of society,

Firms that are most likely to buy marketable pollution rights are those that produce the most pollution per unit of output produced.

To maximize welfare in a competitive market that has a negative externality in production, government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.

The price of pie increases. Some people who purchased pie before the price increase no longer purchase pie. This is

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

In the presence of no externalities,

Assume a country agrees to a free-trade act with another country. In the process, some individuals are displaced from their jobs, thus the free-trade act results in a negative externality.

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities, then

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 socially optimal level of output?

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. What is the socially optimal level of output?