Question 1

In markets with externalities or public goods, private costs exceed social costs.

Accepted Answer

A) True 
 B)False

Question 2

A public good is a good:

Accepted Answer

A) that is produced by a government agency. 
B) that, when it is consumed by one decision maker, affects other decision makers in a way not reflected in the market price. 
C) that, when it is consumed by one decision maker, does not reduce the quantity that may be consumed by other decision makers and to which all consumers have access. 
D) that is free. 
A) that is produced by a government agency. 
B) that, when it is consumed by one decision maker, affects other decision makers in a way not reflected in the market price. 
C) that, when it is consumed by one decision maker, does not reduce the quantity that may be consumed by other decision makers and to which all consumers have access. 
D) that is free.

Question 3

Which of the following is a real-world example of a positive externality?

Accepted Answer

A) You are craving a soda for lunch. However, the customer ahead of you in line at the hot dog stand buys the last can. 
B) National defense is available even for people who do not pay income taxes. 
C) A person seated in a non-smoking section of a restaurant decides to sneak a few puffs of a cigarette. 
D) A child receives a vaccination to prevent the spread of measles. 
A) You are craving a soda for lunch. However, the customer ahead of you in line at the hot dog stand buys the last can. 
B) National defense is available even for people who do not pay income taxes. 
C) A person seated in a non-smoking section of a restaurant decides to sneak a few puffs of a cigarette. 
D) A child receives a vaccination to prevent the spread of measles.

Question 4

Suppose that an industry emits a chemical that pollutes the ground water. Without considering the effects of the pollution, the industry has a marginal private cost curve of MPC $= Q + 30$. The market demand curve is $P = 60 - Q$, while the marginal social cost curve is $\mathrm { MSC } = 2 \mathrm { Q } + 30$. What is the socially optimal emissions standard?

Accepted Answer

A)  15 . 
B)  10 . 
C)  5 . 
D)  0 . 
A)  15 . 
B)  10 . 
C)  5 . 
D)  0 .

Question 5

In the diagram below, the external cost savings from producing at the socially optimal quantity rather than at the private equilibrium can be represented as:

Accepted Answer

A) A 
B) B + C 
C) A + B + C 
D) E + F + H + I 
A) A 
B) B + C 
C) A + B + C 
D) E + F + H + I

Question 6

Negative externalities:

Accepted Answer

A) create a deadweight loss as do positive externalities. 
B) move the economy closer to the social optimum. 
C) create a deadweight loss and move the equilibrium away from the social optimum. 
D) should be eliminated completely to move to the social optimum. 
A) create a deadweight loss as do positive externalities. 
B) move the economy closer to the social optimum. 
C) create a deadweight loss and move the equilibrium away from the social optimum. 
D) should be eliminated completely to move to the social optimum.

Question 7

A congestion toll is:

Accepted Answer

A) like an emissions fee. 
B) like an emissions standard. 
C) like a negative externality. 
D) like common property. 
A) like an emissions fee. 
B) like an emissions standard. 
C) like a negative externality. 
D) like common property.

Question 8

When the government can set emissions standards for polluting industries, which of the following statements is correct?

Accepted Answer

A) The government should set the emissions standard to zero because pollution is bad for people. 
B) The government should set the emissions standard to achieve the socially optimal level of production which, in general, is not equal to zero. 
C) The government should employ emissions taxes instead because emissions standards cannot generally achieve the social optimum. 
D) The government should not set emissions standards because the market equilibrium will coincide with the social optimum in the absence of intervention. 
A) The government should set the emissions standard to zero because pollution is bad for people. 
B) The government should set the emissions standard to achieve the socially optimal level of production which, in general, is not equal to zero. 
C) The government should employ emissions taxes instead because emissions standards cannot generally achieve the social optimum. 
D) The government should not set emissions standards because the market equilibrium will coincide with the social optimum in the absence of intervention.

Question 9

A rural road is generally considered:

Accepted Answer

A) a public good, but if it gets congested at times, it may not be considered as such because it is no longer true that one person's use of the road does not reduce the ability of others to "consume it"/use it productively. 
B) a positive externality. 
C) a public good, even when congested. 
D) a natural monopoly. 
A) a public good, but if it gets congested at times, it may not be considered as such because it is no longer true that one person's use of the road does not reduce the ability of others to "consume it"/use it productively. 
B) a positive externality. 
C) a public good, even when congested. 
D) a natural monopoly.

Question 10

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry. The consultants calculate the marginal social cost of production to be $M S C = 2 Q + 30$ and the marginal private cost of production to be $M P C = Q$ $+ 30$. The market demand curve can be expressed as $P = 60 - Q$. If the consultants have accurately measured the impact of the pollution externality, the net social benefit of producing at the social optimum (rather than at the private optimum) is:

Accepted Answer

A)  $\$ 0$. 
B)  $\$ 112.5$ 
C)  $\$ 150$. 
D)  $\$ 250$ 
A)  $\$ 0$. 
B)  $\$ 112.5$ 
C)  $\$ 150$. 
D)  $\$ 250$

Question 11

A good that, once produced is not accessible to all customers, is nonexclusive good.

Accepted Answer

A) True 
 B)False

Question 12

In markets with externalities or public goods,

Accepted Answer

A) private benefits exceed social benefits. 
B) private costs exceed social costs. 
C) the private costs and benefits that decision makers face diverge from the social costs and benefits. 
D) the private costs and benefits that decision makers face are the same as the social costs and benefits. 
A) private benefits exceed social benefits. 
B) private costs exceed social costs. 
C) the private costs and benefits that decision makers face diverge from the social costs and benefits. 
D) the private costs and benefits that decision makers face are the same as the social costs and benefits.

Question 13

A rival good is a good where consumption by one person reduces the quantity that can be consumed by others.

Accepted Answer

A) True 
 B)False

Question 14

A exclusive good is a good where consumption by one person reduces the quantity that can be consumed by others.

Accepted Answer

A) True 
 B)False

Question 15

An example of a positive externality is:

Accepted Answer

A) a rear-end spoiler feature on the back of sports cars that helps to stabilize and improve handling for the vehicle. 
B) legislation reducing air pollution. 
C) a chemical plant that emits thermal pollution. 
D) a chocolate factory whose aroma draws people to an area of the city that has a large quantity of tourist activities and shopping. 
A) a rear-end spoiler feature on the back of sports cars that helps to stabilize and improve handling for the vehicle. 
B) legislation reducing air pollution. 
C) a chemical plant that emits thermal pollution. 
D) a chocolate factory whose aroma draws people to an area of the city that has a large quantity of tourist activities and shopping.

Question 16

An exclusive good is a good to which consumers may be denied access.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that an industry emits a chemical that pollutes ground water. Without considering the effects of the pollution, the industry has a marginal private cost curve of $M P C = Q + 30$. The market demand curve is $P = 60 - Q$, while the marginal social cost curve is $\mathrm { MSC } = 2 \mathrm { Q } + 30$. What level of emissions fee would achieve the socially optimal level of output?

Accepted Answer

A)  $\$ 54$. 
B)  $\$ 32$. 
C)  $\$ 12$. 
D)  $\$ 10$. 
A)  $\$ 54$. 
B)  $\$ 32$. 
C)  $\$ 12$. 
D)  $\$ 10$.

Question 18

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry. The marginal social cost production can be expressed as $\mathrm { MSC } = 2 \mathrm { Q } + 30$. The consultants calculate the marginal private cost production to be MPC $= \mathrm { Q } + 30$. The market demand curve can be expressed as $P = 60 - Q$. If the consultants have accurately measured the impact of the pollution externality, the change in social surplus from moving to the social optimum (rather than at the private optimum) is:

Accepted Answer

A)  $\$ 30$ 
B)  $\$ 37.5$. 
C)  $\$ 55$. 
D)  $\$ 67.5$. 
A)  $\$ 30$ 
B)  $\$ 37.5$. 
C)  $\$ 55$. 
D)  $\$ 67.5$.

Question 19

In markets with externalities or public goods, the private costs and benefits that decision makers face diverge from the social costs and benefits.

Accepted Answer

A) True 
 B)False

Question 20

A nonexclusive good:

Accepted Answer

A) is also non-rival. 
B) is also rival. 
C) must be free. 
D) is one where once the good is produced, no one can be prohibited from consuming the good. 
A) is also non-rival. 
B) is also rival. 
C) must be free. 
D) is one where once the good is produced, no one can be prohibited from consuming the good.

In markets with externalities or public goods, private costs exceed social costs.

A public good is a good:

Which of the following is a real-world example of a positive externality?

In the diagram below, the external cost savings from producing at the socially optimal quantity rather than at the private equilibrium can be represented as:

Negative externalities:

A congestion toll is:

When the government can set emissions standards for polluting industries, which of the following statements is correct?

A rural road is generally considered:

A good that, once produced is not accessible to all customers, is nonexclusive good.

In markets with externalities or public goods,

A rival good is a good where consumption by one person reduces the quantity that can be consumed by others.

A exclusive good is a good where consumption by one person reduces the quantity that can be consumed by others.

An example of a positive externality is:

An exclusive good is a good to which consumers may be denied access.

In markets with externalities or public goods, the private costs and benefits that decision makers face diverge from the social costs and benefits.

A nonexclusive good:

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

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Exam 17: Externalities and Public Goods

In markets with externalities or public goods, private costs exceed social costs.

A public good is a good:

Which of the following is a real-world example of a positive externality?

In the diagram below, the external cost savings from producing at the socially optimal quantity rather than at the private equilibrium can be represented as:

Negative externalities:

A congestion toll is:

When the government can set emissions standards for polluting industries, which of the following statements is correct?

A rural road is generally considered:

A good that, once produced is not accessible to all customers, is nonexclusive good.

In markets with externalities or public goods,

A rival good is a good where consumption by one person reduces the quantity that can be consumed by others.

A exclusive good is a good where consumption by one person reduces the quantity that can be consumed by others.

An example of a positive externality is:

An exclusive good is a good to which consumers may be denied access.

In markets with externalities or public goods, the private costs and benefits that decision makers face diverge from the social costs and benefits.

A nonexclusive good:

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

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