Question 1

Which of the following is an example of an externality that has been internalized?

Accepted Answer

A) Acid rain, originating in the United States, destroys Canadian forests. 
B) Robert Frost breathes the air that has been polluted by the emissions of a nearby steel plant. 
C) Erica Evans, a beekeeper, decides to keep more bees because her neighbor, an orchard owner, has agreed to compensate her for the bees' pollination of the orchard. 
D) Miguel Sanchez, a concert pianist, rehearses Beethoven's "Moonlight Sonata" and his neighbors enjoy the "free concert." 
A) Acid rain, originating in the United States, destroys Canadian forests. 
B) Robert Frost breathes the air that has been polluted by the emissions of a nearby steel plant. 
C) Erica Evans, a beekeeper, decides to keep more bees because her neighbor, an orchard owner, has agreed to compensate her for the bees' pollination of the orchard. 
D) Miguel Sanchez, a concert pianist, rehearses Beethoven's "Moonlight Sonata" and his neighbors enjoy the "free concert."

Question 2

Exhibit 30-2 ​
 
Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the net social benefit of expanding output from Q1 to Q2 is the area of

Accepted Answer

A) Q1ABQ2. 
B) Q1AEQ2. 
C) CBA. 
D) ABE. 
A) Q1ABQ2. 
B) Q1AEQ2. 
C) CBA. 
D) ABE.

Question 3

Exhibit 30-2 ​
 
Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the private cost of expanding output from Q1 to Q2 is the area of

Accepted Answer

A) Q1ABQ2. 
B) Q1AEQ2. 
C) Q1CBQ2. 
D) ABE. 
A) Q1ABQ2. 
B) Q1AEQ2. 
C) Q1CBQ2. 
D) ABE.

Question 4

When marginal private benefit is equal to marginal private cost,

Accepted Answer

A) the activity in question generates no negative externality. 
B) all negative externalities have been internalized. 
C) all positive externalities have been internalized. 
D) the socially optimal level of output is less than the market output. 
A) the activity in question generates no negative externality. 
B) all negative externalities have been internalized. 
C) all positive externalities have been internalized. 
D) the socially optimal level of output is less than the market output.

Question 5

Which of the following situations probably would not yield a negative externality?

Accepted Answer

A) a rock concert in the quad next to the library 
B) one person who is smoking cigarettes in a closed room where several other people are present 
C) a tutor quietly instructs a student in economics as a bystander willingly listens in without the tutor knowing it 
D) mowing your lawn early on a Saturday morning when you live in a densely populated neighborhood 
A) a rock concert in the quad next to the library 
B) one person who is smoking cigarettes in a closed room where several other people are present 
C) a tutor quietly instructs a student in economics as a bystander willingly listens in without the tutor knowing it 
D) mowing your lawn early on a Saturday morning when you live in a densely populated neighborhood

Question 6

If a person who generates a negative externality incorporates into his or her private cost-benefit calculations the effects that this externality will have on third parties, the externality has been

Accepted Answer

A) substituted. 
B) accommodated. 
C) compounded. 
D) internalized. 
A) substituted. 
B) accommodated. 
C) compounded. 
D) internalized.

Question 7

Exhibit 30-2 ​
 
Refer to Exhibit 30-2. If Exhibit 30-2 exhibits a positive externality situation, then what is Q2?

Accepted Answer

A) It is the quantity of output at which marginal social benefits (MS
B) equal marginal private benefits (MP
B) . 
B) It is the quantity of output at which MPB > MSB. 
C) It is the market output-the quantity of output that exists if the external benefits associated with the positive externality are not taken into account. 
D) It is the socially optimal output-the quantity of output that exists if the external benefits associated with the positive externality are taken into account. 
A) It is the quantity of output at which marginal social benefits (MS
B) equal marginal private benefits (MP
B) . 
B) It is the quantity of output at which MPB > MSB. 
C) It is the market output-the quantity of output that exists if the external benefits associated with the positive externality are not taken into account. 
D) It is the socially optimal output-the quantity of output that exists if the external benefits associated with the positive externality are taken into account.

Question 8

The excludability versus nonexcludability issue of the provision of goods is

Accepted Answer

A) not relevant to the free-rider problem. 
B) not relevant to the issue of market failure. 
C) relevant to the free-rider problem. 
D) relevant to negative externalities, but not positive externalities. 
A) not relevant to the free-rider problem. 
B) not relevant to the issue of market failure. 
C) relevant to the free-rider problem. 
D) relevant to negative externalities, but not positive externalities.

Question 9

A negative externality is internalized when __________ until the socially optimum level of production is obtained.

Accepted Answer

A) supply shifts to the left 
B) supply shifts to the right 
C) demand shifts to the right 
D) demand and supply both shift to the right 
A) supply shifts to the left 
B) supply shifts to the right 
C) demand shifts to the right 
D) demand and supply both shift to the right

Question 10

If the consumption of a good by one person reduces its consumption by others, then the good is

Accepted Answer

A) nonrivalrous in consumption. 
B) rivalrous in consumption. 
C) nonexcludable. 
D) excludable. 
A) nonrivalrous in consumption. 
B) rivalrous in consumption. 
C) nonexcludable. 
D) excludable.

Question 11

Some pollution may be preferable to zero pollution because

Accepted Answer

A) attempting to decrease the level of pollution to zero may cause significant losses in society's welfare. 
B) we really do not have that much pollution. 
C) the nation's citizens are against government's involvement in solving the pollution problem. 
D) no form of regulation that has been shown to be effective at solving the pollution problem. 
A) attempting to decrease the level of pollution to zero may cause significant losses in society's welfare. 
B) we really do not have that much pollution. 
C) the nation's citizens are against government's involvement in solving the pollution problem. 
D) no form of regulation that has been shown to be effective at solving the pollution problem.

Question 12

When marginal private cost is equal to marginal social cost,

Accepted Answer

A) the activity in question generates no positive externality. 
B) the activity in question generates no negative externality or those externalities have been internalized. 
C) all positive externalities have been internalized. 
D) no negative externalities have been internalized. 
A) the activity in question generates no positive externality. 
B) the activity in question generates no negative externality or those externalities have been internalized. 
C) all positive externalities have been internalized. 
D) no negative externalities have been internalized.

Question 13

In which of the following situations would a negative externality most likely be involved?

Accepted Answer

A) It is night and Kenneth is sitting in his easy chair reading a novel by John Grisham. The lamp he is reading by has only a 40-watt light bulb. He is having a hard time reading. 
B) Alyson lives near an airport. At five o'clock in the morning every day she can hear the airplanes taking off and it awakens her. 
C) Lucy went to a fancy restaurant last night and ordered the most expensive meal on the menu. She hated it. 
D) Richard is taking an economics class from Professor Franklin. Professor Franklin often says things that confuse Richard. 
A) It is night and Kenneth is sitting in his easy chair reading a novel by John Grisham. The lamp he is reading by has only a 40-watt light bulb. He is having a hard time reading. 
B) Alyson lives near an airport. At five o'clock in the morning every day she can hear the airplanes taking off and it awakens her. 
C) Lucy went to a fancy restaurant last night and ordered the most expensive meal on the menu. She hated it. 
D) Richard is taking an economics class from Professor Franklin. Professor Franklin often says things that confuse Richard.

Question 14

When a negative externality exists, the market is said to underproduce the good connected with the negative externality.

Accepted Answer

A) True 
 B)False

Question 15

The primary characteristic of a public good is that it is nonrivalrous in consumption.

Accepted Answer

A) True 
 B)False

Question 16

In which of the following situations would a positive externality most likely be involved?

Accepted Answer

A) Shawn is sitting at home one day when she gets a telephone call, informing her that she has won $10,000 in a contest she entered three months ago. 
B) There are eight houses in the neighborhood where Rodney lives. Rodney likes nice-looking yards, and last week his neighbors began to beautify their yards. 
C) Willy needs eight hours of sleep each night to feel good. Last night he got eight hours of sleep. 
D) Patrick received an A on a biology exam. He is feeling better about his chances of getting admitted to medical school. 
A) Shawn is sitting at home one day when she gets a telephone call, informing her that she has won $10,000 in a contest she entered three months ago. 
B) There are eight houses in the neighborhood where Rodney lives. Rodney likes nice-looking yards, and last week his neighbors began to beautify their yards. 
C) Willy needs eight hours of sleep each night to feel good. Last night he got eight hours of sleep. 
D) Patrick received an A on a biology exam. He is feeling better about his chances of getting admitted to medical school.

Question 17

Exhibit 30-1 ​
 
Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, then what is Q1?

Accepted Answer

A) It is the quantity of output at which marginal social costs (MS
C) equal marginal private costs (MP
C) . 
B) It is the quantity of output at which MPC > MSC. 
C) It is the market output; it is the quantity of output that exists if the external costs associated with the negative externality are not taken into account. 
D) It is the socially optimal output; it is the quantity of output that exists if the external costs associated with the negative externality are taken into account. 
A) It is the quantity of output at which marginal social costs (MS
C) equal marginal private costs (MP
C) . 
B) It is the quantity of output at which MPC > MSC. 
C) It is the market output; it is the quantity of output that exists if the external costs associated with the negative externality are not taken into account. 
D) It is the socially optimal output; it is the quantity of output that exists if the external costs associated with the negative externality are taken into account.

Question 18

A good is rivalrous in consumption if

Accepted Answer

A) its consumption by one person reduces its consumption by others. 
B) it can be used to satisfy many needs (as compared to just one need). 
C) it can be used to satisfy many wants (as compared to just one want). 
D) its consumption by one person increases its consumption by others. 
A) its consumption by one person reduces its consumption by others. 
B) it can be used to satisfy many needs (as compared to just one need). 
C) it can be used to satisfy many wants (as compared to just one want). 
D) its consumption by one person increases its consumption by others.

Question 19

Exhibit 30-1 ​
 
Refer to Exhibit 30-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q2 to Q1 is the area of

Accepted Answer

A) ABC. 
B) Q2BCQ1. 
C) Q2BAQ1. 
D) Q2EAQ1. 
A) ABC. 
B) Q2BCQ1. 
C) Q2BAQ1. 
D) Q2EAQ1.

Question 20

Which of the following statements is false ?

Accepted Answer

A) Externalities can sometimes be internalized through individual voluntary agreements. 
B) It would be a relatively easy matter to establish property rights in the air. 
C) Persuasion can be used in some cases to internalize externalities. 
D) Taxes and subsidies are sometimes used as corrective devices for market failures. 
A) Externalities can sometimes be internalized through individual voluntary agreements. 
B) It would be a relatively easy matter to establish property rights in the air. 
C) Persuasion can be used in some cases to internalize externalities. 
D) Taxes and subsidies are sometimes used as corrective devices for market failures.

Exam 17: Market Failure: Externalities, Public Goods, and Asymmetric Information

Which of the following is an example of an externality that has been internalized?

Exhibit 30-2 ​ Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the net social benefit of expanding output from Q1 to Q2 is the area of

Exhibit 30-2 ​ Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the private cost of expanding output from Q1 to Q2 is the area of

When marginal private benefit is equal to marginal private cost,

Which of the following situations probably would not yield a negative externality?

If a person who generates a negative externality incorporates into his or her private cost-benefit calculations the effects that this externality will have on third parties, the externality has been

Exhibit 30-2 ​ Refer to Exhibit 30-2. If Exhibit 30-2 exhibits a positive externality situation, then what is Q2?

The excludability versus nonexcludability issue of the provision of goods is

A negative externality is internalized when __________ until the socially optimum level of production is obtained.

If the consumption of a good by one person reduces its consumption by others, then the good is

Some pollution may be preferable to zero pollution because

When marginal private cost is equal to marginal social cost,

In which of the following situations would a negative externality most likely be involved?

When a negative externality exists, the market is said to underproduce the good connected with the negative externality.

The primary characteristic of a public good is that it is nonrivalrous in consumption.

In which of the following situations would a positive externality most likely be involved?

Exhibit 30-1 ​ Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, then what is Q1?

A good is rivalrous in consumption if

Exhibit 30-1 ​ Refer to Exhibit 30-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q2 to Q1 is the area of

Which of the following statements is false ?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages, Union, and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Filters

Exhibit 30-2 Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the net social benefit of expanding output from Q₁ to Q₂ is the area of

Exhibit 30-2 Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the private cost of expanding output from Q₁ to Q₂ is the area of

Exhibit 30-2 Refer to Exhibit 30-2. If Exhibit 30-2 exhibits a positive externality situation, then what is Q₂?

Exhibit 30-1 Refer to Exhibit 30-1. If the exhibit represents a negative externality situation, then what is Q₁?

Exhibit 30-1 Refer to Exhibit 30-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q₂ to Q₁ is the area of