Question 1

The marginal external cost is the:

Accepted Answer

A) extra cost borne by the producer of a good when the good is regulated by the public sector. 
B) cost paid by the seller in producing one additional unit of output. 
C) external cost imposed on bystanders by one additional unit of output. 
D) additional margins of loss borne by sellers when sales are less than expected. 
A) extra cost borne by the producer of a good when the good is regulated by the public sector. 
B) cost paid by the seller in producing one additional unit of output. 
C) external cost imposed on bystanders by one additional unit of output. 
D) additional margins of loss borne by sellers when sales are less than expected.

Question 2

(Figure: Market 5) Use the graph to answer the question.
The graph shows the marginal social benefit, demand, and supply curves in the toothbrush market. What are the socially optimal quantity and price?

Accepted Answer

A) four; $4 
B) eight; $8 
C) six; $6 
D) four; $8 
A) four; $4 
B) eight; $8 
C) six; $6 
D) four; $8

Question 3

Externalities tend to occur because decision makers consider _____ and do NOT consider _____.

Accepted Answer

A) their own needs as most important; the fact that others also have needs 
B) their own income as limitless; their income as limited 
C) the welfare of others; their own welfare 
D) their own costs and benefits; the effects of their actions on others 
A) their own needs as most important; the fact that others also have needs 
B) their own income as limitless; their income as limited 
C) the welfare of others; their own welfare 
D) their own costs and benefits; the effects of their actions on others

Question 4

Certain activities, such as bee pollination or nature preservation, generate external benefits that will likely be carried out at levels that _____ those that would be efficient.

Accepted Answer

A) are equal to 
B) are less than 
C) exceed 
D) compete with 
A) are equal to 
B) are less than 
C) exceed 
D) compete with

Question 5

For all economies, the extra external cost imposed on bystanders from one extra unit of production is:

Accepted Answer

A) the marginal external benefit. 
B) the marginal external cost. 
C) the optimal corrective tax. 
D) a technology spillover. 
A) the marginal external benefit. 
B) the marginal external cost. 
C) the optimal corrective tax. 
D) a technology spillover.

Question 6

Which good BEST fits the characteristics of a private good?

Accepted Answer

A) a city police force 
B) government-provided medication 
C) a hamburger 
D) iTunes downloads 
A) a city police force 
B) government-provided medication 
C) a hamburger 
D) iTunes downloads

Question 7

Saleable licenses that permit bearers to emit limited quantities of pollutants are called:

Accepted Answer

A) cap and trade. 
B) emission standards. 
C) the marginal social benefit to producers. 
D) pollution quotas. 
A) cap and trade. 
B) emission standards. 
C) the marginal social benefit to producers. 
D) pollution quotas.

Question 8

(Figure: MSC and Supply Curves) Use the graph to answer the question.
The graph shows the marginal social cost and supply curves in a market. What is the marginal external cost imposed on society?

Accepted Answer

A) $2 
B) $4 
C) $8 
D) $12 
A) $2 
B) $4 
C) $8 
D) $12

Question 9

The marginal social benefit of flu shots _____ as the quantity of shots given _____.

Accepted Answer

A) decreases; increases 
B) increases; increases 
C) decreases; decreases 
D) remains unchanged; goes up or down 
A) decreases; increases 
B) increases; increases 
C) decreases; decreases 
D) remains unchanged; goes up or down

Question 10

Your personal best interest is based on the _____, and society's best interest is based on _____.

Accepted Answer

A) costs and benefits you face personally; the costs and benefits of everyone else except you 
B) interest rate on your savings; the average savings rate across all accounts 
C) costs and benefits you face personally; the costs and benefits experienced by bystanders 
D) costs and benefits you face personally; the costs and benefits of everyone 
A) costs and benefits you face personally; the costs and benefits of everyone else except you 
B) interest rate on your savings; the average savings rate across all accounts 
C) costs and benefits you face personally; the costs and benefits experienced by bystanders 
D) costs and benefits you face personally; the costs and benefits of everyone

Question 11

All marginal costs, no matter who pays them, are marginal _____ costs.

Accepted Answer

A) social 
B) external 
C) private 
D) public 
A) social 
B) external 
C) private 
D) public

Question 12

Water available from a natural spring is nonexcludable because:

Accepted Answer

A) it is not possible to prevent people who do not pay for it from consuming it. 
B) more than one person can consume the same unit of the good at the same time. 
C) individuals ignore the effect of their use on the amount of the resource remaining for others. 
D) consumption is inefficiently low. 
A) it is not possible to prevent people who do not pay for it from consuming it. 
B) more than one person can consume the same unit of the good at the same time. 
C) individuals ignore the effect of their use on the amount of the resource remaining for others. 
D) consumption is inefficiently low.

Question 13

A side effect of an activity that affects bystanders whose interests are not taken into account is known as:

Accepted Answer

A) an indirect impact. 
B) an outside impact. 
C) a comparative effect. 
D) an externality. 
A) an indirect impact. 
B) an outside impact. 
C) a comparative effect. 
D) an externality.

Question 14

When a good is nonrival and nonexcludable, it suffers from the _____ problem.

Accepted Answer

A) cap and trade 
B) Coase Theorem 
C) free-rider 
D) partial good 
A) cap and trade 
B) Coase Theorem 
C) free-rider 
D) partial good

Question 15

Why are externalities considered a cause of market failure?

Accepted Answer

A) Because decision makers become overly concerned about the impact of their actions on bystanders. 
B) Because they lead to suboptimal outcomes. 
C) Because they make markets so competitive that profits disappear. 
D) Because they always cause a net loss in welfare. 
A) Because decision makers become overly concerned about the impact of their actions on bystanders. 
B) Because they lead to suboptimal outcomes. 
C) Because they make markets so competitive that profits disappear. 
D) Because they always cause a net loss in welfare.

Question 16

A farmer agrees to give a company access to a private road on his property if the company reduces pollution of the farm's water source. This is an example of reducing an externality through:

Accepted Answer

A) corrective taxes. 
B) public goods. 
C) cap and trade. 
D) private bargaining. 
A) corrective taxes. 
B) public goods. 
C) cap and trade. 
D) private bargaining.

Question 17

(Figure: Public Goods and Common Resources) Use Figure: Public Goods and Common Resources. The figure lists the type of goods that are available for consumption. Panel D depicts a good that is both nonrival in consumption and nonexcludable. Such a good would be considered a:

Accepted Answer

A) private good. 
B) club good. 
C) public good. 
D) common resource. 
A) private good. 
B) club good. 
C) public good. 
D) common resource.

Question 18

(Market 6) Use the graph to answer the question.
The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. If market forces prevail, output will be _____, and the price will be _____.

Accepted Answer

A) 6; $9 
B) 4; $6 
C) 9; $6 
D) 6; $4 
A) 6; $9 
B) 4; $6 
C) 9; $6 
D) 6; $4

Question 19

Traffic congestion is a common example of a negative externality. In principle, it should be possible for drivers to negotiate the right to drive at particular times, thereby compensating those who would prefer not to drive at peak times and solving the externality. The most likely reason these negotiations do NOT occur is that:

Accepted Answer

A) individuals are unfamiliar with the Coase theorem. 
B) the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties. 
C) such an agreement could not be enforced, since all individuals have free access to all public roads. 
D) the punitive nature of the negotiations for those not involved would ensure it cannot come to pass. 
A) individuals are unfamiliar with the Coase theorem. 
B) the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties. 
C) such an agreement could not be enforced, since all individuals have free access to all public roads. 
D) the punitive nature of the negotiations for those not involved would ensure it cannot come to pass.

Question 20

(Table: Pollution and Marginal Cost of Reduction) Use Table: Pollution and Marginal Cost of Reduction. There are two large firms in your community, Gigachem and Gargantubuild, each a significant source of pollution. Combined, they produce 500 tons of pollution, and the EPA has determined that emission levels should be reduced by half. The marginal cost of reducing pollution is constant for each firm, as shown in the table.
​

Accepted Answer

The answer of (Table: Pollution and Marginal Cost of Reduction)...

Exam 10: Externalities and Public Goods

The marginal external cost is the:

(Figure: Market 5) Use the graph to answer the question. The graph shows the marginal social benefit, demand, and supply curves in the toothbrush market. What are the socially optimal quantity and price?

Externalities tend to occur because decision makers consider _____ and do NOT consider _____.

Certain activities, such as bee pollination or nature preservation, generate external benefits that will likely be carried out at levels that _____ those that would be efficient.

For all economies, the extra external cost imposed on bystanders from one extra unit of production is:

Which good BEST fits the characteristics of a private good?

Saleable licenses that permit bearers to emit limited quantities of pollutants are called:

(Figure: MSC and Supply Curves) Use the graph to answer the question. The graph shows the marginal social cost and supply curves in a market. What is the marginal external cost imposed on society?

The marginal social benefit of flu shots _____ as the quantity of shots given _____.

Your personal best interest is based on the _____, and society's best interest is based on _____.

All marginal costs, no matter who pays them, are marginal _____ costs.

Water available from a natural spring is nonexcludable because:

A side effect of an activity that affects bystanders whose interests are not taken into account is known as:

When a good is nonrival and nonexcludable, it suffers from the _____ problem.

Why are externalities considered a cause of market failure?

A farmer agrees to give a company access to a private road on his property if the company reduces pollution of the farm's water source. This is an example of reducing an externality through:

(Figure: Public Goods and Common Resources) Use Figure: Public Goods and Common Resources. The figure lists the type of goods that are available for consumption. Panel D depicts a good that is both nonrival in consumption and nonexcludable. Such a good would be considered a:

(Market 6) Use the graph to answer the question. The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. If market forces prevail, output will be _____, and the price will be _____.

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Entry, Exit, and Long-Run Profitability

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

Externalities tend to occur because decision makers consider _ and do NOT consider _.

The marginal social benefit of flu shots _ as the quantity of shots given _.

Your personal best interest is based on the _, and society's best interest is based on _.

(Market 6) Use the graph to answer the question. The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. If market forces prevail, output will be _, and the price will be _.