Question 1

What problem results in markets when the good is a public good, and how can the government solve the problem?

Accepted Answer

The answer of What problem results in markets when the...

Question 2

Which statement illustrates a policy solution to an inefficiency caused by an externality?

Accepted Answer

A) The city of Boston imposes rent control to address a homelessness crisis. 
B) A minimum wage is imposed to bolster the incomes of low low-skilled workers. 
C) The government offers free vaccines, since an immunized child cannot transmit disease to others. 
D) The government provides national defense, since people can't be excluded from national defense, even if they don't pay for it. 
A) The city of Boston imposes rent control to address a homelessness crisis. 
B) A minimum wage is imposed to bolster the incomes of low low-skilled workers. 
C) The government offers free vaccines, since an immunized child cannot transmit disease to others. 
D) The government provides national defense, since people can't be excluded from national defense, even if they don't pay for it.

Question 3

Why would a country choose to use a "cap and trade" policy rather than a quota to control a negative externality?

Accepted Answer

The answer of Why would a country choose to use...

Question 4

Which example BEST describes cap and trade?

Accepted Answer

A) a tax system used to solve emission costs 
B) a subsidy system that encourages the production of goods with positive externalities 
C) a system of negotiations between polluters and damaged parties that solves externalities 
D) a system of licenses that can be bought and sold and that enable holders to pollute up to a specified amount during given periods 
A) a tax system used to solve emission costs 
B) a subsidy system that encourages the production of goods with positive externalities 
C) a system of negotiations between polluters and damaged parties that solves externalities 
D) a system of licenses that can be bought and sold and that enable holders to pollute up to a specified amount during given periods

Question 5

All marginal benefits, no matter who gets them, are referred to as the marginal _____ benefit.

Accepted Answer

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

Question 6

(Figure: MSC and Supply Curves) Use the graph to answer the question.
The graph shows the marginal social cost curve and supply curve for Sasha's candy shop. When four units are sold, what is the relevant marginal cost for the community where Sasha produces and sells her candy?

Accepted Answer

A) $4 
B) $8 
C) $12 
D) $20 
A) $4 
B) $8 
C) $12 
D) $20

Question 7

What is the difference between a positive externality and a negative externality?

Accepted Answer

A) Whether bystanders have a direct or inverse relationship to the decision maker. 
B) Whether the price rises or falls. 
C) Whether the perspective is the buyer's or the seller's. 
D) Whether the welfare of bystanders rises or falls. 
A) Whether bystanders have a direct or inverse relationship to the decision maker. 
B) Whether the price rises or falls. 
C) Whether the perspective is the buyer's or the seller's. 
D) Whether the welfare of bystanders rises or falls.

Question 8

Why does a common resource lead to the tragedy of the commons?

Accepted Answer

The answer of Why does a common resource lead to...

Question 9

Your employer, the governor of your state, recently announced his retirement from public service. You and your coworkers decide to buy him a retirement gift to show your appreciation, and you offer to purchase the gift, placing a collection jar in a common area for anonymous donations. After a week, you find very little money in the jar, so you end up largely paying for the gift yourself. You are the victim of the _____ problem.

Accepted Answer

A) common resource 
B) private good 
C) club good 
D) free-rider 
A) common resource 
B) private good 
C) club good 
D) free-rider

Question 10

"Cap and trade" means that each business has:

Accepted Answer

A) the right to emit unlimited pollution. 
B) a set level of taxes to pay in order to trade. 
C) external costs and private costs and that it faces demand that includes both. 
D) permits to emit a certain quantity of pollutants and can trade or sell those permits to other companies. 
A) the right to emit unlimited pollution. 
B) a set level of taxes to pay in order to trade. 
C) external costs and private costs and that it faces demand that includes both. 
D) permits to emit a certain quantity of pollutants and can trade or sell those permits to other companies.

Question 11

Because the general market mechanism does not take into account the side effects that harm bystanders, a market economy will produce _____ without any government regulation.

Accepted Answer

A) too little pollution 
B) too much pollution 
C) the socially optimal amount of pollution 
D) the amount of pollution that maximizes total surplus 
A) too little pollution 
B) too much pollution 
C) the socially optimal amount of pollution 
D) the amount of pollution that maximizes total surplus

Question 12

Which of the following is FALSE regarding public goods?

Accepted Answer

A) The fact that the government should fund a public good doesn't mean that the government should produce it. 
B) The fact that the government provides it doesn't mean that it is a public good. 
C) The fact that something is a public good doesn't mean it is nonrival. 
D) The fact that something is a public good doesn't mean that the government should fund it. 
A) The fact that the government should fund a public good doesn't mean that the government should produce it. 
B) The fact that the government provides it doesn't mean that it is a public good. 
C) The fact that something is a public good doesn't mean it is nonrival. 
D) The fact that something is a public good doesn't mean that the government should fund it.

Question 13

To encourage consumption of a good that generates a positive externality, the BEST option for policymakers is to:

Accepted Answer

A) penalize firms through higher taxes unless they produce the socially optimal level of output. 
B) mandate consumption of the good at the socially optimal level of output. 
C) provide a subsidy to firms for each unit of the good consumed to achieve the socially optimal level of output. 
D) allow the market to reach equilibrium on its own. 
A) penalize firms through higher taxes unless they produce the socially optimal level of output. 
B) mandate consumption of the good at the socially optimal level of output. 
C) provide a subsidy to firms for each unit of the good consumed to achieve the socially optimal level of output. 
D) allow the market to reach equilibrium on its own.

Question 14

The marginal social cost of refining crude oil _____ as the quantity of crude oil refined _____.

Accepted Answer

A) decreases; increases 
B) increases; increases 
C) increases; decreases 
D) remains constant; decreases 
A) decreases; increases 
B) increases; increases 
C) increases; decreases 
D) remains constant; decreases

Question 15

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

Accepted Answer

A) remains constant; increases 
B) increases; decreases 
C) increases; increases 
D) remains constant; decreases 
A) remains constant; increases 
B) increases; decreases 
C) increases; increases 
D) remains constant; decreases

Question 16

A pair of jeans that you purchase from American Eagle is a _____ that is excludable and rival in consumption.

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 17

(Figure: MSB and Demand Curves) Use the graph to answer the question.
The graph shows the marginal social benefit and demand curves in the hair brush market. What is the marginal private benefit when four brushes are bought?

Accepted Answer

A) $2 
B) $4 
C) $6 
D) $8 
A) $2 
B) $4 
C) $6 
D) $8

Question 18

Which of the following is an example of a negative externality?

Accepted Answer

A) When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors. 
B) Bae's company has a decrease in profits when the demand for its product falls. 
C) Raul loses weight because he wants to feel better, but the weight loss means that he needs new clothes. 
D) Rita gains weight while she is on vacation because she eats more than normal. 
A) When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors. 
B) Bae's company has a decrease in profits when the demand for its product falls. 
C) Raul loses weight because he wants to feel better, but the weight loss means that he needs new clothes. 
D) Rita gains weight while she is on vacation because she eats more than normal.

Question 19

The efficient rate of emissions occurs when:

Accepted Answer

A) MSB > MSC. B) MSB < MSC. C) MSB = MSC. D) There is no efficient or acceptable rate of emissions. A) MSB > MSC. B) MSB < MSC. C) MSB = MSC. D) There is no efficient or acceptable rate of emissions.

Question 20

Sunday afternoon NFL football games on television are nonrival because:

Accepted Answer

A) the provider cannot prevent people who do not pay for them from watching them. 
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) the market suffers from inefficiently low consumption. 
A) the provider cannot prevent people who do not pay for them from watching them. 
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) the market suffers from inefficiently low consumption.

Exam 10: Externalities and Public Goods

What problem results in markets when the good is a public good, and how can the government solve the problem?

Which statement illustrates a policy solution to an inefficiency caused by an externality?

Why would a country choose to use a "cap and trade" policy rather than a quota to control a negative externality?

Which example BEST describes cap and trade?

All marginal benefits, no matter who gets them, are referred to as the marginal _____ benefit.

(Figure: MSC and Supply Curves) Use the graph to answer the question. The graph shows the marginal social cost curve and supply curve for Sasha's candy shop. When four units are sold, what is the relevant marginal cost for the community where Sasha produces and sells her candy?

What is the difference between a positive externality and a negative externality?

Why does a common resource lead to the tragedy of the commons?

"Cap and trade" means that each business has:

Because the general market mechanism does not take into account the side effects that harm bystanders, a market economy will produce _____ without any government regulation.

Which of the following is FALSE regarding public goods?

To encourage consumption of a good that generates a positive externality, the BEST option for policymakers is to:

The marginal social cost of refining crude oil _____ as the quantity of crude oil refined _____.

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

A pair of jeans that you purchase from American Eagle is a _____ that is excludable and rival in consumption.

(Figure: MSB and Demand Curves) Use the graph to answer the question. The graph shows the marginal social benefit and demand curves in the hair brush market. What is the marginal private benefit when four brushes are bought?

Which of the following is an example of a negative externality?

The efficient rate of emissions occurs when:

Sunday afternoon NFL football games on television are nonrival because:

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

The marginal social cost of refining crude oil _ as the quantity of crude oil refined _.

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