Question 1

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

A)  The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up but the quantities demanded by each consumer at each price. 
C)  There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
D)  There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
A)  The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up but the quantities demanded by each consumer at each price. 
C)  There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
D)  There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. A

Question 2

If an externality exists, it will be experienced by

Accepted Answer

A)  the consumers of the product only. 
B)  the producers of the product only. 
C)  the government only. 
D)  some people not directly involved in the production or consumption of the product. 
A)  the consumers of the product only. 
B)  the producers of the product only. 
C)  the government only. 
D)  some people not directly involved in the production or consumption of the product. D

Question 3

Figure 13-3 shows a market with an externality. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 13 -3. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does What does D2 represent?

Accepted Answer

A)  the demand curve reflecting external benefits 
B)  the demand curve reflecting social benefits 
C)  the demand curve reflecting the sum of social and external benefits 
D)  the demand curve reflecting private benefits 
A)  the demand curve reflecting external benefits 
B)  the demand curve reflecting social benefits 
C)  the demand curve reflecting the sum of social and external benefits 
D)  the demand curve reflecting private benefits B

Question 4

Figure 13-2 shows a market with a negative externality.
-Refer to Figure 13 -2. The efficient output level is

Accepted Answer

A)  Qd. 
B)  Qa. 
C)  Qb  -Qd. 
D)  Qb. 
A)  Qd. 
B)  Qa. 
C)  Qb  -Qd. 
D)  Qb.

Question 5

Mona and Salwa share an apartment and they are deciding whether or not to purchase a weekly housecleaning service. The value of the service to each of them is $50 and it costs $80 to hire a housecleaner. Suppose Salwa is lazy and a spendthrift and Mona suspects that Salwa will be willing to pay $80. What is Mona likely to do, given that she is as rational as any other person?

Accepted Answer

A)  She might claim that she is not willing to pay for a housecleaner, hoping that Salwa would pay the entire $80. 
B)  She will correctly rationalize that Salwa's laziness and spendthrift ways are irrelevant to the decision at hand. 
C)  She will come clean and tell Salwa that since Salwa is lazy and a spendthrift she should pay a bigger share of the $80. 
D)  She might offer to do Salwa's housecleaning chores if salwa would pay her $50. 
A)  She might claim that she is not willing to pay for a housecleaner, hoping that Salwa would pay the entire $80. 
B)  She will correctly rationalize that Salwa's laziness and spendthrift ways are irrelevant to the decision at hand. 
C)  She will come clean and tell Salwa that since Salwa is lazy and a spendthrift she should pay a bigger share of the $80. 
D)  She might offer to do Salwa's housecleaning chores if salwa would pay her $50.

Question 6

Issuing marketable emission allowance permits to polluting firms

Accepted Answer

A)  encourages more pollution. 
B)  has the same impact as a subsidy on production. 
C)  gives the industry the right to a specific level of pollution. 
D)  generates income for the government. 
A)  encourages more pollution. 
B)  has the same impact as a subsidy on production. 
C)  gives the industry the right to a specific level of pollution. 
D)  generates income for the government.

Question 7

Figure 13-2 shows a market with a negative externality.
-Refer to Figure 13 -2. The private profit maximizing quantity for the firm is

Accepted Answer

A)  Qd. 
B)  Qa. 
C)  Qb. 
D)  Qb -Qd. 
A)  Qd. 
B)  Qa. 
C)  Qb. 
D)  Qb -Qd.

Question 8

Which of the following statements is false?

Accepted Answer

A)  Private costs are borne by the producer of the good or service. 
B)  Private benefits are received by the consumer of the good or service. 
C)  Social benefits are external benefits minus private benefits. 
D)  Social costs are private costs and any external costs. 
A)  Private costs are borne by the producer of the good or service. 
B)  Private benefits are received by the consumer of the good or service. 
C)  Social benefits are external benefits minus private benefits. 
D)  Social costs are private costs and any external costs.

Question 9

Figure 13-4 shows a market with a positive externality.
-Refer to Figure 13 -4. At the competitive market equilibrium, for the last unit produced,

Accepted Answer

A)  the size of the external cost is Pn  -Po. 
B)  the size of the external cost is Pm -Po. 
C)  the size of the external benefit is Pn  -Po. 
D)  the size of the external benefit is Pm -Po. 
A)  the size of the external cost is Pn  -Po. 
B)  the size of the external cost is Pm -Po. 
C)  the size of the external benefit is Pn  -Po. 
D)  the size of the external benefit is Pm -Po.

Question 10

What is a market failure?

Accepted Answer

A)  It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
B)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  It refers the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
D)  It refers to a breakdown in a market economy because of widespread corruption in government. 
A)  It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
B)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  It refers the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
D)  It refers to a breakdown in a market economy because of widespread corruption in government.

Question 11

Which of the following represents the economic benefit of production when firms produce goods that create positive externalities?

Accepted Answer

A)  the sum of private benefits from consumption 
B)  the difference between social benefits and private benefits created by the goods 
C)  the sum of private benefits and external benefits created by the goods 
D)  the external benefits created by the goods 
A)  the sum of private benefits from consumption 
B)  the difference between social benefits and private benefits created by the goods 
C)  the sum of private benefits and external benefits created by the goods 
D)  the external benefits created by the goods

Question 12

Traditionally,in their attempts to control pollution, Arab governments

Accepted Answer

A)  specified the total levels of pollution allowed. 
B)  specified the methods firms had to use to reduce pollution. 
C)  gave utility companies allowances to produce a target rate of pollution. 
D)  allowed firms to prove they were small enough to not have to reduce pollution. 
A)  specified the total levels of pollution allowed. 
B)  specified the methods firms had to use to reduce pollution. 
C)  gave utility companies allowances to produce a target rate of pollution. 
D)  allowed firms to prove they were small enough to not have to reduce pollution.

Question 13

Figure 13-3 shows a market with an externality. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 13 -3. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, diagram shows

Accepted Answer

A)  the effect of a negative externality in the consumption of a good. 
B)  the effect of a subsidy granted to producers of a good. 
C)  the effect of an excess demand in a market. 
D)  the effect of a positive externality in the consumption of a good. 
A)  the effect of a negative externality in the consumption of a good. 
B)  the effect of a subsidy granted to producers of a good. 
C)  the effect of an excess demand in a market. 
D)  the effect of a positive externality in the consumption of a good.

Question 14

Compared to the command and control approach to pollution control, the tradable emissions allowance system is

Accepted Answer

A)  less efficient, because the tradable emissions allowance system gives firms the right to pollute a certain amount. 
B)  more efficient, because there are implementation and monitoring costs with the tradable emissions allowance system. 
C)  more efficient, because firms with low costs of pollution control would pollute the least and sell their extra permits to other firms with higher costs of pollution control. 
D)  less efficient, because it does not raise funds for the government whereas under the command and control approach, firms are penalized for non -compliance. 
A)  less efficient, because the tradable emissions allowance system gives firms the right to pollute a certain amount. 
B)  more efficient, because there are implementation and monitoring costs with the tradable emissions allowance system. 
C)  more efficient, because firms with low costs of pollution control would pollute the least and sell their extra permits to other firms with higher costs of pollution control. 
D)  less efficient, because it does not raise funds for the government whereas under the command and control approach, firms are penalized for non -compliance.

Question 15

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

Accepted Answer

A)  not qualifying for financial aid because your parents make too much money 
B)  closing down a segment of a beach because of an oil spill 
C)  purchasing a home that has an unobstructed view of rolling hills 
D)  receiving a failing grade in a college course 
A)  not qualifying for financial aid because your parents make too much money 
B)  closing down a segment of a beach because of an oil spill 
C)  purchasing a home that has an unobstructed view of rolling hills 
D)  receiving a failing grade in a college course

Question 16

Which of the following is true when a negative external effect creates a deadweight loss?

Accepted Answer

A)  The marginal benefit to consumers is above the marginal private cost of the last unit produced. 
B)  The marginal benefit to consumers is below the marginal social cost of the last unit produced. 
C)  The marginal benefit to consumers is equal to the marginal social cost of the last unit produced. 
D)  The marginal benefit to society is below the marginal private cost of the last unit produced. 
A)  The marginal benefit to consumers is above the marginal private cost of the last unit produced. 
B)  The marginal benefit to consumers is below the marginal social cost of the last unit produced. 
C)  The marginal benefit to consumers is equal to the marginal social cost of the last unit produced. 
D)  The marginal benefit to society is below the marginal private cost of the last unit produced.

Question 17

When there is a positive externality, at the free market equilibrium,

Accepted Answer

A)  the marginal private costs are minimized. 
B)  the marginal private benefit is equal to the marginal social benefit. 
C)  the marginal private benefit is less than the marginal social benefit. 
D)  the marginal private benefit is greater than the marginal social benefit. 
A)  the marginal private costs are minimized. 
B)  the marginal private benefit is equal to the marginal social benefit. 
C)  the marginal private benefit is less than the marginal social benefit. 
D)  the marginal private benefit is greater than the marginal social benefit.

Question 18

There has been much debate about imposing a carbon tax on countries importing oil to reduce the carbon footprint world -wide and help protect the environment. What would be the impact of such a tax on the demand for oil and its price?

Accepted Answer

A)  There would be no effect. 
B)  Demand would increase, prices would fall. 
C)  The demand for oil would fall, prices of oil would decrease. 
D)  None of the above. 
A)  There would be no effect. 
B)  Demand would increase, prices would fall. 
C)  The demand for oil would fall, prices of oil would decrease. 
D)  None of the above.

Question 19

Countries like the United States differ from many Arab countries in that the majority of individuals who have private health insurance

Accepted Answer

A)  purchase it directly from government subsidized heath insurance corporations. 
B)  purchase it out of their wage income and receive a tax credit for this expenditure. 
C)  purchase it out of their wage income and receive no tax credit for this expenditure. 
D)  receive it as part of a benefit package from their employers. 
A)  purchase it directly from government subsidized heath insurance corporations. 
B)  purchase it out of their wage income and receive a tax credit for this expenditure. 
C)  purchase it out of their wage income and receive no tax credit for this expenditure. 
D)  receive it as part of a benefit package from their employers.

Question 20

Suppose there is a government funded national health service that is available to citizens at no charge and that the service is funded to a level where shortages do not occur. In this situation, health care services is best classified as a

Accepted Answer

A)  common resource. 
B)  public good. 
C)  quasi -public good. 
D)  national good. 
A)  common resource. 
B)  public good. 
C)  quasi -public good. 
D)  national good.

Exam 13: Externalities, Environmental Policy, and Public Goods

How does the construction of a market demand curve for a private good differ from that for a public good?

If an externality exists, it will be experienced by

Figure 13-2 shows a market with a negative externality. -Refer to Figure 13 -2. The efficient output level is

Issuing marketable emission allowance permits to polluting firms

Figure 13-2 shows a market with a negative externality. -Refer to Figure 13 -2. The private profit maximizing quantity for the firm is

Which of the following statements is false?

Figure 13-4 shows a market with a positive externality. -Refer to Figure 13 -4. At the competitive market equilibrium, for the last unit produced,

What is a market failure?

Which of the following represents the economic benefit of production when firms produce goods that create positive externalities?

Traditionally,in their attempts to control pollution, Arab governments

Compared to the command and control approach to pollution control, the tradable emissions allowance system is

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

Which of the following is true when a negative external effect creates a deadweight loss?

When there is a positive externality, at the free market equilibrium,

There has been much debate about imposing a carbon tax on countries importing oil to reduce the carbon footprint world -wide and help protect the environment. What would be the impact of such a tax on the demand for oil and its price?

Countries like the United States differ from many Arab countries in that the majority of individuals who have private health insurance

Suppose there is a government funded national health service that is available to citizens at no charge and that the service is funded to a level where shortages do not occur. In this situation, health care services is best classified as a

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Elasticity: The Responsiveness of Demand and Supply

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: The Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

Comparative Advantage and the Gains From International Trade Macro

GDP: Measuring Total Production and Income

Economic Growth, the Financial System, and Business Cycles

Unemployment and Inflation

The Markets for Labor and Other Factors of Production

Output and Expenditure in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Central Bank

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Central Bank Policy

Macroeconomics in an Open Economy

Filters