Question 1

Social cost is the sum of private cost and

Accepted Answer

A)  price 
B)  quantity 
C)  supply 
D)  demand 
E)  external cost 
A)  price 
B)  quantity 
C)  supply 
D)  demand 
E)  external cost

Question 2

In setting an obligatory control on a polluting industry, the government

Accepted Answer

A)  places a tax on the pollution 
B)  creates pollution permits which could be sold on the open market 
C)  creates private property rights for air 
D)  establishes a limit on the amount of pollution a producer is permitted to emit 
E)  offers a subsidy to the polluting firm 
A)  places a tax on the pollution 
B)  creates pollution permits which could be sold on the open market 
C)  creates private property rights for air 
D)  establishes a limit on the amount of pollution a producer is permitted to emit 
E)  offers a subsidy to the polluting firm

Question 3

a.What is a free rider and when do we see free riding?
b. Why doesn't the market calculate the costs and benefits that accrue to free riders?

Accepted Answer

a. A free rider is someone who gets the

Question 4

Taxes and subsidies can be used to correct market failure.

Accepted Answer

A) True 
 B)False

Question 5

In the absence of externalities, the optimal distribution of resources occurs whenproduction is at

Accepted Answer

A)  P = MC 
B)  P = ATC 
C)  TR = TC 
D)  MR = MC 
E)  P = AFC 
A)  P = MC 
B)  P = ATC 
C)  TR = TC 
D)  MR = MC 
E)  P = AFC

Question 6

Free ridership is associated with market failure, resulting in lower than efficient prices and higher than efficient quantities.

Accepted Answer

A) True 
 B)False

Question 7

When property rights are vaguely defined, externalities cannot exist.

Accepted Answer

A) True 
 B)False

Question 8

-The country of Micromania has been concerned with providing the economically efficient level of national defense for its citizens. Micromania has three groups of residents and their defense demands are as depicted in Exhibit N-2. Assuming the marginal cost of national defense is constant at $8 per unit, what is the efficient level ofnational defense to provide?

Accepted Answer

A)  6 units 
B)  13 units 
C)  22 units 
D)  33 units 
E)  44 units 
A)  6 units 
B)  13 units 
C)  22 units 
D)  33 units 
E)  44 units

Question 9

If whooping cranes generate benefits to some members of society by merely their continued existence, then economic markets will consider this in arriving at a level of their provision "as if by an invisible hand."

Accepted Answer

A) True 
 B)False

Question 10

The bubble concept refers to

Accepted Answer

A)  the buying and selling of pollution rights 
B)  the way pollution creates a hole in the ozone layer 
C)  pollution due to nuclear waste 
D)  strict pollution standards for individual firms 
E)  obligatory controls 
A)  the buying and selling of pollution rights 
B)  the way pollution creates a hole in the ozone layer 
C)  pollution due to nuclear waste 
D)  strict pollution standards for individual firms 
E)  obligatory controls

Question 11

Public goods are usually provided by

Accepted Answer

A)  private industry in private markets 
B)  the government 
C)  producers who produce for consumers, that is, for the public 
D)  internal markets 
E)  the public, such as you and your neighbors 
A)  private industry in private markets 
B)  the government 
C)  producers who produce for consumers, that is, for the public 
D)  internal markets 
E)  the public, such as you and your neighbors

Question 12

Coal produced by strip mining leaves the area that has been mined unusable. To restore the area to its original state costs approximately $10 for every ton mined. Using the coal to generate electricity causes air pollution. To outfit the electric power plant with pollution control devices costs another $10 per ton. The social cost of coal-firedel ectricity then includes

Accepted Answer

A)  private cost plus the externality costs associated with mining 
B)  private cost plus the externality costs associated with pollution control 
C)  the externality costs associated with mining and pollution control 
D)  private cost plus the externality costs associated with mining and pollution control 
E)  just the private cost because the externality costs are incorporated in it 
A)  private cost plus the externality costs associated with mining 
B)  private cost plus the externality costs associated with pollution control 
C)  the externality costs associated with mining and pollution control 
D)  private cost plus the externality costs associated with mining and pollution control 
E)  just the private cost because the externality costs are incorporated in it

Question 13

Dina drives to work on Interstate 294 at 90 MPH, well in excess of the 65 MPH speed limit. Sandy is behind her, going 85 MPH. A state trooper pulls Dina over and gives her a speeding ticket. Sandy continues driving. If Dina had not been speeding, the trooper would have ticketed Sandy. In terms of externalities, this story shows that

Accepted Answer

A)  the 10 MPH difference defines the difference bewteen a negative and positive externality 
B)  Sandy enjoys a positive externality 
C)  Dina suffers a negative externality 
D)  Dina's driving habits created a negative externality for Sandy 
E)  Sandy's driving habits created a negative externality for Dina 
A)  the 10 MPH difference defines the difference bewteen a negative and positive externality 
B)  Sandy enjoys a positive externality 
C)  Dina suffers a negative externality 
D)  Dina's driving habits created a negative externality for Sandy 
E)  Sandy's driving habits created a negative externality for Dina

Question 14

One difference between public goods and near public goods is the degree of rivalry.

Accepted Answer

A) True 
 B)False

Question 15

The government is seen by many economists to be the agency that best resolves the problem of negative externalities because it

Accepted Answer

A)  can create positive externalities that compensate for the negative ones 
B)  has access to more information than any private firm or individual and can act more objectively than any private firm or individual 
C)  is the only one affected by negative externalities 
D)  gains the most from negative externalities 
E)  has the power to distribute the bonuses resulting from negative externalities 
A)  can create positive externalities that compensate for the negative ones 
B)  has access to more information than any private firm or individual and can act more objectively than any private firm or individual 
C)  is the only one affected by negative externalities 
D)  gains the most from negative externalities 
E)  has the power to distribute the bonuses resulting from negative externalities

Question 16

-Exhibit N-3 depicts a market showing the demand curve for a good and two supply curves, one reflecting the industry's private costs; the other reflecting the costs of resources to society producing the good. It is clear from this representation of the market that the socially optimum price and output would be

Accepted Answer

A)  $4.00 and 32 
B)  $4.00 and 24 
C)  $3.70 and 32 
D)  $3.70 and 24 
E)  $3.85 and 28 
A)  $4.00 and 32 
B)  $4.00 and 24 
C)  $3.70 and 32 
D)  $3.70 and 24 
E)  $3.85 and 28

Question 17

When airplanes take off and land at Logan Airport, the residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston fromParis, but on this run, over the Atlantic

Accepted Answer

A)  the sound is muffled at high altitudes, creating less market failure 
B)  market failure does not apply because it is an international flight 
C)  there are no externalities because there are no third parties 
D)  the positive externalities of the flight outweigh the negative externalities of the noise 
E)  free riders are more numerous so that market failure is eliminated 
A)  the sound is muffled at high altitudes, creating less market failure 
B)  market failure does not apply because it is an international flight 
C)  there are no externalities because there are no third parties 
D)  the positive externalities of the flight outweigh the negative externalities of the noise 
E)  free riders are more numerous so that market failure is eliminated

Question 18

Government failure occurs when

Accepted Answer

A)  fewer public goods are produced than private goods 
B)  more public goods are produced than private goods 
C)  less than the socially optimal quantity of public goods is produced 
D)  more than the socially optimal quantity of public goods is produced 
E)  special interests emerge in the market 
A)  fewer public goods are produced than private goods 
B)  more public goods are produced than private goods 
C)  less than the socially optimal quantity of public goods is produced 
D)  more than the socially optimal quantity of public goods is produced 
E)  special interests emerge in the market

Question 19

By polling people, we can calculate the demand for public goods and have the market provide them. But we don't. Instead, we allow the government to pay for and provide those goods because it

Accepted Answer

A)  knows better than individuals what public goods are desirable 
B)  avoids "special interests" interference in the market 
C)  can avoid all negative and positive externalities 
D)  can tax people to finance the production of public goods and thereby prevent free riders 
E)  can prevent market failure 
A)  knows better than individuals what public goods are desirable 
B)  avoids "special interests" interference in the market 
C)  can avoid all negative and positive externalities 
D)  can tax people to finance the production of public goods and thereby prevent free riders 
E)  can prevent market failure

Question 20

If we sum the private marginal cost curves of firms producing nuclear power, we createthe

Accepted Answer

A)  industry supply curve for nuclear power 
B)  market equilibrium for nuclear power 
C)  total value of the negative externalities generated by nuclear power 
D)  optimal allocation of resources associated with nuclear power 
E)  marginal externality cost curve for nuclear power 
A)  industry supply curve for nuclear power 
B)  market equilibrium for nuclear power 
C)  total value of the negative externalities generated by nuclear power 
D)  optimal allocation of resources associated with nuclear power 
E)  marginal externality cost curve for nuclear power

Social cost is the sum of private cost and

In setting an obligatory control on a polluting industry, the government

a.What is a free rider and when do we see free riding? b. Why doesn't the market calculate the costs and benefits that accrue to free riders?

Taxes and subsidies can be used to correct market failure.

In the absence of externalities, the optimal distribution of resources occurs whenproduction is at

Free ridership is associated with market failure, resulting in lower than efficient prices and higher than efficient quantities.

When property rights are vaguely defined, externalities cannot exist.

If whooping cranes generate benefits to some members of society by merely their continued existence, then economic markets will consider this in arriving at a level of their provision "as if by an invisible hand."

The bubble concept refers to

Public goods are usually provided by

One difference between public goods and near public goods is the degree of rivalry.

The government is seen by many economists to be the agency that best resolves the problem of negative externalities because it

When airplanes take off and land at Logan Airport, the residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston fromParis, but on this run, over the Atlantic

Government failure occurs when

By polling people, we can calculate the demand for public goods and have the market provide them. But we don't. Instead, we allow the government to pay for and provide those goods because it

If we sum the private marginal cost curves of firms producing nuclear power, we createthe

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters

Exam 14: Externalities, Market Failure, and Public Choice

Social cost is the sum of private cost and

In setting an obligatory control on a polluting industry, the government

a.What is a free rider and when do we see free riding? b. Why doesn't the market calculate the costs and benefits that accrue to free riders?

Taxes and subsidies can be used to correct market failure.

In the absence of externalities, the optimal distribution of resources occurs whenproduction is at

Free ridership is associated with market failure, resulting in lower than efficient prices and higher than efficient quantities.

When property rights are vaguely defined, externalities cannot exist.

If whooping cranes generate benefits to some members of society by merely their continued existence, then economic markets will consider this in arriving at a level of their provision "as if by an invisible hand."

The bubble concept refers to

Public goods are usually provided by

One difference between public goods and near public goods is the degree of rivalry.

The government is seen by many economists to be the agency that best resolves the problem of negative externalities because it

When airplanes take off and land at Logan Airport, the residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston fromParis, but on this run, over the Atlantic

Government failure occurs when

By polling people, we can calculate the demand for public goods and have the market provide them. But we don't. Instead, we allow the government to pay for and provide those goods because it

If we sum the private marginal cost curves of firms producing nuclear power, we createthe

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters