Question 1

Which of the following describes a positive externality?

Accepted Answer

A) John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale. 
B) People who do not attend college still benefit from others who receive a college education. 
C) The government imposes a tax on cigarettes in order to discourage smoking among teenagers. 
D) Mary volunteers to drive her neighbor's children to soccer practice. 
A) John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale. 
B) People who do not attend college still benefit from others who receive a college education. 
C) The government imposes a tax on cigarettes in order to discourage smoking among teenagers. 
D) Mary volunteers to drive her neighbor's children to soccer practice. B

Question 2

The cost borne by a producer in the production of a good or service is called

Accepted Answer

A) private cost. 
B) public cost. 
C) social cost. 
D) internal cost. 
A) private cost. 
B) public cost. 
C) social cost. 
D) internal cost. A

Question 3

The tragedy of the commons was avoided in the Middle Ages by

Accepted Answer

A) selling common grounds to individuals. 
B) the local police who monitored entry into the commons. 
C) social pressure to uphold traditionally accepted limits on family use of the commons. 
D) the government which imposed a tax for the use of the commons. 
A) selling common grounds to individuals. 
B) the local police who monitored entry into the commons. 
C) social pressure to uphold traditionally accepted limits on family use of the commons. 
D) the government which imposed a tax for the use of the commons. C

Question 4

The Wilfer Resort Hotel has a spectacular view of a pine forest along a river bank.Suppose a commercial logger has purchased the pine forest and is planning to clear-cut the forest in a way that has a negative impact on the resort.Can the two parties arrive at a Coasian solution and if so what might that solution be?

Accepted Answer

In this case, since there are only two p

Question 5

Suppose the government mandates the installation of a certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

Accepted Answer

A) True 
 B)False

Question 6

The market demand for a public good can be determined by

Accepted Answer

A) adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B) adding up how much each citizen expects to consume at each possible price. 
C) adding up how much each consumer is willing to pay for each unit of the public good. 
D) estimating the value of the benefit that each unit provides and multiplying that by the number of consumers. 
A) adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B) adding up how much each citizen expects to consume at each possible price. 
C) adding up how much each consumer is willing to pay for each unit of the public good. 
D) estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.

Question 7

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Accepted Answer

A) it does not lead to significant reductions in pollution. 
B) they believe a market-based approach will reduce pollution more efficiently. 
C) the "command-and-control" approach is designed to help firms at the expense of consumers. 
D) the "command-and-control" approach leads to negative externalities. 
A) it does not lead to significant reductions in pollution. 
B) they believe a market-based approach will reduce pollution more efficiently. 
C) the "command-and-control" approach is designed to help firms at the expense of consumers. 
D) the "command-and-control" approach leads to negative externalities.

Question 8

Figure 5-9
   
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9.An efficient way to get the firm to produce the socially optimal output level is

Accepted Answer

A) for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B) to impose a tax to make the industry bear the external costs it creates. 
C) to grant a subsidy to enable the industry to internalize the external costs of production. 
D) to assign property rights to the firms in the industry. 
A) for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B) to impose a tax to make the industry bear the external costs it creates. 
C) to grant a subsidy to enable the industry to internalize the external costs of production. 
D) to assign property rights to the firms in the industry.

Question 9

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

Accepted Answer

A) the marginal private benefit of harvesting tuna is higher than the marginal social benefit of harvesting it. 
B) the marginal private benefit of harvesting tuna is lower than the marginal social benefit of harvesting it. 
C) the marginal social cost of harvesting the fish is lower than the marginal private cost. 
D) the marginal private cost of harvesting the fish is lower than the marginal social cost. 
A) the marginal private benefit of harvesting tuna is higher than the marginal social benefit of harvesting it. 
B) the marginal private benefit of harvesting tuna is lower than the marginal social benefit of harvesting it. 
C) the marginal social cost of harvesting the fish is lower than the marginal private cost. 
D) the marginal private cost of harvesting the fish is lower than the marginal social cost.

Question 10

The efficient level of paper production will occur where the

Accepted Answer

A) marginal private benefit from consuming paper is equal to the marginal social cost of production. 
B) marginal social benefit from consuming paper is equal to the marginal social cost of production. 
C) economically efficient level of the output of paper is equal to the economically efficient level of inputs. 
D) production of paper no longer produces negative externalities. 
A) marginal private benefit from consuming paper is equal to the marginal social cost of production. 
B) marginal social benefit from consuming paper is equal to the marginal social cost of production. 
C) economically efficient level of the output of paper is equal to the economically efficient level of inputs. 
D) production of paper no longer produces negative externalities.

Question 11

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Accepted Answer

A) enforcement costs. 
B) implicit costs. 
C) explicit costs. 
D) transactions costs. 
A) enforcement costs. 
B) implicit costs. 
C) explicit costs. 
D) transactions costs.

Question 12

Policies that mandate the installation of specific pollution control devices are called

Accepted Answer

A) command-and-control policies. 
B) benefit policies. 
C) welfare policies. 
D) incentive policies. 
A) command-and-control policies. 
B) benefit policies. 
C) welfare policies. 
D) incentive policies.

Question 13

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Accepted Answer

A) The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost. 
B) A deadweight loss occurs; at equilibrium the additional social cost of production is greater than the additional benefit to consumers. 
C) The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced. 
D) The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus. 
A) The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost. 
B) A deadweight loss occurs; at equilibrium the additional social cost of production is greater than the additional benefit to consumers. 
C) The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced. 
D) The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus.

Question 14

What is a market failure?

Accepted Answer

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

Question 15

Figure 5-6
   
Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 5-6.What is the market equilibrium output level?

Accepted Answer

A) Q₁ 
B) Q₂ 
C) Q₁ + Q₂ 
D) Q₂ - Q₁ 
A) Q₁ 
B) Q₂ 
C) Q₁ + Q₂ 
D) Q₂ - Q₁

Question 16

Public goods are distinguished by two primary characteristics.What are they?

Accepted Answer

A) nonrivalry and nonexcludability 
B) government intervention and low prices 
C) market failure and high prices 
D) rivalry and exclusivity 
A) nonrivalry and nonexcludability 
B) government intervention and low prices 
C) market failure and high prices 
D) rivalry and exclusivity

Question 17

Which of the following could be evidence of a market failure?

Accepted Answer

A) Resources in an economy are not fully utilized. 
B) The market price of a product is above the average cost of production. 
C) There are only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs. 
A) Resources in an economy are not fully utilized. 
B) The market price of a product is above the average cost of production. 
C) There are only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs.

Question 18

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Accepted Answer

A) is true only if there are positive externalities in production in the market. 
B) is true only if there are no negative externalities in the market. 
C) is true only if there are no positive or negative externalities in the market. 
D) is true in theory, but economic efficiency cannot be achieved in a real market. 
A) is true only if there are positive externalities in production in the market. 
B) is true only if there are no negative externalities in the market. 
C) is true only if there are no positive or negative externalities in the market. 
D) is true in theory, but economic efficiency cannot be achieved in a real market.

Question 19

Applying Coase's theorem, if the cost to you from having the airplane seat in front of you reclined is ________ the benefit to the reclining passenger, you should ________.

Accepted Answer

A) less than; make a payment to the reclining passenger 
B) greater than; make a payment to the reclining passenger 
C) less than; request a payment from the reclining passenger 
D) greater than; request a payment from the reclining passenger 
A) less than; make a payment to the reclining passenger 
B) greater than; make a payment to the reclining passenger 
C) less than; request a payment from the reclining passenger 
D) greater than; request a payment from the reclining passenger

Question 20

Compare two situations.(A)A firm is not legally responsible for damages that result from air pollution caused by its production of steel.(B)A firm is legally responsible for damages that result from its production of steel.Ronald Coase argued that if the property rights are assigned and transactions costs are low,

Accepted Answer

A) bargaining between the firm and the victims of the air pollution caused by the firm will result in little reduction of pollution in either situation (
A) or (
B) because the firm has greater economic and political power than the victims. 
B) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a greater reduction in pollution in situation (
A) than situation (
B) . 
C) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a smaller reduction in pollution in situation (
A) than situation (
B) . 
D) bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (
A) and situation (
B) . 
A) bargaining between the firm and the victims of the air pollution caused by the firm will result in little reduction of pollution in either situation (
A) or (
B) because the firm has greater economic and political power than the victims. 
B) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a greater reduction in pollution in situation (
A) than situation (
B) . 
C) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a smaller reduction in pollution in situation (
A) than situation (
B) . 
D) bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (
A) and situation (
B) .

Which of the following describes a positive externality?

The cost borne by a producer in the production of a good or service is called

The tragedy of the commons was avoided in the Middle Ages by

Suppose the government mandates the installation of a certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

The market demand for a public good can be determined by

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

The efficient level of paper production will occur where the

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Policies that mandate the installation of specific pollution control devices are called

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

What is a market failure?

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6.What is the market equilibrium output level?

Public goods are distinguished by two primary characteristics.What are they?

Which of the following could be evidence of a market failure?

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Applying Coase's theorem, if the cost to you from having the airplane seat in front of you reclined is the benefit to the reclining passenger, you should .

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Exam 5: Externalities, Environmental Policy, and Public Goods

Which of the following describes a positive externality?

The cost borne by a producer in the production of a good or service is called

The tragedy of the commons was avoided in the Middle Ages by

Suppose the government mandates the installation of a certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

The market demand for a public good can be determined by

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

The efficient level of paper production will occur where the

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Policies that mandate the installation of specific pollution control devices are called

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

What is a market failure?

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6.What is the market equilibrium output level?

Public goods are distinguished by two primary characteristics.What are they?

Which of the following could be evidence of a market failure?

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Applying Coase's theorem, if the cost to you from having the airplane seat in front of you reclined is ________ the benefit to the reclining passenger, you should ________.

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Applying Coase's theorem, if the cost to you from having the airplane seat in front of you reclined is the benefit to the reclining passenger, you should .