Question 1

If a production process creates pollution,a competitive market produces excessive pollution because

Accepted Answer

A)  private marginal cost of pollution exceeds its social marginal cost. 
B)  social marginal cost of pollution exceeds its private marginal cost. 
C)  the marginal benefit of pollution to the firm is zero. 
D)  zero pollution is optimal. 
A)  private marginal cost of pollution exceeds its social marginal cost. 
B)  social marginal cost of pollution exceeds its private marginal cost. 
C)  the marginal benefit of pollution to the firm is zero. 
D)  zero pollution is optimal. B

Question 2

-Suppose that the market for steel is shown in the above figure.What specific tax would result in a competitive market producing the socially optimal quantity of steel?

Accepted Answer

The social optimum occurs when 50 ingots are produced.At this level,the marginal external cost is $50.Thus,a specific tax of $50 will yield the socially optimal quantity.

Question 3

The exclusive privilege to use an asset is called a(n)

Accepted Answer

A)  property right. 
B)  exclusive use agreement. 
C)  property privilege. 
D)  right to work privilege. 
A)  property right. 
B)  exclusive use agreement. 
C)  property privilege. 
D)  right to work privilege. A

Question 4

Explain why state governments may charge a fee for beach access to address the commons problem.

Accepted Answer

A fee may be charged to impose some of t

Question 5

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's Theorem,one necessary condition to alleviate the externality is that

Accepted Answer

A)  Al is fined by the government. 
B)  Al has the right to leave trash and Bert cannot do anything about it. 
C)  Bert has the right to a clean park and Al cannot leave trash. 
D)  Either Al or Bert owns the park. 
A)  Al is fined by the government. 
B)  Al has the right to leave trash and Bert cannot do anything about it. 
C)  Bert has the right to a clean park and Al cannot leave trash. 
D)  Either Al or Bert owns the park.

Question 6

Suppose a city has 20 citizens.The first 10 citizens each derive marginal benefit from traffic lights according to the function MB = 10 - Q,and the remaining 10 citizens each derive marginal benefit from traffic lights according to the function MB = 20 - Q.If traffic lights cost $20 each to produce,what is the efficient quantity of traffic lights?

Accepted Answer

A)  14 traffic lights 
B)  16 traffic lights 
C)  12 traffic lights 
D)  9 traffic lights 
A)  14 traffic lights 
B)  16 traffic lights 
C)  12 traffic lights 
D)  9 traffic lights

Question 7

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If the beach owner also owns the lake,and the chemical firm must pay $10 per ton to pollute,then

Accepted Answer

A)  the beach shuts down and the chemical firm produces 1 ton of pollution. 
B)  the beach shuts down and the chemical firm produces 2 tons of pollution. 
C)  the beach operates and the chemical firm produces 1 ton of pollution. 
D)  the beach operates and the chemical firm produces 2 tons of pollution. 
A)  the beach shuts down and the chemical firm produces 1 ton of pollution. 
B)  the beach shuts down and the chemical firm produces 2 tons of pollution. 
C)  the beach operates and the chemical firm produces 1 ton of pollution. 
D)  the beach operates and the chemical firm produces 2 tons of pollution.

Question 8

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If nobody owns the lake,then

Accepted Answer

A)  joint profits are zero. 
B)  joint profits are maximized. 
C)  joint profits are not maximized. 
D)  the beach will not operate because of too much pollution. 
A)  joint profits are zero. 
B)  joint profits are maximized. 
C)  joint profits are not maximized. 
D)  the beach will not operate because of too much pollution.

Question 9

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MCp = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MCe = Q.What is the socially optimal level of output?

Accepted Answer

A)  20 
B)  25 
C)  30 
D)  45 
A)  20 
B)  25 
C)  30 
D)  45

Question 10

-The above figure shows the market for steel ingots.If the market is competitive,and the government institutes a $100 specific tax on steel,then

Accepted Answer

A)  less than the socially optimal quantity of steel is produced. 
B)  the socially optimal quantity of steel of 50 units is produced. 
C)  the socially optimal quantity of steel of 100 units is produced. 
D)  more than the socially optimal quantity of steel is produced. 
A)  less than the socially optimal quantity of steel is produced. 
B)  the socially optimal quantity of steel of 50 units is produced. 
C)  the socially optimal quantity of steel of 100 units is produced. 
D)  more than the socially optimal quantity of steel is produced.

Question 11

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape.Why?

Accepted Answer

A)  It will make over-fishing less likely. 
B)  They can't come up with better traps. 
C)  They are not educated enough to maximize profit. 
D)  They catch more lobsters this way. 
A)  It will make over-fishing less likely. 
B)  They can't come up with better traps. 
C)  They are not educated enough to maximize profit. 
D)  They catch more lobsters this way.

Question 12

-The above figure shows the market for steel ingots.If the market is competitive,then the competitive market level of output is

Accepted Answer

A)  100 units. 
B)  150 units. 
C)  50 units. 
D)  300 units. 
A)  100 units. 
B)  150 units. 
C)  50 units. 
D)  300 units.

Question 13

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MCp = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MCe = Q.What is the total external harm at the competitive market level of output?

Accepted Answer

A)  1350.5 
B)  2025 
C)  672.5 
D)  1012.5 
A)  1350.5 
B)  2025 
C)  672.5 
D)  1012.5

Question 14

If a production process creates positive externalities,a competitive market produces too few positive externalities because the producer

Accepted Answer

A)  does not pay all the costs of the externalities. 
B)  does not receive compensation for the externalities. 
C)  Both A and B. 
D)  None of the above. 
A)  does not pay all the costs of the externalities. 
B)  does not receive compensation for the externalities. 
C)  Both A and B. 
D)  None of the above.

Question 15

If a production process generates pollution,then a competitive market will

Accepted Answer

A)  produce more of the good than is socially optimal. 
B)  produce less of the good than is socially optimal. 
C)  produce the socially optimal quantity of that good. 
D)  produce zero output. 
A)  produce more of the good than is socially optimal. 
B)  produce less of the good than is socially optimal. 
C)  produce the socially optimal quantity of that good. 
D)  produce zero output.

Question 16

Which of the following statements about private and social costs is TRUE?

Accepted Answer

A)  Social costs include externalities. 
B)  Private cost do not include externalities. 
C)  Social costs are never smaller than private costs. 
D)  All of the above. 
A)  Social costs include externalities. 
B)  Private cost do not include externalities. 
C)  Social costs are never smaller than private costs. 
D)  All of the above.

Question 17

Positive externalities are created when

Accepted Answer

A)  other consumers reduce their demand for coffee and price thereby declines. 
B)  farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. 
C)  your neighbor plants beautiful trees and flowers in her yard. 
D)  you purchase the "Mona Lisa" and lock it in a vault. 
A)  other consumers reduce their demand for coffee and price thereby declines. 
B)  farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. 
C)  your neighbor plants beautiful trees and flowers in her yard. 
D)  you purchase the "Mona Lisa" and lock it in a vault.

Question 18

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

Accepted Answer

A)  institute a standard and allow firm to produce at most 50 ingots per period. 
B)  institute a standard and allow firm to produce at most 25 ingots per period. 
C)  institute a standard and allow firm to produce at most 100 ingots per period. 
D)  institute a standard and allow firm to produce at most 10 ingots per period. 
A)  institute a standard and allow firm to produce at most 50 ingots per period. 
B)  institute a standard and allow firm to produce at most 25 ingots per period. 
C)  institute a standard and allow firm to produce at most 100 ingots per period. 
D)  institute a standard and allow firm to produce at most 10 ingots per period.

Question 19

Suppose twenty neighbors share a park.One of the neighbors,Al,leaves trash in the park.This bothers the other neighbors.According to Coase's Theorem,assigning the property rights to the park to Al

Accepted Answer

A)  will achieve the socially optimal quantity of trash. 
B)  will result in zero trash being dumped in the park. 
C)  might still not achieve the social optimum since coordinating the other nineteen neighbors can be costly. 
D)  is unfair. 
A)  will achieve the socially optimal quantity of trash. 
B)  will result in zero trash being dumped in the park. 
C)  might still not achieve the social optimum since coordinating the other nineteen neighbors can be costly. 
D)  is unfair.

Question 20

Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual.

Accepted Answer

A public good lacks rivalry,so many peop

If a production process creates pollution,a competitive market produces excessive pollution because

-Suppose that the market for steel is shown in the above figure.What specific tax would result in a competitive market producing the socially optimal quantity of steel?

The exclusive privilege to use an asset is called a(n)

Explain why state governments may charge a fee for beach access to address the commons problem.

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's Theorem,one necessary condition to alleviate the externality is that

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MC^p = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MC^e = Q.What is the socially optimal level of output?

-The above figure shows the market for steel ingots.If the market is competitive,and the government institutes a $100 specific tax on steel,then

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape.Why?

-The above figure shows the market for steel ingots.If the market is competitive,then the competitive market level of output is

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MC^p = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MC^e = Q.What is the total external harm at the competitive market level of output?

If a production process creates positive externalities,a competitive market produces too few positive externalities because the producer

If a production process generates pollution,then a competitive market will

Which of the following statements about private and social costs is TRUE?

Positive externalities are created when

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

Suppose twenty neighbors share a park.One of the neighbors,Al,leaves trash in the park.This bothers the other neighbors.According to Coase's Theorem,assigning the property rights to the park to Al

Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual.

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 18: Externalities, Open-Access, and Public Goods

If a production process creates pollution,a competitive market produces excessive pollution because

-Suppose that the market for steel is shown in the above figure.What specific tax would result in a competitive market producing the socially optimal quantity of steel?

The exclusive privilege to use an asset is called a(n)

Explain why state governments may charge a fee for beach access to address the commons problem.

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's Theorem,one necessary condition to alleviate the externality is that

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MCp = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MCe = Q.What is the socially optimal level of output?

-The above figure shows the market for steel ingots.If the market is competitive,and the government institutes a $100 specific tax on steel,then

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape.Why?

-The above figure shows the market for steel ingots.If the market is competitive,then the competitive market level of output is

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MCp = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MCe = Q.What is the total external harm at the competitive market level of output?

If a production process creates positive externalities,a competitive market produces too few positive externalities because the producer

If a production process generates pollution,then a competitive market will

Which of the following statements about private and social costs is TRUE?

Positive externalities are created when

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

Suppose twenty neighbors share a park.One of the neighbors,Al,leaves trash in the park.This bothers the other neighbors.According to Coase's Theorem,assigning the property rights to the park to Al

Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual.

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MC^p = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MC^e = Q.What is the socially optimal level of output?

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MC^p = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MC^e = Q.What is the total external harm at the competitive market level of output?