Question 1

Monopolizing the sale of liquor

Accepted Answer

A)  can lead to an increase total welfare. 
B)  will decrease total welfare. 
C)  results in a deadweight loss. 
D)  is anti-competitive and thus lowers total welfare. 
A)  can lead to an increase total welfare. 
B)  will decrease total welfare. 
C)  results in a deadweight loss. 
D)  is anti-competitive and thus lowers total welfare.

Question 2

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,the optimal level of trash in the park can be achieved if

Accepted Answer

A)  someone is assigned property rights to the park. 
B)  government limits the use of the park. 
C)  nobody catches Al leaving the trash. 
D)  Bert moves. 
A)  someone is assigned property rights to the park. 
B)  government limits the use of the park. 
C)  nobody catches Al leaving the trash. 
D)  Bert moves.

Question 3

If a production process generates pollution,then a competitive market will produce more of the good than is socially optimal because

Accepted Answer

A)  firms take all costs into consideration. 
B)  firms incur all costs of production but ignore some of them. 
C)  firms ignore the costs of production that they do not incur. 
D)  firms set price equal to social marginal cost. 
A)  firms take all costs into consideration. 
B)  firms incur all costs of production but ignore some of them. 
C)  firms ignore the costs of production that they do not incur. 
D)  firms set price equal to social marginal cost.

Question 4

-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 5

In the case of a good that has no exclusion and no rivalry,private markets fail because

Accepted Answer

A)  of free-ridership. 
B)  this is a natural monopoly. 
C)  profit is driven down to zero. 
D)  the quantity produced will exceed the social optimum. 
A)  of free-ridership. 
B)  this is a natural monopoly. 
C)  profit is driven down to zero. 
D)  the quantity produced will exceed the social optimum.

Question 6

To alleviate the commons problem,the government can

Accepted Answer

A)  apply a tax. 
B)  set a quota. 
C)  assign property rights. 
D)  All of the above. 
A)  apply a tax. 
B)  set a quota. 
C)  assign property rights. 
D)  All of the above.

Question 7

Which of the following goods is more likely to be excludable?

Accepted Answer

A)  a chocolate bar 
B)  a concert at Times Square 
C)  national defense 
D)  ocean breeze 
A)  a chocolate bar 
B)  a concert at Times Square 
C)  national defense 
D)  ocean breeze

Question 8

Assume a country agrees to a free-trade act with another country.In the process,some individuals are displaced from their jobs,thus the free-trade act results in a negative externality.

Accepted Answer

A)  False. 
B)  True. 
C)  Only if those who were displaced are not compensated with another job or income transfer. 
D)  Only if those who were displaced were compensated with another job or income transfer. 
A)  False. 
B)  True. 
C)  Only if those who were displaced are not compensated with another job or income transfer. 
D)  Only if those who were displaced were compensated with another job or income transfer.

Question 9

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 10

-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)  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 11

If a market is subject to a positive externality,

Accepted Answer

A)  the demand curve reflecting social benefit will be to the right of the demand curve representing private benefit. 
B)  there is only one demand curve. 
C)  the demand curve reflecting social benefit will be to the left of the demand curve representing private benefit. 
D)  private benefit will exceed social benefit. 
A)  the demand curve reflecting social benefit will be to the right of the demand curve representing private benefit. 
B)  there is only one demand curve. 
C)  the demand curve reflecting social benefit will be to the left of the demand curve representing private benefit. 
D)  private benefit will exceed social benefit.

Question 12

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities,then

Accepted Answer

A)  welfare is greater under monopoly. 
B)  welfare is greater under competition. 
C)  welfare is the same for both market structures. 
D)  the social optimum must be zero. 
A)  welfare is greater under monopoly. 
B)  welfare is greater under competition. 
C)  welfare is the same for both market structures. 
D)  the social optimum must be zero.

Question 13

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 14

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce

Accepted Answer

A)  less than the social optimum of the good. 
B)  more than the social optimum of the good. 
C)  the social optimum of the good. 
D)  no externality. 
A)  less than the social optimum of the good. 
B)  more than the social optimum of the good. 
C)  the social optimum of the good. 
D)  no externality.

Question 15

Suppose three neighbors must vote on the installation of a traffic light that costs $210.The cost of the light will shared by all three.Voter A values the light at $50; voter B values the light at $50; and voter C (who drives the most)values the light at $200.If the voting rule is that the majority wins,does the light get purchased? Is it efficient to purchase the light?

Accepted Answer

The cost of the light to each

Question 16

-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.As long as someone owns the lake and the two parties can negotiate,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 17

Explain the externality generated when a shepherd grazes sheep in a field that is common property that several other shepherds use.

Accepted Answer

The shepherd allows his sheep to graze i

Question 18

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Accepted Answer

A)  marginal benefit to the median voter. 
B)  marginal benefit to each individual. 
C)  sum of all individual marginal benefits. 
D)  sum of all individual marginal benefits divided by the number of voters. 
A)  marginal benefit to the median voter. 
B)  marginal benefit to each individual. 
C)  sum of all individual marginal benefits. 
D)  sum of all individual marginal benefits divided by the number of voters.

Question 19

-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 chemical firm owns the lake and the beach owner must pay the chemical firm $10 to produce only one ton of pollution,what is the outcome? If the beach owner owns the lake and the chemical firm must pay $10 per ton of pollution,what is the outcome? Compare this result to the case where nobody owns the lake.

Accepted Answer

If the chemical firm owns the lake,the r

Question 20

A zero pollution level is not achievable because

Accepted Answer

A)  corporations would lobby against it. 
B)  it implies no production and no consumption. 
C)  it implies an output level larger than that from a competitive market equilibrium. 
D)  consumption would be larger than production. 
A)  corporations would lobby against it. 
B)  it implies no production and no consumption. 
C)  it implies an output level larger than that from a competitive market equilibrium. 
D)  consumption would be larger than production.

Monopolizing the sale of liquor

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,the optimal level of trash in the park can be achieved if

If a production process generates pollution,then a competitive market will produce more of the good than is socially optimal because

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

In the case of a good that has no exclusion and no rivalry,private markets fail because

To alleviate the commons problem,the government can

Which of the following goods is more likely to be excludable?

Assume a country agrees to a free-trade act with another country.In the process,some individuals are displaced from their jobs,thus the free-trade act results in a negative externality.

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

If a market is subject to a positive externality,

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities,then

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

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce

Explain the externality generated when a shepherd grazes sheep in a field that is common property that several other shepherds use.

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

A zero pollution level is not achievable because

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

Monopolizing the sale of liquor

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,the optimal level of trash in the park can be achieved if

If a production process generates pollution,then a competitive market will produce more of the good than is socially optimal because

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

In the case of a good that has no exclusion and no rivalry,private markets fail because

To alleviate the commons problem,the government can

Which of the following goods is more likely to be excludable?

Assume a country agrees to a free-trade act with another country.In the process,some individuals are displaced from their jobs,thus the free-trade act results in a negative externality.

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

If a market is subject to a positive externality,

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities,then

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

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce

Explain the externality generated when a shepherd grazes sheep in a field that is common property that several other shepherds use.

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

A zero pollution level is not achievable because

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