Question 1

Which of the following is a real-world example of a public good?

Accepted Answer

A)  You are craving a Diet Coke® for lunch, so you purchase one from the hot dog stand in front of your classroom building. 
B)  National defense is available even for people who do not pay income taxes. 
C)  A person seated in a non-smoking section of a restaurant decides to sneak a few puffs of a cigarette. 
D)  A child receives a vaccination to prevent the spread of measles. 
A)  You are craving a Diet Coke® for lunch, so you purchase one from the hot dog stand in front of your classroom building. 
B)  National defense is available even for people who do not pay income taxes. 
C)  A person seated in a non-smoking section of a restaurant decides to sneak a few puffs of a cigarette. 
D)  A child receives a vaccination to prevent the spread of measles.

Question 2

Suppose that the marginal private benefit of a new vaccine could be measured as   Suppose that the marginal social benefit could be measured as   Suppose that the private marginal cost curve could be measured as   What amount of a per-unit subsidy would encourage the optimal societal consumption of the vaccine?

Accepted Answer

A)  $1. 
B)  $2. 
C)  $4. 
D)  $6. 
A)  $1. 
B)  $2. 
C)  $4. 
D)  $6.

Question 3

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry.The consultants calculate the marginal social cost of production to be MSC = 2Q+30 and the marginal private cost of production to be   +30.The market demand curve can be expressed as   The sum of the consumer surplus plus producer surplus at the market equilibrium (i.e.the equilibrium where production decisions do not take into account the externality) is:

Accepted Answer

A)  $0. 
B)  $112.5 
C)  $150. 
D)  $225 
A)  $0. 
B)  $112.5 
C)  $150. 
D)  $225

Question 4

Suppose that Bill,George,and Al constitute the entire market for consumers of national defense.Each man has an identical demand curve for national defense,which can be expressed as   Suppose that the marginal cost for national defense can be expressed as   What is the optimal quantity of national defense?

Accepted Answer

A)  150 units. 
B)  60 units 
C)  40 units. 
D)  20 units. 
A)  150 units. 
B)  60 units 
C)  40 units. 
D)  20 units.

Question 5

Suppose that the marginal private benefit of a new vaccine could be measured as   Suppose that the marginal social benefit could be measured as   Suppose that the private marginal cost curve could be measured as   What quantity represents the optimal societal consumption of the vaccine?

Accepted Answer

A)  4 units. 
B)  5 units. 
C)  6 units. 
D)  10 units. 
A)  4 units. 
B)  5 units. 
C)  6 units. 
D)  10 units.

Question 6

A congestion toll is

Accepted Answer

A)  like an emissions fee. 
B)  like an emissions standard. 
C)  like a negative externality. 
D)  like common property. 
A)  like an emissions fee. 
B)  like an emissions standard. 
C)  like a negative externality. 
D)  like common property.

Question 7

Suppose a particular national park imposes a voluntary contribution system for entrants of the park.It is suggested that all entrants pay something and there is an estimate given that $5 per user on average will be sufficient to pay for the expenses of maintaining the park.It is most likely that

Accepted Answer

A)  everybody that enters the park will pay a sufficient amount to make sure that expenses are covered. 
B)  nobody who uses the park will contribute anything and the expenses will not be covered. 
C)  some users of the park will not pay anything and will act as trespassers. 
D)  some users of the park will not pay anything and will act as free riders. 
A)  everybody that enters the park will pay a sufficient amount to make sure that expenses are covered. 
B)  nobody who uses the park will contribute anything and the expenses will not be covered. 
C)  some users of the park will not pay anything and will act as trespassers. 
D)  some users of the park will not pay anything and will act as free riders.

Question 8

Suppose that the government could accurately measure the marginal cost of an externality such as water pollution.In order to reduce production from a plant that emits water pollution,the government places an optimal emissions fee on the plant.The final amount of production equates demand with the marginal social cost to society.The deadweight loss associated with this fee is

Accepted Answer

A)  equal to the amount of the tax. 
B)  equal to the quantity reduction as a result of the tax. 
C)  measured as   
D)  zero. 
A)  equal to the amount of the tax. 
B)  equal to the quantity reduction as a result of the tax. 
C)  measured as   
D)  zero.

Question 9

Suppose that an industry emits a chemical that pollutes ground water.Without considering the effects of the pollution,the industry has a marginal private cost curve of MPC = Q+30.The market demand curve is   ,while the marginal social cost curve is MSC = 2Q + 30.What level of emissions fee would achieve the socially optimal level of output?

Accepted Answer

A)  $54. 
B)  $32. 
C)  $12. 
D)  $10. 
A)  $54. 
B)  $32. 
C)  $12. 
D)  $10.

Question 10

In public goods markets,the efficient provision of the public good is determined by

Accepted Answer

A)  the intersection of the horizontal sum of the demand curves of the consumers in the market with the marginal cost curve of the good. 
B)  the intersection of the vertical sum of the demand curves of the consumers in the market with the marginal cost curve of the good. 
C)  The intersection of the demand curve for each individual consumer with the marginal cost curve for the good. 
D)  the intersection of the total cost of producing the good and the vertical sum of the demand curves of the consumers in the market. 
A)  the intersection of the horizontal sum of the demand curves of the consumers in the market with the marginal cost curve of the good. 
B)  the intersection of the vertical sum of the demand curves of the consumers in the market with the marginal cost curve of the good. 
C)  The intersection of the demand curve for each individual consumer with the marginal cost curve for the good. 
D)  the intersection of the total cost of producing the good and the vertical sum of the demand curves of the consumers in the market.

Question 11

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry.The consultants calculate the marginal social cost of production to be MSC = 2Q+30 and the marginal private cost of production to be   +30.The market demand curve can be expressed as   If the consultants have accurately measured the impact of the pollution externality,the net social benefit of producing at the social optimum (rather than at the private optimum) is

Accepted Answer

A)  $0. 
B)  $112.5 
C)  $150. 
D)  $250 
A)  $0. 
B)  $112.5 
C)  $150. 
D)  $250

Question 12

Which of the following is a real-world example of a positive externality?

Accepted Answer

A)  You are craving a soda for lunch. However, the customer ahead of you in line at the hot dog stand buys the last can. 
B)  National defense is available even for people who do not pay income taxes. 
C)  A person seated in a non-smoking section of a restaurant decides to sneak a few puffs of a cigarette. 
D)  A child receives a vaccination to prevent the spread of measles. 
A)  You are craving a soda for lunch. However, the customer ahead of you in line at the hot dog stand buys the last can. 
B)  National defense is available even for people who do not pay income taxes. 
C)  A person seated in a non-smoking section of a restaurant decides to sneak a few puffs of a cigarette. 
D)  A child receives a vaccination to prevent the spread of measles.

Question 13

An example of a positive externality is

Accepted Answer

A)  a rear-end spoiler feature on the back of sports cars that helps to stabilize and improve handling for the vehicle. 
B)  legislation reducing air pollution. 
C)  a chemical plant that emits thermal pollution. 
D)  a chocolate factory whose aroma draws people to an area of the city that has a large quantity of tourist activities and shopping. 
A)  a rear-end spoiler feature on the back of sports cars that helps to stabilize and improve handling for the vehicle. 
B)  legislation reducing air pollution. 
C)  a chemical plant that emits thermal pollution. 
D)  a chocolate factory whose aroma draws people to an area of the city that has a large quantity of tourist activities and shopping.

Question 14

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry. The consultants calculate the marginal social cost of production to be MSC = 2Q+30 and the marginal private cost of production to be   +30.The market demand curve can be expressed as   The net social benefit at the market equilibrium (i.e.the equilibrium where production decisions do not take into account the externality) is:

Accepted Answer

A)  $0. 
B)  $112.5 
C)  $150. 
D)  $225 
A)  $0. 
B)  $112.5 
C)  $150. 
D)  $225

Question 15

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry.The consultants calculate the marginal social cost of production to be MSC = 2Q+30 and the marginal private cost of production to be   +30.The market demand curve can be expressed as   If the consultants have accurately measured the impact of the pollution externality,the cost of the externality at the market equilibrium (i.e.where the externality is not taken into account in production decisions) is

Accepted Answer

A)  $0. 
B)  $112.5. 
C)  $150. 
D)  $250. 
A)  $0. 
B)  $112.5. 
C)  $150. 
D)  $250.

Question 16

A public good is a good

Accepted Answer

A)  that is produced by a government agency. 
B)  that, when it is consumed by one decision maker, affects other decision makers in a way not reflected in the market price. 
C)  that, when it is consumed by one decision maker, does not reduce the quantity that may be consumed by other decision makers and to which all consumers have access. 
D)  that is free. 
A)  that is produced by a government agency. 
B)  that, when it is consumed by one decision maker, affects other decision makers in a way not reflected in the market price. 
C)  that, when it is consumed by one decision maker, does not reduce the quantity that may be consumed by other decision makers and to which all consumers have access. 
D)  that is free.

Question 17

An example of a good that is non-rival but exclusive is

Accepted Answer

A)  hunting in a public game area. 
B)  national defense. 
C)  public radio. 
D)  a pay-TV channel. 
A)  hunting in a public game area. 
B)  national defense. 
C)  public radio. 
D)  a pay-TV channel.

Question 18

What must be true for the provision of wireless service in an airport to be considered a public good?

Accepted Answer

A)  It must be free and it must include the use of a laptop with no charge also. 
B)  It must be free and it would still be considered a public good even though additional users may crowd people off the network or make it too slow to utilize effectively. 
C)  It must be free and it must have enough excess capacity in the network such that additional users do not reduce the ability of other individuals to utilize the network. 
D)  It must be available to all, but the airport could charge for access to the service. 
A)  It must be free and it must include the use of a laptop with no charge also. 
B)  It must be free and it would still be considered a public good even though additional users may crowd people off the network or make it too slow to utilize effectively. 
C)  It must be free and it must have enough excess capacity in the network such that additional users do not reduce the ability of other individuals to utilize the network. 
D)  It must be available to all, but the airport could charge for access to the service.

Question 19

A commonality between externalities and public goods is that

Accepted Answer

A)  in each case, markets are not likely to allocate resources efficiently, even though they might otherwise be competitive. 
B)  in each case, government agency intervention would create inefficiency compared to the market solution. 
C)  competitive markets are likely to be efficient in each case. 
D)  the invisible hand (as discussed by Adam Smith) is likely to lead to efficiency in each case. 
A)  in each case, markets are not likely to allocate resources efficiently, even though they might otherwise be competitive. 
B)  in each case, government agency intervention would create inefficiency compared to the market solution. 
C)  competitive markets are likely to be efficient in each case. 
D)  the invisible hand (as discussed by Adam Smith) is likely to lead to efficiency in each case.

Question 20

The Coase Theorem implies that victims of pollution should be able to pay polluters not to pollute if the victims value a reduction in pollution more than the polluters value the production of the pollution.Which of the following does not explain why this type of payment does not work in "real life"?

Accepted Answer

A)  If there are many victims, the costs to them of organizing may be quite high. 
B)  If there are many firms in the industry, it may be difficult for the victims to negotiate with all of the firms. 
C)  The victims may have trouble quantifying the value to them of reducing the pollution. 
D)  Bargaining costs are likely to be small in this case, so the theorem does not apply. 
A)  If there are many victims, the costs to them of organizing may be quite high. 
B)  If there are many firms in the industry, it may be difficult for the victims to negotiate with all of the firms. 
C)  The victims may have trouble quantifying the value to them of reducing the pollution. 
D)  Bargaining costs are likely to be small in this case, so the theorem does not apply.

Which of the following is a real-world example of a public good?

Suppose that the marginal private benefit of a new vaccine could be measured as Suppose that the marginal social benefit could be measured as Suppose that the private marginal cost curve could be measured as What quantity represents the optimal societal consumption of the vaccine?

A congestion toll is

Suppose a particular national park imposes a voluntary contribution system for entrants of the park.It is suggested that all entrants pay something and there is an estimate given that $5 per user on average will be sufficient to pay for the expenses of maintaining the park.It is most likely that

In public goods markets,the efficient provision of the public good is determined by

Which of the following is a real-world example of a positive externality?

An example of a positive externality is

A public good is a good

An example of a good that is non-rival but exclusive is

What must be true for the provision of wireless service in an airport to be considered a public good?

A commonality between externalities and public goods is that

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Filters

Exam 17: Externalities and Public Goods

Which of the following is a real-world example of a public good?

Suppose that the marginal private benefit of a new vaccine could be measured as Suppose that the marginal social benefit could be measured as Suppose that the private marginal cost curve could be measured as What quantity represents the optimal societal consumption of the vaccine?

A congestion toll is

Suppose a particular national park imposes a voluntary contribution system for entrants of the park.It is suggested that all entrants pay something and there is an estimate given that $5 per user on average will be sufficient to pay for the expenses of maintaining the park.It is most likely that

In public goods markets,the efficient provision of the public good is determined by

Which of the following is a real-world example of a positive externality?

An example of a positive externality is

A public good is a good

An example of a good that is non-rival but exclusive is

What must be true for the provision of wireless service in an airport to be considered a public good?

A commonality between externalities and public goods is that

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Filters