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

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 $M P C = Q$ +30. The market demand curve can be expressed as $P = 60 - Q$ . 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 3

The free rider problem occurs

Accepted Answer

A)  when externalities are unaccounted for. 
B)  for both exclusive and non-exclusive goods. 
C)  when a governmental body intervenes in the workings of a private market. 
D)  a consumer consumes a good that others pay for but pays nothing herself. 
A)  when externalities are unaccounted for. 
B)  for both exclusive and non-exclusive goods. 
C)  when a governmental body intervenes in the workings of a private market. 
D)  a consumer consumes a good that others pay for but pays nothing herself.

Question 4

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 5

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 $P = 50 - Q$ . Suppose that the marginal cost for national defense can be expressed as $M C = \$ 30$ . 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 6

Which of the following is a real-world example of a negative 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 7

The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that

Accepted Answer

A)  the willingness to pay in a public good market is smaller than that in a standard market. 
B)  individual consumers are unlikely to be willing to pay enough to cover the marginal cost of production of a public good. 
C)  the marginal social benefit of the Xth unit includes all consumers' marginal social benefits because the public good is non-exclusive and non-rival. 
D)  the concept of quantities is meaningless in the case of public goods. 
A)  the willingness to pay in a public good market is smaller than that in a standard market. 
B)  individual consumers are unlikely to be willing to pay enough to cover the marginal cost of production of a public good. 
C)  the marginal social benefit of the Xth unit includes all consumers' marginal social benefits because the public good is non-exclusive and non-rival. 
D)  the concept of quantities is meaningless in the case of public goods.

Question 8

A rural road is generally considered

Accepted Answer

A)  a public good, but if it gets congested at times, it may not be considered as such because it is no longer true that one person's use of the road does not reduce the ability of others to "consume it"/use it productively. 
B)  a positive externality. 
C)  a public good, even when congested. 
D)  a natural monopoly. 
A)  a public good, but if it gets congested at times, it may not be considered as such because it is no longer true that one person's use of the road does not reduce the ability of others to "consume it"/use it productively. 
B)  a positive externality. 
C)  a public good, even when congested. 
D)  a natural monopoly.

Question 9

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 10

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 11

When the market for product Y includes a positive externality,

Accepted Answer

A)  marginal social cost exceeds marginal private cost. 
B)  marginal private cost exceeds marginal social cost. 
C)  marginal social benefit exceeds marginal private benefit. 
D)  marginal private benefit exceeds marginal social benefit. 
A)  marginal social cost exceeds marginal private cost. 
B)  marginal private cost exceeds marginal social cost. 
C)  marginal social benefit exceeds marginal private benefit. 
D)  marginal private benefit exceeds marginal social benefit.

Question 12

Suppose that the marginal private benefit of a new vaccine could be measured as $M P B = 10 - Q$ . Suppose that the marginal social benefit could be measured as $M S B = 12 - Q$ . Suppose that the private marginal cost curve could be measured as $M P C = Q$ . 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 13

Suppose that the marginal private benefit of a new vaccine could be measured as $M P B = 10 - Q$ . Suppose that the marginal social benefit could be measured as $M S B = 12 - Q$ . Suppose that the private marginal cost curve could be measured as $M P C = Q$ . If there is no subsidy in this market,

Accepted Answer

A)  society will over-consume this product by 2 units. 
B)  society will over-consume this product by 1 unit. 
C)  society will under-consume this product by 2 units. 
D)  society will under-consume this product by 1 unit. 
A)  society will over-consume this product by 2 units. 
B)  society will over-consume this product by 1 unit. 
C)  society will under-consume this product by 2 units. 
D)  society will under-consume this product by 1 unit.

Question 14

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 15

In the diagram below, the external cost savings from producing at the socially optimal quantity rather than at the private equilibrium can be represented as:

Accepted Answer

A)  A 
B)  B + C 
C)  A + B + C 
D)  E + F + H + I 
A)  A 
B)  B + C 
C)  A + B + C 
D)  E + F + H + I

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

When the market for product X includes a negative externality,

Accepted Answer

A)  marginal social cost exceeds marginal private cost. 
B)  marginal private cost exceeds marginal social cost. 
C)  marginal social benefit exceeds marginal private benefit. 
D)  marginal private benefit exceeds marginal social benefit. 
A)  marginal social cost exceeds marginal private cost. 
B)  marginal private cost exceeds marginal social cost. 
C)  marginal social benefit exceeds marginal private benefit. 
D)  marginal private benefit exceeds marginal social benefit.

Question 18

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 $ 1 / 2(\triangle Q \Delta P) $ . 
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 $ 1 / 2(\triangle Q \Delta P) $ . 
D)  zero.

Question 19

Which of the following is not an example of a free rider problem?

Accepted Answer

A)  Sally listens to public radio but never contributes to her local station. 
B)  Fred benefits when the National Guard arrives to help create a flood wall around his town, but he is so poor that he pays no taxes. 
C)  Joe works with two other students on a group project for his intermediate microeconomics class. The grade is based on a group paper, but Joe goes to a movie instead of working on the paper because he knows that the other group members will write it without him. 
D)  John goes into his local corner shop and walks out with an apple without paying for it. 
A)  Sally listens to public radio but never contributes to her local station. 
B)  Fred benefits when the National Guard arrives to help create a flood wall around his town, but he is so poor that he pays no taxes. 
C)  Joe works with two other students on a group project for his intermediate microeconomics class. The grade is based on a group paper, but Joe goes to a movie instead of working on the paper because he knows that the other group members will write it without him. 
D)  John goes into his local corner shop and walks out with an apple without paying for it.

Question 20

To move closer to the social optimum when a negative externality exists, the cost to society of the externality should be

Accepted Answer

A)  incorporated/added on to the price so that demand reflects the true social costs. 
B)  calculated per unit and producers taxed accordingly with a goal of making the supply curve reflective of the marginal social cost of the externality. 
C)  minimized by forcing producers of the externality to shut down when they produce a negative externality. 
D)  minimized by subsidizing the producers of the externality. 
A)  incorporated/added on to the price so that demand reflects the true social costs. 
B)  calculated per unit and producers taxed accordingly with a goal of making the supply curve reflective of the marginal social cost of the externality. 
C)  minimized by forcing producers of the externality to shut down when they produce a negative externality. 
D)  minimized by subsidizing the producers of the externality.

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

The free rider problem occurs

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

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

The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that

A rural road is generally considered

A congestion toll is

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

When the market for product Y includes a positive externality,

Suppose that the marginal private benefit of a new vaccine could be measured as $M P B = 10 - Q$ . Suppose that the marginal social benefit could be measured as $M S B = 12 - Q$ . Suppose that the private marginal cost curve could be measured as $M P C = Q$ . If there is no subsidy in this market,

A commonality between externalities and public goods is that

In the diagram below, the external cost savings from producing at the socially optimal quantity rather than at the private equilibrium can be represented as:

A public good is a good

When the market for product X includes a negative externality,

Which of the following is not an example of a free rider problem?

To move closer to the social optimum when a negative externality exists, the cost to society of the externality should be

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: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

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General Equilibrium Theory

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Exam 17: Externalities and Public Goods

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

The free rider problem occurs

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

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

The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that

A rural road is generally considered

A congestion toll is

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

When the market for product Y includes a positive externality,

A commonality between externalities and public goods is that

In the diagram below, the external cost savings from producing at the socially optimal quantity rather than at the private equilibrium can be represented as:

A public good is a good

When the market for product X includes a negative externality,

Which of the following is not an example of a free rider problem?

To move closer to the social optimum when a negative externality exists, the cost to society of the externality should be

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: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Filters