Question 1

Someone else playing music loudly on the radio in a dormitory the night before your economics exam is an example of which of the following?

Accepted Answer

A)  negative production externality 
B)  positive production externality 
C)  positive consumption externality 
D)  negative consumption externality 
A)  negative production externality 
B)  positive production externality 
C)  positive consumption externality 
D)  negative consumption externality

Question 2

To maximize social welfare,which of the following must always be TRUE?

Accepted Answer

A)  Marginal social benefit equals marginal social cost. 
B)  Marginal private benefit equals marginal social cost. 
C)  Marginal social benefit equals marginal private cost. 
D)  Marginal private benefit equals marginal private cost. 
A)  Marginal social benefit equals marginal social cost. 
B)  Marginal private benefit equals marginal social cost. 
C)  Marginal social benefit equals marginal private cost. 
D)  Marginal private benefit equals marginal private cost.

Question 3

When firms in a polluting industry have different costs for the technology to reduce pollution,which of the following is efficient?

Accepted Answer

A)  mandating equivalent reductions in pollution from all firms 
B)  mandating that each firm reduce pollution up to the point at which the marginal cost of reducing pollution is equal to the total social benefit of the reductions for each firm 
C)  mandating that each firm reduce pollution up to the point at which the marginal cost of reducing pollution for each firm is equal to the marginal social benefit of the reductions 
D)  mandating that each firm reduce pollution up to the point at which the marginal benefit of doing so is zero 
A)  mandating equivalent reductions in pollution from all firms 
B)  mandating that each firm reduce pollution up to the point at which the marginal cost of reducing pollution is equal to the total social benefit of the reductions for each firm 
C)  mandating that each firm reduce pollution up to the point at which the marginal cost of reducing pollution for each firm is equal to the marginal social benefit of the reductions 
D)  mandating that each firm reduce pollution up to the point at which the marginal benefit of doing so is zero

Question 4

Without government intervention,it is ___________ true that ___________ in equilibrium.

Accepted Answer

A)  always; private marginal benefit equals private marginal cost 
B)  sometimes; private marginal benefit equals private marginal cost 
C)  always; private costs equal private benefits 
D)  always; social marginal benefit equals social marginal cost 
A)  always; private marginal benefit equals private marginal cost 
B)  sometimes; private marginal benefit equals private marginal cost 
C)  always; private costs equal private benefits 
D)  always; social marginal benefit equals social marginal cost

Question 5

If utilities pollute the air too much in private equilibrium,corrective taxation of the utilities would:

Accepted Answer

A)  shift the private marginal cost curve downward. 
B)  shift the private marginal cost curve upward. 
C)  reduce pollution and shift the private marginal cost curve downward. 
D)  reduce pollution and shift the private marginal cost curve upward. 
A)  shift the private marginal cost curve downward. 
B)  shift the private marginal cost curve upward. 
C)  reduce pollution and shift the private marginal cost curve downward. 
D)  reduce pollution and shift the private marginal cost curve upward.

Question 6

If the social marginal benefit curve of reducing pollution is locally flat,which statement must be true?

Accepted Answer

A)  The benefit to society pollution reduction is larger than if the curve is steep. 
B)  The marginal damage curve of pollution is steep. 
C)  The marginal damage curve of pollution is flat. 
D)  The marginal damage associated with reducing pollution is very large. 
A)  The benefit to society pollution reduction is larger than if the curve is steep. 
B)  The marginal damage curve of pollution is steep. 
C)  The marginal damage curve of pollution is flat. 
D)  The marginal damage associated with reducing pollution is very large.

Question 7

Part I of the Coase Theorem states that when there are well-defined property rights and costless bargaining,then,in a market in which there is an externality,which statement is TRUE?

Accepted Answer

A)  The socially optimal level of consumption can be achieved through the use of taxes and subsidies by the government. 
B)  The socially optimal level of consumption can be achieved through the use of quantity restrictions by the government. 
C)  The socially optimal level of consumption can be achieved through negotiations between the affected parties. 
D)  The socially optimal level of consumption cannot be achieved without mediation by the government. 
A)  The socially optimal level of consumption can be achieved through the use of taxes and subsidies by the government. 
B)  The socially optimal level of consumption can be achieved through the use of quantity restrictions by the government. 
C)  The socially optimal level of consumption can be achieved through negotiations between the affected parties. 
D)  The socially optimal level of consumption cannot be achieved without mediation by the government.

Question 8

Suppose that the demand for a chemical is given by Q = 100 - 2P,where quantity is measured in pounds.The market supply is given by MC = 5.Assume that the marginal external damage of this product is $3 per unit.
(a)What is the equilibrium price and quantity of this good without government intervention?
(b)What level of taxation would generate the socially efficient level of the good?

Accepted Answer

Thus,84 pounds is the socially

Question 9

The ____________ is the direct benefit to consumers of consuming an additional unit of a good.

Accepted Answer

A)  private total benefit 
B)  private marginal benefit 
C)  social total benefit 
D)  social marginal benefit 
A)  private total benefit 
B)  private marginal benefit 
C)  social total benefit 
D)  social marginal benefit

Question 10

Suppose you often come home and find that an uninvited dog has left a calling card in your yard.Determining whose dog is responsible is an example of which of the following?

Accepted Answer

A)  holdout problem 
B)  assignment problem 
C)  free rider problem 
D)  externality-internalization problem 
A)  holdout problem 
B)  assignment problem 
C)  free rider problem 
D)  externality-internalization problem

Question 11

Which of the following activities is most likely to impose a negative externality?

Accepted Answer

A)  smoking 
B)  drinking coffee 
C)  going to a movie 
D)  riding a bicycle 
A)  smoking 
B)  drinking coffee 
C)  going to a movie 
D)  riding a bicycle

Question 12

Suppose your neighbor's dog has been using your lawn in an unwanted way.If the dog's owner agrees to compensate you for his dog's use of your yard,this is an example of:

Accepted Answer

A)  a tax. 
B)  a subsidy. 
C)  private bargaining. 
D)  a government solution to an external cost. 
A)  a tax. 
B)  a subsidy. 
C)  private bargaining. 
D)  a government solution to an external cost.

Question 13

Under an optimal tax system,polluting producers have the incentive to reduce pollution up to the point at which the cost of the reduction is:

Accepted Answer

A)  twice the tax imposed. 
B)  equal to the tax imposed. 
C)  equal to the total benefit of the reduction. 
D)  twice the total benefit of the reduction. 
A)  twice the tax imposed. 
B)  equal to the tax imposed. 
C)  equal to the total benefit of the reduction. 
D)  twice the total benefit of the reduction.

Question 14

Government subsidizes producers of education in part because education is believed to produce a positive externality.The subsidy:

Accepted Answer

A)  shifts the private demand curve to the left. 
B)  shifts the private demand curve to the right. 
C)  shifts the private supply curve to the right. 
D)  shifts the private supply curve to the left. 
A)  shifts the private demand curve to the left. 
B)  shifts the private demand curve to the right. 
C)  shifts the private supply curve to the right. 
D)  shifts the private supply curve to the left.

Someone else playing music loudly on the radio in a dormitory the night before your economics exam is an example of which of the following?

To maximize social welfare,which of the following must always be TRUE?

When firms in a polluting industry have different costs for the technology to reduce pollution,which of the following is efficient?

Without government intervention,it is _ true that _ in equilibrium.

If utilities pollute the air too much in private equilibrium,corrective taxation of the utilities would:

If the social marginal benefit curve of reducing pollution is locally flat,which statement must be true?

Part I of the Coase Theorem states that when there are well-defined property rights and costless bargaining,then,in a market in which there is an externality,which statement is TRUE?

The ____________ is the direct benefit to consumers of consuming an additional unit of a good.

Suppose you often come home and find that an uninvited dog has left a calling card in your yard.Determining whose dog is responsible is an example of which of the following?

Which of the following activities is most likely to impose a negative externality?

Suppose your neighbor's dog has been using your lawn in an unwanted way.If the dog's owner agrees to compensate you for his dog's use of your yard,this is an example of:

Under an optimal tax system,polluting producers have the incentive to reduce pollution up to the point at which the cost of the reduction is:

Government subsidizes producers of education in part because education is believed to produce a positive externality.The subsidy:

Why Study Public Finance

Theoretical Tools of Public Finance

Empirical Tools of Public Finance

Budget Analysis and Deficit Financing

Externalities in Action- Environmental and Health Externalities

Public Goods

Cost-Benefit Analysis

Political Economy

State and Local Government Expenditures

Education

Social Insurance- the New Function of Government

Social Security

Unemployment Insurance, disability Insurance, and Workers Compensation

Health Insurance I- Health Economics and Private Health Insurance

Health Insurance Ii- Medicare, medicaid, and Health Care Reform

Income Distribution and Welfare Programs

Taxation- How It Works and What It Means

The Equity Implications of Taxation- Tax Incidence

Taxes on Labor Supply

Taxes on Savings

Taxes on Risk Taking and Wealth

Taxation of Business Income

Fundamental Tax Reform and Consumption Tax

Filters

Exam 5: Externalities- Problems and Solutions

Someone else playing music loudly on the radio in a dormitory the night before your economics exam is an example of which of the following?

To maximize social welfare,which of the following must always be TRUE?

When firms in a polluting industry have different costs for the technology to reduce pollution,which of the following is efficient?

Without government intervention,it is ___________ true that ___________ in equilibrium.

If utilities pollute the air too much in private equilibrium,corrective taxation of the utilities would:

If the social marginal benefit curve of reducing pollution is locally flat,which statement must be true?

Part I of the Coase Theorem states that when there are well-defined property rights and costless bargaining,then,in a market in which there is an externality,which statement is TRUE?

The ____________ is the direct benefit to consumers of consuming an additional unit of a good.

Suppose you often come home and find that an uninvited dog has left a calling card in your yard.Determining whose dog is responsible is an example of which of the following?

Which of the following activities is most likely to impose a negative externality?

Suppose your neighbor's dog has been using your lawn in an unwanted way.If the dog's owner agrees to compensate you for his dog's use of your yard,this is an example of:

Under an optimal tax system,polluting producers have the incentive to reduce pollution up to the point at which the cost of the reduction is:

Government subsidizes producers of education in part because education is believed to produce a positive externality.The subsidy:

Why Study Public Finance

Theoretical Tools of Public Finance

Empirical Tools of Public Finance

Budget Analysis and Deficit Financing

Externalities in Action- Environmental and Health Externalities

Public Goods

Cost-Benefit Analysis

Political Economy

State and Local Government Expenditures

Education

Social Insurance- the New Function of Government

Social Security

Unemployment Insurance, disability Insurance, and Workers Compensation

Health Insurance I- Health Economics and Private Health Insurance

Health Insurance Ii- Medicare, medicaid, and Health Care Reform

Income Distribution and Welfare Programs

Taxation- How It Works and What It Means

The Equity Implications of Taxation- Tax Incidence

Taxes on Labor Supply

Taxes on Savings

Taxes on Risk Taking and Wealth

Taxation of Business Income

Fundamental Tax Reform and Consumption Tax

Filters

Without government intervention,it is _ true that _ in equilibrium.