Question 1

My neighbor ________ is an example of an external benefit.

Accepted Answer

A)  smoking a cigarette in my presence 
B)  playing loud music on his radio that I can hear 
C)  dumping hazardous chemicals on a stream that passes through my property 
D)  keeping the leaves from his trees away from my yard 
A)  smoking a cigarette in my presence 
B)  playing loud music on his radio that I can hear 
C)  dumping hazardous chemicals on a stream that passes through my property 
D)  keeping the leaves from his trees away from my yard D

Question 2

Suppose that you rent a house next to a factory. The factory legally emits a chemical into the air that smells like feet. You now have to spend $300 more per month on air fresheners because the firm pollutes the air. You could move to another house far enough away from the factory, but the rent for that house is $200 more than you now pay. The efficient solution to this problem is that

Accepted Answer

A)  the factory owner should compensate you $300 so that you can pay for the additional expenses you incur. 
B)  you should move to the new house because the additional rent on that new house is less than the additional expenses you incur from living next to the factory. 
C)  the factory owner should reimburse you $100, the difference between your expenses and the higher rent on the new house. 
D)  the firm should be able to continue to pollute because only one person is being harmed by the factory's pollution. 
A)  the factory owner should compensate you $300 so that you can pay for the additional expenses you incur. 
B)  you should move to the new house because the additional rent on that new house is less than the additional expenses you incur from living next to the factory. 
C)  the factory owner should reimburse you $100, the difference between your expenses and the higher rent on the new house. 
D)  the firm should be able to continue to pollute because only one person is being harmed by the factory's pollution. B

Question 3

As production increases, it is most likely that the marginal damage costs

Accepted Answer

A)  remain constant. 
B)  increase. 
C)  decrease. 
D)  decrease or increase. 
A)  remain constant. 
B)  increase. 
C)  decrease. 
D)  decrease or increase. B

Question 4

For the Coase theorem to apply, all of the following conditions must be satisfied EXCEPT:

Accepted Answer

A)  The basic rights of the individuals must be clearly understood. 
B)  There must be no impediments to bargaining. 
C)  Only a few people can be involved. 
D)  Liability rules must be established and enforced. 
A)  The basic rights of the individuals must be clearly understood. 
B)  There must be no impediments to bargaining. 
C)  Only a few people can be involved. 
D)  Liability rules must be established and enforced.

Question 5

Vaccinations convey ________ to third parties.

Accepted Answer

A)  positive externalities 
B)  negative externalities 
C)  economies of scale 
D)  public goods 
A)  positive externalities 
B)  negative externalities 
C)  economies of scale 
D)  public goods

Question 6

Governments will likely achieve the optimal level of public goods, but not the correct amount of control over externalities.

Accepted Answer

A) True 
 B)False

Question 7

Assuming there are no externalities, if a firm is producing at an output level where the benefits to consumers are less than the cost to the suppliers to produce it, then price

Accepted Answer

A)  equals marginal cost. 
B)  is greater than marginal cost. 
C)  is less than marginal cost. 
D)  is less than marginal revenue. 
A)  equals marginal cost. 
B)  is greater than marginal cost. 
C)  is less than marginal cost. 
D)  is less than marginal revenue.

Question 8

If there are external costs in production and firms do not have to account for these costs, then firms will produce

Accepted Answer

A)  at the efficient level. 
B)  an output level that is below the efficient level. 
C)  an output level that is above the efficient level. 
D)  an output level that is either above or below the efficient level. 
A)  at the efficient level. 
B)  an output level that is below the efficient level. 
C)  an output level that is above the efficient level. 
D)  an output level that is either above or below the efficient level.

Question 9

Marginal private cost is the

Accepted Answer

A)  additional cost to society resulting from a consumer consuming one more unit of a good. 
B)  additional cost to society resulting from a privately owned firm producing one more unit of a product. 
C)  amount that a consumer pays to produce an additional unit of a good. 
D)  the amount that a consumer pays to consume an additional unit of a particular good. 
A)  additional cost to society resulting from a consumer consuming one more unit of a good. 
B)  additional cost to society resulting from a privately owned firm producing one more unit of a product. 
C)  amount that a consumer pays to produce an additional unit of a good. 
D)  the amount that a consumer pays to consume an additional unit of a particular good.

Question 10

Assume there are two people in a society. Person A is willing to pay $70 to have one unit of a public good produced and Person B is willing to pay $80 to have one unit of a public good produced and $70 to have two units produced. As a result, for ________ unit(s) of this public good society would be willing to pay a price of ________.

Accepted Answer

A)  1; $150 
B)  3; $100 
C)  1; $100 
D)  5; $80 
A)  1; $150 
B)  3; $100 
C)  1; $100 
D)  5; $80

Question 11

Relating to the Economics in Practice on page 332: If a company that is responsible for an environmental disaster does not end up paying the entire cost of the damage it created, the marginal social cost will be ________ the sum of the marginal costs of production.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  unrelated to 
A)  less than 
B)  greater than 
C)  equal to 
D)  unrelated to

Question 12

Refer to the information provided in Figure 16.2 below to answer the questions that follow.   Figure 16.2
-Refer to Figure 16.2. The unregulated (market) amount of cars is

Accepted Answer

A)  25. 
B)  35. 
C)  zero because any production results in an external cost. 
D)  indeterminate from the information given. 
A)  25. 
B)  35. 
C)  zero because any production results in an external cost. 
D)  indeterminate from the information given.

Question 13

Refer to the data provided in Table 16.2 below to answer the following questions.
Table 16.2
 $$\begin{array} { c c c } 
\text { Tons of Glass } & \text { MC } & \text { MSC } \
\hline 1 & 20 & 40 \
2 & 30 & 50 \
3 & 40 & 60 \
4 & 50 & 70 \
5 & 60 & 80 \
\hline
\end{array}$$
-Refer to Table 16.2. This glass-recycling firm is perfectly competitive and is forced to take damage costs into account. If the market price of the product is $50, the firm will produce

Accepted Answer

A)  0 tons of glass. 
B)  2 tons of glass. 
C)  3 tons of glass. 
D)  4 tons of glass. 
A)  0 tons of glass. 
B)  2 tons of glass. 
C)  3 tons of glass. 
D)  4 tons of glass.

Question 14

The field of environmental economics is concerned with ________.

Accepted Answer

A)  externalities 
B)  public goods 
C)  government inefficiency 
D)  economies of scale 
A)  externalities 
B)  public goods 
C)  government inefficiency 
D)  economies of scale

Question 15

When the government imposes a tax on a firm that generates external costs, the tax is

Accepted Answer

A)  always borne entirely by the firm. 
B)  always borne entirely by the consumer. 
C)  usually borne by both the firm and the consumer. 
D)  borne only by the government. 
A)  always borne entirely by the firm. 
B)  always borne entirely by the consumer. 
C)  usually borne by both the firm and the consumer. 
D)  borne only by the government.

Question 16

You and two friends are going to the movies and are going to one of three movies: A, B, or C. You prefer movie A to movie B and movie B to movie C. One of your friends prefers movie B to movie C and movie C to movie A. You other friend prefers movie C to movie A and movie A to movie B. The three of you decide to use majority rule voting to decide which movie you will see. If you first have a vote between movies A and B and then between the winner of that vote and movie C, then movie ________ will win. However, if you first vote between movies A and C and then between the winner of that vote and movie B, then movie ________ will win. This is an example of the ________.

Accepted Answer

A)  C; B; voting paradox 
B)  B; C; impossibility theorem 
C)  A; C; voting paradox 
D)  A; B; majority rule voting 
A)  C; B; voting paradox 
B)  B; C; impossibility theorem 
C)  A; C; voting paradox 
D)  A; B; majority rule voting

Question 17

If the marginal cost of producing a public good is greater than society's total willingness to pay per unit, then

Accepted Answer

A)  the optimal amount of the public good is being produced. 
B)  less than the optimal amount of the public good is being produced. 
C)  more than the optimal amount of the public good is being produced. 
D)  the amount of output being produced could be either greater than or less than the optimal amount. 
A)  the optimal amount of the public good is being produced. 
B)  less than the optimal amount of the public good is being produced. 
C)  more than the optimal amount of the public good is being produced. 
D)  the amount of output being produced could be either greater than or less than the optimal amount.

Question 18

If a tax is imposed on externality-producing activities by perfectly competitive firms so that the market is producing the efficient level of output, then

Accepted Answer

A)  P = MSC and MDC = 0. 
B)  P = MSC and MDC > 0. 
C)  P = MC and MDC = 0. 
D)  P = MC and MDC > 0. 
A)  P = MSC and MDC = 0. 
B)  P = MSC and MDC > 0. 
C)  P = MC and MDC = 0. 
D)  P = MC and MDC > 0.

Question 19

Refer to the information provided in Figure 16.5 below to answer the questions that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.   Figure 16.5
-Refer to Figure 16.5. Suppose the government assigns property rights to the airlines. No negotiations occur between the parties. The resulting level of air travel is ________.

Accepted Answer

A)  0 units 
B)  100 units 
C)  120 units 
D)  Indeterminate from the given information. 
A)  0 units 
B)  100 units 
C)  120 units 
D)  Indeterminate from the given information.

Question 20

Refer to the information provided in Figure 16.2 below to answer the questions that follow.   Figure 16.2
-Refer to Figure 16.2. What is the total damage imposed as a result of producing the market (unregulated) level of fertilizer?

Accepted Answer

A)  $250 
B)  $350 
C)  $500 
D)  $700 
A)  $250 
B)  $350 
C)  $500 
D)  $700

My neighbor ________ is an example of an external benefit.

As production increases, it is most likely that the marginal damage costs

For the Coase theorem to apply, all of the following conditions must be satisfied EXCEPT:

Vaccinations convey ________ to third parties.

Governments will likely achieve the optimal level of public goods, but not the correct amount of control over externalities.

Assuming there are no externalities, if a firm is producing at an output level where the benefits to consumers are less than the cost to the suppliers to produce it, then price

If there are external costs in production and firms do not have to account for these costs, then firms will produce

Marginal private cost is the

Relating to the Economics in Practice on page 332: If a company that is responsible for an environmental disaster does not end up paying the entire cost of the damage it created, the marginal social cost will be ________ the sum of the marginal costs of production.

Refer to the information provided in Figure 16.2 below to answer the questions that follow. Figure 16.2 -Refer to Figure 16.2. The unregulated (market) amount of cars is

The field of environmental economics is concerned with ________.

When the government imposes a tax on a firm that generates external costs, the tax is

If the marginal cost of producing a public good is greater than society's total willingness to pay per unit, then

If a tax is imposed on externality-producing activities by perfectly competitive firms so that the market is producing the efficient level of output, then

Refer to the information provided in Figure 16.2 below to answer the questions that follow. Figure 16.2 -Refer to Figure 16.2. What is the total damage imposed as a result of producing the market (unregulated) level of fertilizer?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters

Exam 16: Externalities, Public Goods, and Social Choice

My neighbor ________ is an example of an external benefit.

As production increases, it is most likely that the marginal damage costs

For the Coase theorem to apply, all of the following conditions must be satisfied EXCEPT:

Vaccinations convey ________ to third parties.

Governments will likely achieve the optimal level of public goods, but not the correct amount of control over externalities.

Assuming there are no externalities, if a firm is producing at an output level where the benefits to consumers are less than the cost to the suppliers to produce it, then price

If there are external costs in production and firms do not have to account for these costs, then firms will produce

Marginal private cost is the

Relating to the Economics in Practice on page 332: If a company that is responsible for an environmental disaster does not end up paying the entire cost of the damage it created, the marginal social cost will be ________ the sum of the marginal costs of production.

Refer to the information provided in Figure 16.2 below to answer the questions that follow. Figure 16.2 -Refer to Figure 16.2. The unregulated (market) amount of cars is

The field of environmental economics is concerned with ________.

When the government imposes a tax on a firm that generates external costs, the tax is

If the marginal cost of producing a public good is greater than society's total willingness to pay per unit, then

If a tax is imposed on externality-producing activities by perfectly competitive firms so that the market is producing the efficient level of output, then

Refer to the information provided in Figure 16.2 below to answer the questions that follow. Figure 16.2 -Refer to Figure 16.2. What is the total damage imposed as a result of producing the market (unregulated) level of fertilizer?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters