Deck 16: Externalities and Public Goods

Question 1

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q_D = 1000 - 100P and Q_S = -100 + 100P.The price consumers would have to pay for the market to achieve the socially optimal level of production is

A) 5
B) 5.5
C) 6
D) 6.5

Answer 1

C

Question 2

Which of the following "externalities" does not distort the allocation of resources?
I)An individual's unwillingness to cut his or her own lawn in an otherwise immaculately kept neighborhood.
II)Smoke produced by a new firm in an area that raises the costs of other firms.
III)A new firm's bidding up skilled wages in an area,thus raising costs of other firms.
IV)An individual's unwillingness to obtain job training,thereby lowering the total GNP.

A) I, III, and IV.
B) III and IV.
C) II only.
D) IV only.

Answer 2

B

Question 3

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q_D = 1000 - 100P and Q_S = -100 + 100P.The "optimal" amount of environmental damage would be

A) $0
B) $400
C) $450
D) $500

Answer 3

B

Question 4

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A)people who value flood control more than the 1000 (type B)people. where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop gather for a town hall meeting to find the socially optimal level of flood control,and they are successful,how much will type B individuals contribute per unit of flood control?

A) 25
B) 50
C) 75
D) 100

Question 5

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A)people who value flood control more than the 1000 (type B)people. where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop gather for a town hall meeting to find the socially optimal level of flood control,and they are successful,they will pick Q equal to

A) 0
B) 10
C) 25
D) 70

Question 6

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A)people who value flood control more than the 1000 (type B)people. where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop did not work together the amount of flood control purchased would be

A) 0
B) 10
C) 25
D) 70

Question 7

To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be

A) the firm's marginal cost.
B) the social marginal cost.
C) the difference between the social marginal cost and the firm's marginal cost.
D) the sum of the social marginal cost and the firm's marginal cost.

Question 8

In the case of a positive externality,social marginal cost will

A) exceed private marginal cost.
B) be equal to private marginal cost.
C) fall short of private marginal cost.
D) have no specific relation to private marginal cost.

Question 9

In drilling a new oil well in an existing oil field,the fact that output on existing wells is reduced means that

A) existing wells have negatively sloped marginal cost curves.
B) existing wells and new wells are owned by different people.
C) existing wells and new wells are owned by the same people.
D) there is a discrepancy between private and social marginal costs.

Question 10

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A)people who value flood control more than the 1000 (type B)people. where Q measures the quality of flood control.If the price of a unit of flood control is $100000 and the citizens of Toadhop gather for a town hall meeting to find the socially optimal level of flood control,and they are successful,how much will each type A individual contribute in total?

A) 1875
B) 1500
C) 875
D) 625

Question 11

A perfectly competitive steel mill that produces large amounts of pollution (a negative externality)will,from a social point of view,

A) produce too little steel.
B) produce the socially optimal quantity of steel.
C) produce too much steel.
D) produce too much steel only if it installs pollution control equipment.

Question 12

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q_D = 1000 - 100P and Q_S = -100 + 100P.The tax that would have to exist to achieve the socially optimal level of production would be

A) $0
B) $.50
C) $1
D) $2

Question 13

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q_D = 1000 - 100P and Q_S = -100 + 100P.The price that suppliers would receive after they paid the optimal tax would be

A) 4
B) 4.5
C) 5
D) 5.5

Question 14

In the case of a negative externality,the social marginal cost will

A) exceed the private marginal cost.
B) be equal to private marginal cost.
C) fall short of private marginal cost.
D) bear no significant relation to private marginal cost.

Question 15

Each of the following provides incentives to reduce a negative externality except:

A) a merger with affected firms.
B) subsidizing consumption of the good being produced.
C) bargaining among firms.
D) taxation of the externality.

Question 16

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q_D = 1000 - 100P and Q_S = -100 + 100P.The market equilibrium quantity is

A) 400
B) 450
C) 500
D) 550

Question 17

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q_D = 1000 - 100P and Q_S = -100 + 100P.The total dollar value damage to society is

A) 400
B) 450
C) 500
D) 550

Question 18

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q_D = 1000 - 100P and Q_S = -100 + 100P.If regulators limited production to 200 bushels,the deadweight loss relative to the option of setting the optimal tax would be would be

A) $0
B) $200
C) $500
D) $1000

Question 19

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A)people who value flood control more than the 1000 (type B)people. where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop gather for a town hall meeting to find the socially optimal level of flood control,and they are successful,how much will each type B individual contribute in total?

A) 1875
B) 1500
C) 875
D) 625

Question 20

In perfect competition,environmental externalities need not distort the allocation of resources providing

A) transactions costs are zero.
B) average costs are constant for all output levels.
C) firms install pollution control equipment.
D) the government sets realistic pollution standards.

Question 21

Bargaining costs are generally high in cases involving environmental externalities because

A) there are strong incentives to be a free rider.
B) many individuals may be affected by the externalities.
C) it is difficult to measure the costs of the externalities.
D) all of the above.

Question 22

Each of the following is by definition an attribute of a public good except

A) nonrivalry.
B) increasing returns to scale.
C) nonexclusivity.
D) none of these.

Question 23

A nonexclusive good is a good that

A) is sold in various markets.
B) is impossible to keep people from enjoying the benefits the good provides.
C) is produced by a perfectly competitive firm.
D) is produced at the lowest possible cost.

Question 24

The "free-rider problem" of public goods refers to

A) individuals' refusal to pay taxes.
B) individuals' attempts to hide their preferences for collective goods and to avoid paying for them.
C) individuals' overuse of collective goods.
D) the inelasticity of individuals' demands for public goods.

Question 25

The opportunity cost doctrine suggests that which of the following are not costs of government educational programs?

A) The wages of teachers.
B) The foregone earnings of participants.
C) Stipends paid to participants.
D) Materials used by students.

Question 26

Externalities between two firms can be "internalized" if:
I)The two firms merge.
II)Bargaining costs are zero.
III)The externalities affect each firm equally.
IV)Marginal costs for both firms are constant.
Which statement(s)correctly complete(s)the sentence?

A) Only II.
B) All except III.
C) I and II, but not III and IV.
D) I and IV, but not II and III.

Question 27

A higher interest rate (r)will favor those projects in cost-benefit analysis which

A) have costs and benefits occurring in the more distant future.
B) have costs and benefits occurring in the more immediate future.
C) have benefits occurring in the more immediate future and costs occurring in the more distant future.
D) have benefits occurring in the more distant future and costs occurring in the more immediate future.

Question 28

Consider four possible benefits of a water resources project:
I)Provides employment to construction workers currently building houses.
II)Provides electric power to the market.
III)Provides reduced flood risk to individuals living along the river.
IV)Raises the profits of MacDonald's stands in the area that serve construction workers.
According to the opportunity cost notion of cost-benefit analysis,which of these are true benefits?

A) All of them.
B) I, II, and III, but not IV.
C) I and III, but not II and IV.
D) II and III, but not I and IV.

Question 29

Special interest groups often

A) represent broad questions of public interest.
B) pursue rent seeking behavior.
C) do not use lobbying techniques.
D) have no effect on the political process.

Question 30

Perfectly competitive markets will tend to underallocate resources to nonexclusive public goods because

A) these goods are produced under conditions of increasing returns to scale.
B) no single individual can appropriate the total benefits provided by the purchase of such goods.
C) these goods are best produced under conditions of monopoly.
D) no private producer can provide the capital necessary to produce such goods.

Question 31

If preferences are one-dimensional and preferences are single peaked,majority rule will result in selection of the project most favored by

A) no one.
B) the median voter.
C) the average voter.
D) everyone.

Question 32

Left to their own,private markets tend to

A) underallocate resources to public goods.
B) allocate the economically efficient amount of resources to public goods.
C) overallocate resources to public goods.
D) use up all the public goods.

Question 33

Efficient production of a public good requires

A) that individuals pay for such goods according to benefits received.
B) that each individual's MRS be equal to the RPT of public goods for private goods.
C) that the sum of individuals' MRSs be equal to the RPT of public goods for private goods.
D) that governments produce at the low point of the average cost curve for the public good.

Question 34

A nonrival good is a good that

A) is produced by a monopoly.
B) is produced by a cartel.
C) can provide benefits to additional users at a zero marginal cost.
D) is sold in a single market.

Question 35

If bargaining is costless,the assignment of property rights for an externality

A) has no impact on the possibility of an efficient outcome and no distributional impact.
B) has no impact on the possibility of an efficient outcome but does have a distributional impact.
C) does have an impact on the possibility of an efficient outcome but has no distributional impact.
D) does have an impact on the possibility of an efficient outcome and does have a distributional impact.

Question 36

Common property

A) is owned by specific people.
B) is inexhaustible.
C) refers strictly to land resource.
D) refers to goods "owned" by society at large and freely usable by anyone.