Deck 25: Extension E: Review

Question 1

The marginal social cost of a chemical is $45 per ton and its marginal private cost is $30 per ton. What is the marginal external cost of the chemical?

A) $75 per ton
B) $30 per ton
C) $15 per ton
D) zero

Answer 1

$15 per ton

Question 2

A crowded freeway during the rush hour is a ________ and so it is ________.

A) common resource; overutilized
B) private good; efficiently utilized
C) public good; overutilized
D) natural monopoly; underutilized

Answer 2

common resource; overutilized

Question 3

Compare the inefficient market equilibriums for the case of an external benefit and the case of an external cost. Which of the following is true?

A) Both result in a deadweight loss.
B) Both result in too much production.
C) Both result in too little production.
D) The market with the negative externality is the only one with a deadweight loss.

Answer 3

Both result in a deadweight loss.

Question 4

At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $20 per ton. The market for paper is competitive and unregulated. This means that at the current level of production,

A) the market for paper is in equilibrium.
B) the efficient quantity of paper is produced.
C) there is a shortage of paper.
D) the quantity of paper produced is less than the efficient level of output.

Question 5

The marginal private cost of a chemical is $80 per ton and its marginal external cost is $10 per ton. What is the marginal social cost of the chemical?

A) $70 per ton
B) $85 per ton
C) $90 per ton
D) $45 per ton

Question 6

Street lights are a public good. If street lights were provided by the private market, at the equilibrium quantity, it would be the case that

A) MSB = MSC
B) MSC > MC
C) MSB > MSC
D) MSB > MB

Question 7

An unregulated market produces too ________ of a good with an external cost and too ________ of a good with an external benefit.

A) much; much
B) little; much
C) much; little
D) little; little

Question 8

A non-crowded freeway is

A) rival and nonexcludable.
B) nonrival and excludable.
C) nonrival and nonexcludable.
D) rival and excludable.

Question 9

At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $30 per ton. This means that the current level of production is

A) greater than the efficient level.
B) efficient.
C) less than the efficient level.
D) the equilibrium quantity attained in an unregulated perfectly competitive market.

Question 10

To increase efficiency,

A) taxes can be used to overcome the problems created by both external benefits and external costs.
B) subsidies can be used to overcome problems created by both external benefits and external costs.
C) taxes can be used to overcome the problems created by external benefits, and subsidies can be used to overcome the problems created by external costs.
D) subsidies can be used to overcome the problems created by external benefits, and taxes can be used to overcome the problems created by external costs.

Question 11

A crowded freeway during the rush hour is

A) rival and nonexcludable.
B) nonrival and excludable.
C) nonrival and nonexcludable.
D) rival and excludable.