Question 1

What is a "social cost" of production?

Accepted Answer

A) the cost of the natural resources used up in production 
B) the total costs of producing a product, both implicit and explicit costs 
C) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product 
D) the cost of the environmental damage created by production

Question 2

Figure 5-7
 
-Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Accepted Answer

A) PF 
B) the value of the area QBBEQE 
C) PF × QE 
D) the value of the area BEF

Question 3

The marginal social cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 4

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Accepted Answer

The answer of Briefly explain the command-and-control approach in dealing...

Question 5

The first economist to systematically analyze market failure was

Accepted Answer

A) Adam Smith. 
B) Ronald Coase. 
C) A. C. Pigou. 
D) J. E. Meade.

Question 6

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption.All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 7

A private good is

Accepted Answer

A) a good that is rival and nonexcludable. 
B) a good that is nonrival and nonexcludable. 
C) a good that is rival and excludable. 
D) a good that is nonrival and excludable.

Question 8

Figure 5-1
  
Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-1.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₂ represent?

Accepted Answer

A) the market supply curve reflecting marginal private cost 
B) the market supply curve reflecting marginal social cost 
C) the market supply curve reflecting external cost 
D) the market supply curve reflecting implicit cost

Question 9

Which of the following is an example of a quasi-public good?

Accepted Answer

A) cable television 
B) organic apples 
C) stock of knowledge in the public domain 
D) crime prevention

Question 10

Figure 5-3
 
-Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Accepted Answer

A) mso. 
B) msn. 
C) nso. 
D) mtn.

Question 11

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Accepted Answer

A) True 
 B)False

Question 12

Article Summary
According to the online real estate database company Zillow, homes located near a Whole Foods or Trader Joe's location have appreciated in value at double the rate of homes in other areas. From 1997 to 2014, the median U.S. home had appreciated 71 percent, while a median home near a Whole Foods or Trader Joe's appreciated 140 percent and 148 percent, respectively. Although some analysts believe this is due to these retailers often opening stores in high-income neighborhoods, Zillow researchers found that before a Whole Foods or Trader Joe's opened, homes near where the stores would eventually be appreciated at the same pace of comparable homes across the city, but after the stores opened the appreciation rate of homes in close proximity increased at a faster rate.
Source: Marian McPherson, "Living near these 2 stores boosts a home's value," inman.com, June 19, 2017.
-Refer to the Article Summary.Assuming the findings are correct and all else equal, higher increases in home values which result from close proximity to a Whole Foods or Trader Joe's are an example of a ________ due to the location of these stores.

Accepted Answer

A) positive externality 
B) negative externality 
C) private cost 
D) social cost

Question 13

When production generates a negative externality, the true cost of production is the

Accepted Answer

A) private cost of production. 
B) public cost of production. 
C) social cost of production. 
D) average cost of production.

Question 14

Explain how the decision by parents to not immunize their children, hoping that their children will not get sick because other parents have had their children immunized, is an example of free riding.How is this behavior dangerous to the public?

Accepted Answer

The answer of Explain how the decision by parents to...

Question 15

Consider the following characteristics:
A.low transactions costs
B.small levels of pollution
C.high levels of pollution
D.clear assignment of property rights
Which of the above are assumptions behind the Coase Theorem?

Accepted Answer

A) a, b, and d 
B) a, c, and d 
C) a and d 
D) a only

Question 16

An external benefit is created when you pursue a college education.

Accepted Answer

A) True 
 B)False

Question 17

Figure 5-15
  
Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-15.The current market equilibrium output is partly the result of overfishing.In that case, what does S₂ represent?

Accepted Answer

A) the private marginal benefit of harvesting salmon 
B) the social marginal benefit of harvesting salmon 
C) the private marginal cost of harvesting salmon 
D) the social marginal cost of harvesting salmon

Question 18

The efficient output level of a public good occurs where the

Accepted Answer

A) greatest number of free riders occurs. 
B) marginal social cost of producing the last unit is equal to the marginal social benefit realized by consumers. 
C) total cost of production is affordable. 
D) marginal cost of production is minimized.

Question 19

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 20

Private solutions to the problem of externalities are most likely when

Accepted Answer

A) government actively encourages these solutions. 
B) transactions costs are low and the number of bargaining parties is small. 
C) transactions costs are low and the number of bargaining parties is large. 
D) transactions costs are low and the monetary damages to third parties are high.

Exam 5: Externalities, Environmental Policy, and Public Goods

What is a "social cost" of production?

Figure 5-7 -Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

The marginal social cost of a good or service is the cost borne by the producer.

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

The first economist to systematically analyze market failure was

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption.All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would and the equilibrium price of soda would .

A private good is

Which of the following is an example of a quasi-public good?

Figure 5-3 -Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

When production generates a negative externality, the true cost of production is the

Explain how the decision by parents to not immunize their children, hoping that their children will not get sick because other parents have had their children immunized, is an example of free riding.How is this behavior dangerous to the public?

Consider the following characteristics: A.low transactions costs B.small levels of pollution C.high levels of pollution D.clear assignment of property rights Which of the above are assumptions behind the Coase Theorem?

An external benefit is created when you pursue a college education.

The efficient output level of a public good occurs where the

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

Private solutions to the problem of externalities are most likely when