Question 1

When pollution (a negative externality) is created by firms,which of the following is NOT a valid way for the government to restore the social optimum?

Accepted Answer

A)  require firms to install pollution-abatement equipment
B)  require firms to change production techniques to reduce emissions
C)  levy a tax on the production of the good
D)  require firms to pay for the environmental damage they create
E)  offer a subsidy to firms to reduce their production cost

Question 2

Draw a graph to illustrate the market equilibrium and the social optimum in the case where there is a negative externality.Explain why the social optimum is preferred to the market equilibrium.

Accepted Answer

The graph should be similar to the one p...

Question 3

Explain how the following two activities could create both a negative externality and a positive externality:
1. A bee farm
2. A fireworks display

Accepted Answer

A bee farm creates a positive externalit...

Question 4

Negative externalities have __________ for third parties.

Accepted Answer

A)  internal costs
B)  internal benefits
C)  external costs
D)  external benefits
E)  social costs

Question 5

The costs or benefits of a market activity that affect a third party are called:

Accepted Answer

A)  externalities.
B)  public goods.
C)  club goods.
D)  internal costs.
E)  common-resource goods.

Question 6

Which good has well-defined property rights?

Accepted Answer

A)  wild animals
B)  the ocean
C)  a country club golf course
D)  the air
E)  a street performance

Question 7

The government identifies a situation where production of a good is generating a negative externality.A reasonable option for the government to consider is to:

Accepted Answer

A)  impose a tax on the sale of this good.
B)  pass a law preventing the production of this good.
C)  subsidize the cost of producing the good.
D)  pass a law preventing the consumption of this good.
E)  ignore the problem.

Question 8

The market works efficiently in the absence of externalities if the good is:

Accepted Answer

A)  rival and excludable.
B)  nonrival and nonexcludable.
C)  rival and nonexcludable.
D)  nonrival and excludable.
E)  rival and either excludable or nonexcludable.

Question 9

Which of the following is the best example of a common-resource good?

Accepted Answer

A)  a fireworks display
B)  a lighthouse
C)  cable television
D)  fish in a lake
E)  the production of gasoline

Question 10

Which of the following is a benefit of internalizing a negative externality?

Accepted Answer

A)  All pollution is eliminated.
B)  More output is produced.
C)  The deadweight loss is eliminated.
D)  The good is sold for a lower price.
E)  Output increases and prices are lower.

Question 11

Refer to the accompanying figure to answer the questions that follow.
 
-Refer to the accompanying table,where Q represents the quantity produced,internal cost and social cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities.  The market equilibrium occurs where price is __________ and quantity is __________.

Accepted Answer

A)  $70; 200
B)  $50; 200
C)  $60; 300
D)  $80; 300
E)  $60; 100

Question 12

A free-rider problem exists when:

Accepted Answer

A)  people receive a benefit they do not need to pay for.
B)  firms impose a cost on third parties.
C)  negative externalities exist.
D)  a private good is produced.
E)  any market is in equilibrium.

Question 13

Refer to the accompanying table,where Q represents the quantity produced,internal cost and external cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities.  The social optimum occurs where price is __________ and quantity is __________.

Accepted Answer

A)  $4; 2
B)  $8; 4
C)  $10; 3
D)  $10; 5
E)  $12; 6

Question 14

A negative externality exists whenever:

Accepted Answer

A)  there are no internal costs.
B)  production of a good creates an external cost.
C)  production of a good creates an external benefit.
D)  production of a good has no social cost.
E)  production of a good has no social benefit.

Question 15

The cost of an activity paid for by the individual and the third party is defined as a(n) :

Accepted Answer

A)  internal cost.
B)  social cost.
C)  external cost.
D)  third-party cost.
E)  public-good cost.

Question 16

Consider the accompanying figure to answer the questions that follow.
 
-Refer to the accompanying figure.The market for college degrees is currently in equilibrium at point A,and the government decides to subsidize the cost of a college education by offering grants to students.The new socially optimal equilibrium will be at point:

Accepted Answer

A)  R.
B)  W.
C)  T.
D)  U.
E)  V.

Question 17

If the government implements a cap-and-trade system to reduce pollution in a particular industry,then the:

Accepted Answer

A)  supply curve shifts to the left.
B)  supply curve shifts to the right.
C)  demand curve shifts to the left.
D)  demand curve shifts to the right.
E)  supply curve and the demand curve shift to the left.

Question 18

Your neighbor likes to mow his grass each Saturday at 7 A.M.and the noise invariably wakes you up.This is an example of:

Accepted Answer

A)  the third-party problem.
B)  the tragedy of the commons.
C)  an internal cost.
D)  the free-rider problem.
E)  a positive externality.

Question 19

Refer to the accompanying figure to answer the questions that follow.
 
-Refer to the accompanying figure.When a negative externality exists and the government does not intervene,which point best identifies the market equilibrium?

Accepted Answer

A)  A
B)  B
C)  C
D)  D
E)  either C or D

Question 20

Consider a market with a positive externality.The market will tend to __________ the good because the market participants tend to ignore the __________ of their decision.

Accepted Answer

A)  overproduce; external benefit
B)  under-produce; internal benefit
C)  overproduce; external cost
D)  under-produce; external cost
E)  under-produce; external benefit

Exam 7: Market Inefficiencies: Externalities and Public Goods

Refer to the accompanying figure to answer the questions that follow. -Refer to the accompanying figure.When a negative externality exists and the government does not intervene,which point best identifies the market equilibrium?

Correct Answer
verified

Your neighbor likes to mow his grass each Saturday at 7 A.M.and the noise invariably wakes you up.This is an example of:

Correct Answer
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A negative externality exists whenever:

Correct Answer
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The government identifies a situation where production of a good is generating a negative externality.A reasonable option for the government to consider is to:

Correct Answer
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A free-rider problem exists when:

Correct Answer
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Correct Answer
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Which of the following is the best example of a common-resource good?

Correct Answer
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Refer to the accompanying table,where Q represents the quantity produced,internal cost and external cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities. The social optimum occurs where price is and quantity is .

Correct Answer
verified

Draw a graph to illustrate the market equilibrium and the social optimum in the case where there is a negative externality.Explain why the social optimum is preferred to the market equilibrium.

Correct Answer
verified
The graph should be similar to the one p...
View Answer

Correct Answer
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The cost of an activity paid for by the individual and the third party is defined as a(n) :

Correct Answer
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The costs or benefits of a market activity that affect a third party are called:

Correct Answer
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Consider a market with a positive externality.The market will tend to the good because the market participants tend to ignore the of their decision.

Correct Answer
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When pollution (a negative externality) is created by firms,which of the following is NOT a valid way for the government to restore the social optimum?

Correct Answer
verified

Which of the following is a benefit of internalizing a negative externality?

Correct Answer
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Explain how the following two activities could create both a negative externality and a positive externality: 1. A bee farm 2. A fireworks display

Correct Answer
verified
A bee farm creates a positive externalit...
View Answer

Which good has well-defined property rights?

Correct Answer
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The market works efficiently in the absence of externalities if the good is:

Correct Answer
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If the government implements a cap-and-trade system to reduce pollution in a particular industry,then the:

Correct Answer
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Negative externalities have __________ for third parties.

Correct Answer
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Exam 7: Market Inefficiencies: Externalities and Public Goods

Refer to the accompanying figure to answer the questions that follow. -Refer to the accompanying figure.When a negative externality exists and the government does not intervene,which point best identifies the market equilibrium?

Correct AnswerverifiedShow Answer

Your neighbor likes to mow his grass each Saturday at 7 A.M.and the noise invariably wakes you up.This is an example of:

Correct AnswerverifiedShow Answer

A negative externality exists whenever:

Correct AnswerverifiedShow Answer

The government identifies a situation where production of a good is generating a negative externality.A reasonable option for the government to consider is to:

Correct AnswerverifiedShow Answer

A free-rider problem exists when:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the best example of a common-resource good?

Correct AnswerverifiedShow Answer

Refer to the accompanying table,where Q represents the quantity produced,internal cost and external cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities. The social optimum occurs where price is __________ and quantity is __________.

Correct AnswerverifiedShow Answer

Draw a graph to illustrate the market equilibrium and the social optimum in the case where there is a negative externality.Explain why the social optimum is preferred to the market equilibrium.

Correct AnswerverifiedThe graph should be similar to the one p...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The cost of an activity paid for by the individual and the third party is defined as a(n) :

Correct AnswerverifiedShow Answer

The costs or benefits of a market activity that affect a third party are called:

Correct AnswerverifiedShow Answer

Consider a market with a positive externality.The market will tend to __________ the good because the market participants tend to ignore the __________ of their decision.

Correct AnswerverifiedShow Answer

When pollution (a negative externality) is created by firms,which of the following is NOT a valid way for the government to restore the social optimum?

Correct AnswerverifiedShow Answer

Which of the following is a benefit of internalizing a negative externality?

Correct AnswerverifiedShow Answer

Explain how the following two activities could create both a negative externality and a positive externality: 1. A bee farm 2. A fireworks display

Correct AnswerverifiedA bee farm creates a positive externalit...View AnswerShow Answer

Which good has well-defined property rights?

Correct AnswerverifiedShow Answer

The market works efficiently in the absence of externalities if the good is:

Correct AnswerverifiedShow Answer

If the government implements a cap-and-trade system to reduce pollution in a particular industry,then the:

Correct AnswerverifiedShow Answer

Negative externalities have __________ for third parties.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Refer to the accompanying table,where Q represents the quantity produced,internal cost and external cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities. The social optimum occurs where price is and quantity is .

Correct Answer
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Correct Answer
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The graph should be similar to the one p...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Consider a market with a positive externality.The market will tend to the good because the market participants tend to ignore the of their decision.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A bee farm creates a positive externalit...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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