Question 1

An external cost is a cost of producing a good or service that is

Accepted Answer

A)  not paid by the producers 
B)  paid by the producers. 
C)  paid by the government. 
D)  paid by the consumer and the government. 
A)  not paid by the producers 
B)  paid by the producers. 
C)  paid by the government. 
D)  paid by the consumer and the government.

Question 2

-The figure above shows the costs associated with producing paper. When paper is produced, there is some pollution runoff into a lake. According to the Coase Theorem, if the transactions costs are low and there are only a few people involved, the output will equal ________ tons of paper if ________ own the lake.

Accepted Answer

A)  3; only the lakeside residents 
B)  3; either the firms or lakeside residents 
C)  4; the firms 
D)  4; either the firms or lakeside residents 
A)  3; only the lakeside residents 
B)  3; either the firms or lakeside residents 
C)  4; the firms 
D)  4; either the firms or lakeside residents

Question 3

The Atlantic City Expressway is a highway that runs from outside Philadelphia to Atlantic City, New Jersey. It is notoriously congested during the summer weekends when many people are driving to the beach about the same time. Because drivers who decide to take this road ignore the impact of their driving on overall traffic congestion the result is ________ cars on the road than the efficient number of cars and a deadweight loss is ________.

Accepted Answer

A)  fewer; not created 
B)  fewer; created 
C)  more; not created 
D)  more; created 
A)  fewer; not created 
B)  fewer; created 
C)  more; not created 
D)  more; created

Question 4

To eliminate the inefficiency resulting from an external cost of production, the government can impose a tax on producers that is equal to the

Accepted Answer

A)  MSB. 
B)  MC. 
C)  marginal external cost. 
D)  MSC. 
A)  MSB. 
B)  MC. 
C)  marginal external cost. 
D)  MSC.

Question 5

When the production of a good creates an external cost, by setting the tax rate equal to the ________, firms can be made to behave in the same way as they would if they bore the cost of the externality directly.

Accepted Answer

A)  marginal external cost 
B)  marginal social benefit 
C)  marginal private benefit 
D)  marginal social cost 
A)  marginal external cost 
B)  marginal social benefit 
C)  marginal private benefit 
D)  marginal social cost

Question 6

-In the above figure, if the market is unregulated, the equilibrium quantity is

Accepted Answer

A)  0 units. 
B)  70 units. 
C)  80 units. 
D)  100 units. 
A)  0 units. 
B)  70 units. 
C)  80 units. 
D)  100 units.

Question 7

With the debris of more than 50 years of climbing on the beautiful high slopes - oxygen canisters, tents, backpacks and even some bodies - Mount Everest has been called the world's highest garbage dump. If Everest is a common resource, currently there is an ________ of the mountain.

Accepted Answer

A)  inefficient underuse 
B)  efficient overuse 
C)  efficient underuse 
D)  inefficient overuse 
A)  inefficient underuse 
B)  efficient overuse 
C)  efficient underuse 
D)  inefficient overuse

Question 8

The government can use taxes to

Accepted Answer

A)  change production in a market with an external cost to the efficient amount. 
B)  change production in a market with an external benefit to the efficient amount. 
C)  increase production. 
D)  decrease price. 
A)  change production in a market with an external cost to the efficient amount. 
B)  change production in a market with an external benefit to the efficient amount. 
C)  increase production. 
D)  decrease price.

Question 9

A tax equal to the external marginal cost of an activity yields the efficient level of production because the tax

Accepted Answer

A)  achieves the competitive equilibrium. 
B)  forces producers to face all costs of production including the external cost. 
C)  ensures greater profits for the firm. 
D)  eliminates all pollution. 
A)  achieves the competitive equilibrium. 
B)  forces producers to face all costs of production including the external cost. 
C)  ensures greater profits for the firm. 
D)  eliminates all pollution.

Question 10

The catch of American lobster off the shores of New England is regulated using quotas. If the quota is set correctly, then at this quantity, the marginal social benefit ________ the marginal social benefit.

Accepted Answer

A)  is less than 
B)  is greater than 
C)  is not comparable to 
D)  equals 
A)  is less than 
B)  is greater than 
C)  is not comparable to 
D)  equals

Question 11

Property rights

Accepted Answer

A)  apply to factors of production and to goods and services. 
B)  are legally established titles of ownership that are enforceable in the courts. 
C)  can be part of a solution to the problems of an externality. 
D)  All of the above answers are correct. 
A)  apply to factors of production and to goods and services. 
B)  are legally established titles of ownership that are enforceable in the courts. 
C)  can be part of a solution to the problems of an externality. 
D)  All of the above answers are correct.

Question 12

The figure shows the unregulated market for a pesticide, where S is the supply curve and D is the demand curve. The demand curve is the same as the MSB curve. When factories produce the pesticide, they also create waste, which they dump into a lake on the outskirts of the town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing the pesticide.
-In the figure above, if no one owns the lake, what is the quantity of pesticide produced?

Accepted Answer

A)  300 tons per month 
B)  240 tons per month 
C)  180 tons per month 
D)  360 tons per month 
A)  300 tons per month 
B)  240 tons per month 
C)  180 tons per month 
D)  360 tons per month

Question 13

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the efficient level of output

Accepted Answer

A)  is achieved. 
B)  can be achieved by giving paper producers a subsidy. 
C)  can be achieved by imposing a Pigovian tax on paper producers. 
D)  cannot be achieved. 
A)  is achieved. 
B)  can be achieved by giving paper producers a subsidy. 
C)  can be achieved by imposing a Pigovian tax on paper producers. 
D)  cannot be achieved.

Question 14

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for cod, a common resource. The efficient outcome is ________.

Accepted Answer

A)  0 tons per week 
B)  300 tons per week 
C)  400 tons per week 
D)  None of the above answers is correct. 
A)  0 tons per week 
B)  300 tons per week 
C)  400 tons per week 
D)  None of the above answers is correct.

Question 15

For a common resource, the marginal social cost of the resource is ________ the marginal private cost.

Accepted Answer

A)  greater than 
B)  equal to 
C)  less than 
D)  not comparable to 
A)  greater than 
B)  equal to 
C)  less than 
D)  not comparable to

Question 16

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. Why would cod be on the risk of extinction?

Accepted Answer

A)  Fishing in the sea for cod is an example of a public good. 
B)  Fishing in the sea for cod is an example of a common resource. 
C)  Fishing in the sea for cod is an example of a private good. 
D)  Fishing in the sea for cod is an example of a natural monopoly. 
A)  Fishing in the sea for cod is an example of a public good. 
B)  Fishing in the sea for cod is an example of a common resource. 
C)  Fishing in the sea for cod is an example of a private good. 
D)  Fishing in the sea for cod is an example of a natural monopoly.

Question 17

-The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. The market is efficient when the quantity of steel produced is ________ tons per week.

Accepted Answer

A)  5 
B)  10 
C)  15 
D)  25 
A)  5 
B)  10 
C)  15 
D)  25

Question 18

The granite boulders in Rocky Mountain National Park are a favored place among talented climbers who specialize in the art of bouldering, or climbing harder (but shorter) routes without tying into a rope. Climbers have taken to (illegally) stashing foam crash pads underneath the boulders but marmots and other rodents chew up the pads and the litter is spread by the wind. Why would the park be overused in this manner?

Accepted Answer

A)  Because the marginal private benefit of using the park is greater than the marginal social benefit of using the park 
B)  Because the marginal social benefit of using the park is greater than the marginal private benefit of using the park 
C)  Because there are no external costs to using the park 
D)  Because the marginal private cost of using the park is less than the marginal social cost of using the park 
A)  Because the marginal private benefit of using the park is greater than the marginal social benefit of using the park 
B)  Because the marginal social benefit of using the park is greater than the marginal private benefit of using the park 
C)  Because there are no external costs to using the park 
D)  Because the marginal private cost of using the park is less than the marginal social cost of using the park

Question 19

-In the figure above, if an excise tax is imposed that generates an efficient allocation of resources, then the amount of output will be

Accepted Answer

A)  zero. 
B)  50 units. 
C)  150 units. 
D)  250 units. 
A)  zero. 
B)  50 units. 
C)  150 units. 
D)  250 units.

Question 20

Marginal social cost is the

Accepted Answer

A)  difference between the marginal social benefit and the marginal private cost. 
B)  sum of the marginal private benefit and the marginal private cost. 
C)  difference between the marginal external cost and the marginal private cost. 
D)  sum of the marginal external cost and the marginal private cost. 
A)  difference between the marginal social benefit and the marginal private cost. 
B)  sum of the marginal private benefit and the marginal private cost. 
C)  difference between the marginal external cost and the marginal private cost. 
D)  sum of the marginal external cost and the marginal private cost.

Exam 17: Externalities and the Environment

An external cost is a cost of producing a good or service that is

To eliminate the inefficiency resulting from an external cost of production, the government can impose a tax on producers that is equal to the

When the production of a good creates an external cost, by setting the tax rate equal to the ________, firms can be made to behave in the same way as they would if they bore the cost of the externality directly.

-In the above figure, if the market is unregulated, the equilibrium quantity is

With the debris of more than 50 years of climbing on the beautiful high slopes - oxygen canisters, tents, backpacks and even some bodies - Mount Everest has been called the world's highest garbage dump. If Everest is a common resource, currently there is an ________ of the mountain.

The government can use taxes to

A tax equal to the external marginal cost of an activity yields the efficient level of production because the tax

The catch of American lobster off the shores of New England is regulated using quotas. If the quota is set correctly, then at this quantity, the marginal social benefit ________ the marginal social benefit.

Property rights

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the efficient level of output

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for cod, a common resource. The efficient outcome is ________.

For a common resource, the marginal social cost of the resource is ________ the marginal private cost.

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. Why would cod be on the risk of extinction?

-The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. The market is efficient when the quantity of steel produced is ________ tons per week.

-In the figure above, if an excise tax is imposed that generates an efficient allocation of resources, then the amount of output will be

Marginal social cost is the

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

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