Question 1

Exhibit 15-1  
-Refer to Exhibit 15-1. The amount of externality is reflected in the difference between

Accepted Answer

A) P1 and P2. 
B) P1 and P3. 
C) P2 and P3. 
D) $0 and P1. 
E) $0 and P3. 
A) P1 and P2. 
B) P1 and P3. 
C) P2 and P3. 
D) $0 and P1. 
E) $0 and P3.

Question 2

When a negative externality occurs,

Accepted Answer

A) social costs are less than private costs. 
B) social costs are greater private costs. 
C) social costs are equal to private costs. 
D) social costs are negative. 
E) private costs are negative. 
A) social costs are less than private costs. 
B) social costs are greater private costs. 
C) social costs are equal to private costs. 
D) social costs are negative. 
E) private costs are negative.

Question 3

A public good is any good produced by the government.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that the production of a good causes negative externalities. What will happen if the good is produced at the level at which the marginal private cost curve meets the demand curve?

Accepted Answer

A) The level of output will be socially desirable. 
B) The level of output will result in a net social cost. 
C) There will be a surplus. 
D) The producers will incur losses. 
E) There will be no buyer in the market. 
A) The level of output will be socially desirable. 
B) The level of output will result in a net social cost. 
C) There will be a surplus. 
D) The producers will incur losses. 
E) There will be no buyer in the market.

Question 5

Unlike command and control, taxes and subsidies allow firms or people to respond to price or cost changes.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that the production of a good causes positive externalities. What will happen if the good is produced at the level at which the marginal private benefit curve meets the supply curve?

Accepted Answer

A) The level of production will be socially desirable. 
B) The level of production will result in a net social cost. 
C) The level of production will result in a net social benefit. 
D) The producers will incur losses. 
E) There will be no buyers in the market. 
A) The level of production will be socially desirable. 
B) The level of production will result in a net social cost. 
C) The level of production will result in a net social benefit. 
D) The producers will incur losses. 
E) There will be no buyers in the market.

Question 7

Suppose a candy producer and doctors at a hospital seek a private remedy to an externality problem. This means the

Accepted Answer

A) two parties affected will negotiate with each other to internalize the externality. 
B) candy producer will have to move to another state. 
C) candy producer will shut down. 
D) city mayor will decide who internalizes the externality. 
E) hospital will shut down. 
A) two parties affected will negotiate with each other to internalize the externality. 
B) candy producer will have to move to another state. 
C) candy producer will shut down. 
D) city mayor will decide who internalizes the externality. 
E) hospital will shut down.

Question 8

Federal, state, and local governments would be least likely to produce

Accepted Answer

A) computers. 
B) highways. 
C) national defense. 
D) police protection. 
E) the postal service. 
A) computers. 
B) highways. 
C) national defense. 
D) police protection. 
E) the postal service.

Question 9

A government will increase the supply of a public good as long as the marginal benefit exceeds the marginal cost of supplying the good.

Accepted Answer

A) True 
 B)False

Question 10

Many want to reform government by providing market-based incentives that aim to

Accepted Answer

A) promote greed. 
B) redistribute wealth. 
C) make government efficient. 
D) make government larger. 
E) undermine markets. 
A) promote greed. 
B) redistribute wealth. 
C) make government efficient. 
D) make government larger. 
E) undermine markets.

Question 11

Costs to society will equal costs to a private firm when

Accepted Answer

A) the firm misallocates resources in its market. 
B) third parties bear some of the costs of producing the firm's product. 
C) harmful externalities occur in the firm's market. 
D) no externalities occur as the firm produces its product. 
E) beneficial externalities occur in the firm's market. 
A) the firm misallocates resources in its market. 
B) third parties bear some of the costs of producing the firm's product. 
C) harmful externalities occur in the firm's market. 
D) no externalities occur as the firm produces its product. 
E) beneficial externalities occur in the firm's market.

Question 12

The private market is said to underproduce a good that causes a negative externality.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 15-3  
-Exhibit 15-3 shows the preference rankings of voters Tom, Dick, and Harry for policies A, B, and C. If two elections were held, one to choose between policies A and B and another to choose between the winner and policy C, which issue would win the first election? Which would win the second election?

Accepted Answer

A) B, B 
B) A, C 
C) B, C 
D) A, B 
E) A, A 
A) B, B 
B) A, C 
C) B, C 
D) A, B 
E) A, A

Question 14

Exhibit 15-1  
-Refer to Exhibit 15-1. The graph illustrates the presence of

Accepted Answer

A) social efficiency. 
B) a positive externality. 
C) a negative externality. 
D) private market disequilibrium. 
E) government intervention. 
A) social efficiency. 
B) a positive externality. 
C) a negative externality. 
D) private market disequilibrium. 
E) government intervention.

Question 15

When government causes less efficiency than the market, it is called

Accepted Answer

A) market superiority. 
B) government failure. 
C) human frailty. 
D) government error. 
E) market success. 
A) market superiority. 
B) government failure. 
C) human frailty. 
D) government error. 
E) market success.

Question 16

Which of the following is most consistent with a government policy toward pollution as suggested by the Coase theorem?

Accepted Answer

A) Set strict control of the total pollution level. 
B) Impose a tax on producers that pollute. 
C) Determine which firms can pollute and which firms cannot pollute. 
D) Nationalize industries that pollute. 
E) Issue tradable permits for pollution. 
A) Set strict control of the total pollution level. 
B) Impose a tax on producers that pollute. 
C) Determine which firms can pollute and which firms cannot pollute. 
D) Nationalize industries that pollute. 
E) Issue tradable permits for pollution.

Question 17

One alternative to command and control techniques that economists recommend to reduce pollution or the inefficiencies of other externalities is

Accepted Answer

A) taxes and subsidies. 
B) cease-and-desist orders. 
C) fines for polluting over a certain amount. 
D) user fees. 
E) the placement of restrictions or regulations on individuals or firms. 
A) taxes and subsidies. 
B) cease-and-desist orders. 
C) fines for polluting over a certain amount. 
D) user fees. 
E) the placement of restrictions or regulations on individuals or firms.

Question 18

A decrease in tax payments owed by research firms is called a

Accepted Answer

A) marginal private cost subsidy. 
B) private research remedy. 
C) research and development tax credit. 
D) research user tax. 
E) research and experimentation tax credit. 
A) marginal private cost subsidy. 
B) private research remedy. 
C) research and development tax credit. 
D) research user tax. 
E) research and experimentation tax credit.

Question 19

The costs of government services

Accepted Answer

A) include the dollar costs and any deadweight losses from the increased taxes needed to finance the services. 
B) include the dollar costs but do not include any deadweight losses from the increased taxes needed to finance the services. 
C) include neither the dollar costs nor any deadweight losses from the increased taxes needed to finance the services. 
D) do not include the dollar costs but do include any deadweight losses from the increased taxes needed to finance the services. 
E) are always considered to be zero. 
A) include the dollar costs and any deadweight losses from the increased taxes needed to finance the services. 
B) include the dollar costs but do not include any deadweight losses from the increased taxes needed to finance the services. 
C) include neither the dollar costs nor any deadweight losses from the increased taxes needed to finance the services. 
D) do not include the dollar costs but do include any deadweight losses from the increased taxes needed to finance the services. 
E) are always considered to be zero.

Question 20

A positive externality raises

Accepted Answer

A) marginal social benefits above marginal private benefits. 
B) marginal benefits above marginal costs. 
C) marginal private benefits above marginal social benefits. 
D) marginal private costs above marginal social costs. 
E) marginal social costs above marginal private costs. 
A) marginal social benefits above marginal private benefits. 
B) marginal benefits above marginal costs. 
C) marginal private benefits above marginal social benefits. 
D) marginal private costs above marginal social costs. 
E) marginal social costs above marginal private costs.

Exam 15: Public Goods, Externalities, and Government Behavior

Exhibit 15-1 -Refer to Exhibit 15-1. The amount of externality is reflected in the difference between

When a negative externality occurs,

A public good is any good produced by the government.

Suppose that the production of a good causes negative externalities. What will happen if the good is produced at the level at which the marginal private cost curve meets the demand curve?

Unlike command and control, taxes and subsidies allow firms or people to respond to price or cost changes.

Suppose that the production of a good causes positive externalities. What will happen if the good is produced at the level at which the marginal private benefit curve meets the supply curve?

Suppose a candy producer and doctors at a hospital seek a private remedy to an externality problem. This means the

Federal, state, and local governments would be least likely to produce

A government will increase the supply of a public good as long as the marginal benefit exceeds the marginal cost of supplying the good.

Many want to reform government by providing market-based incentives that aim to

Costs to society will equal costs to a private firm when

The private market is said to underproduce a good that causes a negative externality.

Exhibit 15-1 -Refer to Exhibit 15-1. The graph illustrates the presence of

When government causes less efficiency than the market, it is called

Which of the following is most consistent with a government policy toward pollution as suggested by the Coase theorem?

One alternative to command and control techniques that economists recommend to reduce pollution or the inefficiencies of other externalities is

A decrease in tax payments owed by research firms is called a

The costs of government services

A positive externality raises

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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