Question 1

Injunctions are good remedies for problems where damage has already occurred.

Accepted Answer

A) True 
 B)False

Question 2

A central concern about common resources is

Accepted Answer

A)  overuse. 
B)  high production costs. 
C)  lack of profitability. 
D)  overproduction due to negative externalities. 
A)  overuse. 
B)  high production costs. 
C)  lack of profitability. 
D)  overproduction due to negative externalities.

Question 3

The optimal level of provision of ________ goods is where society's total willingness to pay per unit is equal to the marginal cost of producing the good.

Accepted Answer

A)  public 
B)  private 
C)  all 
D)  normal 
A)  public 
B)  private 
C)  all 
D)  normal

Question 4

A negative externality exists when the actions of one party impose costs on a second party.

Accepted Answer

A) True 
 B)False

Question 5

An example of ________ is a power plant generating water pollution.

Accepted Answer

A)  a positive production externality 
B)  a negative production externality 
C)  a public good 
D)  the free-rider problem 
A)  a positive production externality 
B)  a negative production externality 
C)  a public good 
D)  the free-rider problem

Question 6

Once a public good is produced, everyone

Accepted Answer

A)  can consume a different amount depending on their willingness to buy the good. 
B)  consumes the same amount and everyone's willingness to pay is the same. 
C)  consumes the same amount, but the willingness to pay will be different for different individuals. 
D)  can consume a different amount and pay different prices for the product. 
A)  can consume a different amount depending on their willingness to buy the good. 
B)  consumes the same amount and everyone's willingness to pay is the same. 
C)  consumes the same amount, but the willingness to pay will be different for different individuals. 
D)  can consume a different amount and pay different prices for the product.

Question 7

You spend $150 every month planting flowers in your front yard. Your neighbor has told you that she derives $20 a month in enjoyment from being able to look at your beautiful flowers. Which of the following is true?

Accepted Answer

A)  You are spending too much on flowers, because your neighbor derives only $20 worth of benefits. 
B)  You should refuse to spend anything on flowers unless your neighbor pays you $20 a month. 
C)  If you took into consideration the benefits your neighbor derived, the efficient level of flower planting would be greater than $150 a month. 
D)  If you took into consideration the benefits your neighbor derived, the efficient level of flower planting would be less than $150 a month. 
A)  You are spending too much on flowers, because your neighbor derives only $20 worth of benefits. 
B)  You should refuse to spend anything on flowers unless your neighbor pays you $20 a month. 
C)  If you took into consideration the benefits your neighbor derived, the efficient level of flower planting would be greater than $150 a month. 
D)  If you took into consideration the benefits your neighbor derived, the efficient level of flower planting would be less than $150 a month.

Question 8

Externalities involve the imposition of costs or benefits on parties outside an activity or transaction.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow.   Figure 16.2
-Refer to Figure 16.2. The ________ amount of cars is 25.

Accepted Answer

A)  efficient 
B)  unregulated 
C)  break-even 
D)  subsidized 
A)  efficient 
B)  unregulated 
C)  break-even 
D)  subsidized

Question 10

A common resource is

Accepted Answer

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

Question 11

Refer to Scenario 16.1 below to answer the question(s) that follow.
SCENARIO 16.1: The marginal benefit for a particular food is described by MB = 30 - q, where q refers to the quantity of the food. The marginal cost of producing the food is described by MC = 2q. There is a negative externality associated with food production and the marginal social cost of food production is MSC = 4q.
-Refer to Scenario 16.1. The competitive output level is ________ and the competitive price is ________.

Accepted Answer

A)  10 units of food; $20 
B)  6 units of food; $24 
C)  0 units of food; $0 
D)  4.29 units of food; $25.71 
A)  10 units of food; $20 
B)  6 units of food; $24 
C)  0 units of food; $0 
D)  4.29 units of food; $25.71

Question 12

Refer to the data provided in Table 16.2 below to answer the following question(s).
Table 16.2 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.2
 \[\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \
\hline \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm A }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm B }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} \
\hline 1 & \$ 1 & \$ 1 & 1 & \$ 8 & \$ 8 \
\hline 2 & 3 & 4 & 2 & 12 & 20 \
\hline 3 & 6 & 10 & 3 & 16 & 36 \
\hline 4 & 10 & 20 & 4 & 20 & 56 \
\hline 5 & 15 & 35 & 5 & 24 & 80 \
\hline
\end{array}\]
-Refer to Table 16.2. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits and all possible trades are made, Firm A will reduce its pollution by a total of ________ units.

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 13

Refer to the information provided in Figure 16.3 below to answer the question(s) that follow.   Figure 16.3
-Refer to Figure 16.3. At 20 units of output there are external

Accepted Answer

A)  costs of $2 per unit. 
B)  benefits of $2 per unit. 
C)  costs of $5 per unit. 
D)  benefits of $5 per unit. 
A)  costs of $2 per unit. 
B)  benefits of $2 per unit. 
C)  costs of $5 per unit. 
D)  benefits of $5 per unit.

Question 14

There are 1,000 families in a neighborhood that are affected by noise pollution from a local factory. The noise could be reduced if the company spent $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the $5,000. However, because individuals will benefit from the reduction in noise whether they contribute or not, most people will not contribute and the firm will not make the improvements. This outcome is an example of the

Accepted Answer

A)  free-rider problem. 
B)  drop-in-the-bucket problem. 
C)  Coase theorem. 
D)  collective action problem (that arises when there are too many parties involved). 
A)  free-rider problem. 
B)  drop-in-the-bucket problem. 
C)  Coase theorem. 
D)  collective action problem (that arises when there are too many parties involved).

Question 15

If firms have to account for external costs of production, then they will ________ compared with what they would do if they did not have to account for the external costs.

Accepted Answer

A)  underproduce and underprice 
B)  underproduce and overprice 
C)  overproduce and underprice 
D)  overproduce and overprice 
A)  underproduce and underprice 
B)  underproduce and overprice 
C)  overproduce and underprice 
D)  overproduce and overprice

Question 16

Refer to the data provided in Table 16.2 below to answer the following question(s).
Table 16.2 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.2
 \[\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \
\hline \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm A }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm B }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} \
\hline 1 & \$ 1 & \$ 1 & 1 & \$ 8 & \$ 8 \
\hline 2 & 3 & 4 & 2 & 12 & 20 \
\hline 3 & 6 & 10 & 3 & 16 & 36 \
\hline 4 & 10 & 20 & 4 & 20 & 56 \
\hline 5 & 15 & 35 & 5 & 24 & 80 \
\hline
\end{array}\]
-Refer to Table 16.2. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits and all possible trades are made, Firm B will reduce its pollution by a total of ________ unit(s).

Accepted Answer

A)  0 
B)  1 
C)  2 
D)  3 
A)  0 
B)  1 
C)  2 
D)  3

Question 17

________ states that under certain conditions, private parties can arrive at an efficient solution without government involvement.

Accepted Answer

A)  The Tiebout hypothesis 
B)  The Coase theorem 
C)  The impossibility theorem 
D)  The free-rider hypothesis 
A)  The Tiebout hypothesis 
B)  The Coase theorem 
C)  The impossibility theorem 
D)  The free-rider hypothesis

Question 18

The marginal cost of producing 40 units of a public good is $200. There are two individuals in the society. Person A is willing to pay $80 for 40 units of the public good. If 40 units of the public good are provided, how much must Person B be willing to pay?

Accepted Answer

A)  $0 
B)  $80 
C)  $120 
D)  $150 
A)  $0 
B)  $80 
C)  $120 
D)  $150

Question 19

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's marginal cost curve will shift ________ and the industry supply curve will shift to the ________.

Accepted Answer

A)  down; left 
B)  down; right 
C)  up; right 
D)  up; left 
A)  down; left 
B)  down; right 
C)  up; right 
D)  up; left

Question 20

Public goods represent ________ because by their very nature they are nonexcludable and nonrival which makes it difficult for the private sector to supply them profitably.

Accepted Answer

A)  a positive externality 
B)  a negative externality 
C)  a market failure 
D)  efficient production 
A)  a positive externality 
B)  a negative externality 
C)  a market failure 
D)  efficient production

Injunctions are good remedies for problems where damage has already occurred.

A central concern about common resources is

The optimal level of provision of ________ goods is where society's total willingness to pay per unit is equal to the marginal cost of producing the good.

A negative externality exists when the actions of one party impose costs on a second party.

An example of ________ is a power plant generating water pollution.

Once a public good is produced, everyone

You spend $150 every month planting flowers in your front yard. Your neighbor has told you that she derives $20 a month in enjoyment from being able to look at your beautiful flowers. Which of the following is true?

Externalities involve the imposition of costs or benefits on parties outside an activity or transaction.

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow. Figure 16.2 -Refer to Figure 16.2. The ________ amount of cars is 25.

A common resource is

Refer to the information provided in Figure 16.3 below to answer the question(s) that follow. Figure 16.3 -Refer to Figure 16.3. At 20 units of output there are external

If firms have to account for external costs of production, then they will ________ compared with what they would do if they did not have to account for the external costs.

________ states that under certain conditions, private parties can arrive at an efficient solution without government involvement.

The marginal cost of producing 40 units of a public good is $200. There are two individuals in the society. Person A is willing to pay $80 for 40 units of the public good. If 40 units of the public good are provided, how much must Person B be willing to pay?

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's marginal cost curve will shift and the industry supply curve will shift to the .

Public goods represent ________ because by their very nature they are nonexcludable and nonrival which makes it difficult for the private sector to supply them profitably.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Exam 16: Externalities, Public Goods, and Common Resources

Injunctions are good remedies for problems where damage has already occurred.

A central concern about common resources is

The optimal level of provision of ________ goods is where society's total willingness to pay per unit is equal to the marginal cost of producing the good.

A negative externality exists when the actions of one party impose costs on a second party.

An example of ________ is a power plant generating water pollution.

Once a public good is produced, everyone

You spend $150 every month planting flowers in your front yard. Your neighbor has told you that she derives $20 a month in enjoyment from being able to look at your beautiful flowers. Which of the following is true?

Externalities involve the imposition of costs or benefits on parties outside an activity or transaction.

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow. Figure 16.2 -Refer to Figure 16.2. The ________ amount of cars is 25.

A common resource is

Refer to the information provided in Figure 16.3 below to answer the question(s) that follow. Figure 16.3 -Refer to Figure 16.3. At 20 units of output there are external

If firms have to account for external costs of production, then they will ________ compared with what they would do if they did not have to account for the external costs.

________ states that under certain conditions, private parties can arrive at an efficient solution without government involvement.

The marginal cost of producing 40 units of a public good is $200. There are two individuals in the society. Person A is willing to pay $80 for 40 units of the public good. If 40 units of the public good are provided, how much must Person B be willing to pay?

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's marginal cost curve will shift ________ and the industry supply curve will shift to the ________.

Public goods represent ________ because by their very nature they are nonexcludable and nonrival which makes it difficult for the private sector to supply them profitably.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's marginal cost curve will shift and the industry supply curve will shift to the .