Question 1

Research and development ________ create an external benefit.With no intervention,we produce too ________ research and development.

Accepted Answer

A) does;little 
B) does not;much 
C) does not;little 
D) does;much 
E) none of the above.Research and development create an external cost. 
A) does;little 
B) does not;much 
C) does not;little 
D) does;much 
E) none of the above.Research and development create an external cost.

Question 2

The marginal private benefit curve (MB)is a negatively-sloped straight line.If marginal external benefit decreases as output increases,the marginal social benefit curve is a negatively-sloped straight line

Accepted Answer

A) parallel to and above the MB curve. 
B) parallel to and below the MB curve. 
C) above the MB curve and steeper than the MB curve. 
D) above the MB curve and flatter than the MB curve. 
E) below the MB curve and flatter than the MB curve. 
A) parallel to and above the MB curve. 
B) parallel to and below the MB curve. 
C) above the MB curve and steeper than the MB curve. 
D) above the MB curve and flatter than the MB curve. 
E) below the MB curve and flatter than the MB curve.

Question 3

The Coase theorem will apply only if

Accepted Answer

A) an individual who is not affected by the externality can negotiate a settlement between the parties imposing the externality and the parties that are harmed by the externality. 
B) the small number of people are involved. 
C) the market is perfectly competitive. 
D) the courts can be used to determine the amount of compensation that must be made to the damaged party. 
E) the amount of compensation that must be made to the damaged party is small. 
A) an individual who is not affected by the externality can negotiate a settlement between the parties imposing the externality and the parties that are harmed by the externality. 
B) the small number of people are involved. 
C) the market is perfectly competitive. 
D) the courts can be used to determine the amount of compensation that must be made to the damaged party. 
E) the amount of compensation that must be made to the damaged party is small.

Question 4

A market economy tends to ________ goods with negative externalities and ________ goods with positive externalities.

Accepted Answer

A) overproduce;overproduce 
B) overproduce;underproduce 
C) underproduce;overproduce 
D) underproduce;underproduce 
E) produce;consume 
A) overproduce;overproduce 
B) overproduce;underproduce 
C) underproduce;overproduce 
D) underproduce;underproduce 
E) produce;consume

Question 5

Producing paper creates pollution.There is no externality in the consumption of paper.The efficient quantity of paper produced occurs when the

Accepted Answer

A) marginal social benefit from paper is equal to zero. 
B) marginal social cost of the pollution from making paper is equal to zero. 
C) marginal private cost of the pollution from making paper is equal to zero. 
D) marginal private cost of paper equals the marginal private benefit from paper. 
E) marginal social benefit from paper is equal to the marginal social cost of paper. 
A) marginal social benefit from paper is equal to zero. 
B) marginal social cost of the pollution from making paper is equal to zero. 
C) marginal private cost of the pollution from making paper is equal to zero. 
D) marginal private cost of paper equals the marginal private benefit from paper. 
E) marginal social benefit from paper is equal to the marginal social cost of paper.

Question 6

Air pollution generated by a paper mill factory is an example of a

Accepted Answer

A) positive production externality. 
B) positive consumption externality. 
C) negative consumption externality. 
D) marginal external benefit. 
E) negative production externality. 
A) positive production externality. 
B) positive consumption externality. 
C) negative consumption externality. 
D) marginal external benefit. 
E) negative production externality.

Question 7

According to the Coase theorem,if transactions costs are low and property rights exist,

Accepted Answer

A) negative externalities cause deadweight losses. 
B) positive externalities cause deadweight losses. 
C) private transactions are efficient. 
D) public transactions are efficient. 
E) the efficient level of pollution will be zero. 
A) negative externalities cause deadweight losses. 
B) positive externalities cause deadweight losses. 
C) private transactions are efficient. 
D) public transactions are efficient. 
E) the efficient level of pollution will be zero.

Question 8

Governments use subsidies ________.

Accepted Answer

A) as a means of increasing government spending 
B) when they want to increase taxes 
C) to achieve an efficient outcome in a market with external costs 
D) to achieve an efficient outcome in a market with external benefits 
E) and emission permits to achieve an efficient outcome in markets with external benefits 
A) as a means of increasing government spending 
B) when they want to increase taxes 
C) to achieve an efficient outcome in a market with external costs 
D) to achieve an efficient outcome in a market with external benefits 
E) and emission permits to achieve an efficient outcome in markets with external benefits

Question 9

Use the figure below to answer the following questions.
   
Figure 16.3.1
-Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a subsidy is granted that generates an efficient quantity,then quantity produced is

Accepted Answer

A) zero. 
B) Q1. 
C) Q2. 
D) Q3. 
E) greater than Q1. 
A) zero. 
B) Q1. 
C) Q2. 
D) Q3. 
E) greater than Q1.

Question 10

Use the figure below to answer the following questions.
   
Figure 16.2.1
-Refer to Figure16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.To promote an efficient allocation of resources,the government could impose a constant per unit tax equal to

Accepted Answer

A) zero. 
B) P1. 
C) P3 - P1. 
D) P4 - P1. 
E) P3 - P2. 
A) zero. 
B) P1. 
C) P3 - P1. 
D) P4 - P1. 
E) P3 - P2.

Question 11

Pollution occurs when lumber is produced.If the lumber market is unregulated,there would be

Accepted Answer

A) overproduction of lumber compared to the efficient amount. 
B) underproduction of lumber compared to the efficient amount. 
C) sometimes overproduction and sometimes underproduction of lumber compared to the efficient amount. 
D) an external benefit from producing lumber. 
E) no deadweight loss from production. 
A) overproduction of lumber compared to the efficient amount. 
B) underproduction of lumber compared to the efficient amount. 
C) sometimes overproduction and sometimes underproduction of lumber compared to the efficient amount. 
D) an external benefit from producing lumber. 
E) no deadweight loss from production.

Question 12

The Coase theorem applies when transactions costs are

Accepted Answer

A) low and property rights exist. 
B) low and property rights do not exist. 
C) high and property rights exist. 
D) high and property rights do not exist. 
E) low and there are no externalities. 
A) low and property rights exist. 
B) low and property rights do not exist. 
C) high and property rights exist. 
D) high and property rights do not exist. 
E) low and there are no externalities.

Question 13

Use the figure below to answer the following questions.
   
Figure 16.2.2
-Refer to Figure 16.2.2.This figure shows the demand curve,the marginal private cost curve and the marginal social cost curve of good A.What is the efficient quantity of good A?

Accepted Answer

A) 0 units 
B) 5 units 
C) 6 units 
D) 8 units 
E) impossible to determine without additional information 
A) 0 units 
B) 5 units 
C) 6 units 
D) 8 units 
E) impossible to determine without additional information

Question 14

A private cost of production is a cost that is borne by the ________ of a good or service.
A social cost of production is a cost that is ________.

Accepted Answer

A) consumer;borne by the producer and by everyone else on whom the cost falls 
B) consumer;not borne by the producer but borne by other people 
C) producer;not borne by the producer but borne by other people 
D) producer;borne by the producer and by everyone else on whom the cost falls 
E) producer;borne by the consumer 
A) consumer;borne by the producer and by everyone else on whom the cost falls 
B) consumer;not borne by the producer but borne by other people 
C) producer;not borne by the producer but borne by other people 
D) producer;borne by the producer and by everyone else on whom the cost falls 
E) producer;borne by the consumer

Question 15

When the government issues marketable permits

Accepted Answer

A) each firm buys or sells permits until its marginal benefit from polluting equals the market price of a permit. 
B) firms that have a low marginal cost of reducing pollution sell their permits, and firms that have a high marginal cost of reducing pollution buy permits. 
C) the incentive to pollute is greater than when the government sets emission charges. 
D) the price at which firms buy and sell permits is set by the government. 
E) firms that have a high marginal cost of reducing pollution sell their permits, and firms that have a low marginal cost of reducing pollution buy permits. 
A) each firm buys or sells permits until its marginal benefit from polluting equals the market price of a permit. 
B) firms that have a low marginal cost of reducing pollution sell their permits, and firms that have a high marginal cost of reducing pollution buy permits. 
C) the incentive to pollute is greater than when the government sets emission charges. 
D) the price at which firms buy and sell permits is set by the government. 
E) firms that have a high marginal cost of reducing pollution sell their permits, and firms that have a low marginal cost of reducing pollution buy permits.

Question 16

Use the figure below to answer the following questions.
   
Figure 16.2.3
-Refer to Figure 16.2.3.A tax of ________ per tonne is necessary to achieve the efficient output of ________ tonnes of paper.

Accepted Answer

A) $14;50 
B) $14;30 
C) $13;40 
D) $2;50 
E) $2;40 
A) $14;50 
B) $14;30 
C) $13;40 
D) $2;50 
E) $2;40

Question 17

An externality is

Accepted Answer

A) the amount by which price exceeds marginal private cost. 
B) the amount by which price exceeds marginal social cost. 
C) the effect of government regulation on market price and output. 
D) someone who consumes a good without paying for it. 
E) a cost or benefit that arises from an activity but affects people not part of the original activity. 
A) the amount by which price exceeds marginal private cost. 
B) the amount by which price exceeds marginal social cost. 
C) the effect of government regulation on market price and output. 
D) someone who consumes a good without paying for it. 
E) a cost or benefit that arises from an activity but affects people not part of the original activity.

Question 18

Use the figure below to answer the following questions.
   
Figure 16.3.1
-Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is

Accepted Answer

A) zero. 
B) Q1. 
C) Q2. 
D) Q3. 
E) between 0 and Q?. 
A) zero. 
B) Q1. 
C) Q2. 
D) Q3. 
E) between 0 and Q?.

Question 19

Betty and Anna work at the same office in Calgary.They both must attend a meeting in Edmonton,and they have decided to drive to the meeting together.
Betty is a cigarette smoker and her marginal benefit from smoking one package of cigarettes a day is $40.Cigarettes are $6 a pack.
Anna dislikes cigarette smoke and her marginal benefit from a smoke-free environment is $50 a day.
If Betty drives her car with Anna as a passenger,________.If Anna drives her car with Betty as a passenger,________.

Accepted Answer

A) Anna will offer Betty an amount between $34 and $50 and Betty will not smoke;Betty does not smoke because Betty will not offer Anna a high enough price to be allowed to smoke 
B) Betty will smoke because she owns the property rights in the car;Betty does not smoke because Betty will not offer Anna a high enough price to be allowed to smoke 
C) Betty will smoke because she owns the property rights in the car;Betty will offer Anna $51 and Betty will smoke 
D) Anna will offer Betty an amount between $34 and $50 and Betty will not smoke;Betty will offer Anna $51 and Betty will smoke 
E) Betty will smoke because she is the car owner;Betty will offer Anna an amount between $34 and $50 and Betty will smoke 
A) Anna will offer Betty an amount between $34 and $50 and Betty will not smoke;Betty does not smoke because Betty will not offer Anna a high enough price to be allowed to smoke 
B) Betty will smoke because she owns the property rights in the car;Betty does not smoke because Betty will not offer Anna a high enough price to be allowed to smoke 
C) Betty will smoke because she owns the property rights in the car;Betty will offer Anna $51 and Betty will smoke 
D) Anna will offer Betty an amount between $34 and $50 and Betty will not smoke;Betty will offer Anna $51 and Betty will smoke 
E) Betty will smoke because she is the car owner;Betty will offer Anna an amount between $34 and $50 and Betty will smoke

Question 20

Use the table below to answer the following questions.
Table 16.3.1
  
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.If production is left to the private market,the market price is

Accepted Answer

A) $70 a unit. 
B) $60 a unit. 
C) $50 a unit. 
D) $40 a unit. 
E) $30 a unit. 
A) $70 a unit. 
B) $60 a unit. 
C) $50 a unit. 
D) $40 a unit. 
E) $30 a unit.

Exam 16: Externalities

Research and development ________ create an external benefit.With no intervention,we produce too ________ research and development.

The marginal private benefit curve (MB)is a negatively-sloped straight line.If marginal external benefit decreases as output increases,the marginal social benefit curve is a negatively-sloped straight line

The Coase theorem will apply only if

A market economy tends to ________ goods with negative externalities and ________ goods with positive externalities.

Producing paper creates pollution.There is no externality in the consumption of paper.The efficient quantity of paper produced occurs when the

Air pollution generated by a paper mill factory is an example of a

According to the Coase theorem,if transactions costs are low and property rights exist,

Governments use subsidies ________.

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a subsidy is granted that generates an efficient quantity,then quantity produced is

Pollution occurs when lumber is produced.If the lumber market is unregulated,there would be

The Coase theorem applies when transactions costs are

Use the figure below to answer the following questions. Figure 16.2.2 -Refer to Figure 16.2.2.This figure shows the demand curve,the marginal private cost curve and the marginal social cost curve of good A.What is the efficient quantity of good A?

A private cost of production is a cost that is borne by the ________ of a good or service. A social cost of production is a cost that is ________.

When the government issues marketable permits

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.A tax of ________ per tonne is necessary to achieve the efficient output of ________ tonnes of paper.

An externality is

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is

What Is Economics?

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Filters

Research and development create an external benefit.With no intervention,we produce too research and development.

A market economy tends to goods with negative externalities and goods with positive externalities.

A private cost of production is a cost that is borne by the of a good or service. A social cost of production is a cost that is .

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.A tax of per tonne is necessary to achieve the efficient output of tonnes of paper.