Question 1

Means of coping with negative externalities include all of the following except

Accepted Answer

A) emission charges. 
B) patents. 
C) property rights. 
D) Pigovian taxes. 
E) marketable permits. 
A) emission charges. 
B) patents. 
C) property rights. 
D) Pigovian taxes. 
E) marketable permits.

Question 2

Use the figure below to answer the following questions.
   
Figure 16.3.3
-Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.Society's external benefit from university graduates is $10,000 each.With no subsidy

Accepted Answer

A) no students go to university. 
B) less than 10 million students go to university. 
C) 10 million students go to university. 
D) more than 10 million students go to university. 
E) none of the above. 
A) no students go to university. 
B) less than 10 million students go to university. 
C) 10 million students go to university. 
D) more than 10 million students go to university. 
E) none of the above.

Question 3

The Coase theorem states that

Accepted Answer

A) patents and copyrights will solve the problem of external costs. 
B) taxes will solve the problem of external costs. 
C) global warming is hard to solve due to the prisoners' dilemma aspect of the problem. 
D) property rights are social arrangements governing ownership, use and disposal of factors of production and goods and services. 
E) if property rights are established, and if only a small number of parties are involved, and if transactions costs are low, then private transactions are efficient. 
A) patents and copyrights will solve the problem of external costs. 
B) taxes will solve the problem of external costs. 
C) global warming is hard to solve due to the prisoners' dilemma aspect of the problem. 
D) property rights are social arrangements governing ownership, use and disposal of factors of production and goods and services. 
E) if property rights are established, and if only a small number of parties are involved, and if transactions costs are low, then private transactions are efficient.

Question 4

Most governments subsidize basic education because

Accepted Answer

A) there are external costs associated with well educated citizens. 
B) the marginal social benefit from education is greater than the marginal private benefit. 
C) of the existence of private schools. 
D) the marginal social cost of education is greater than the marginal private cost. 
E) otherwise too many students will receive educations. 
A) there are external costs associated with well educated citizens. 
B) the marginal social benefit from education is greater than the marginal private benefit. 
C) of the existence of private schools. 
D) the marginal social cost of education is greater than the marginal private cost. 
E) otherwise too many students will receive educations.

Question 5

The devices the government can use to achieve a more efficient allocation of resources in the presence of external benefits include all of the following except

Accepted Answer

A) intellectual property rights. 
B) subsidies. 
C) public production. 
D) marketable permits. 
E) patents. 
A) intellectual property rights. 
B) subsidies. 
C) public production. 
D) marketable permits. 
E) patents.

Question 6

Use the figure below to answer the following questions.
   
Figure 16.3.2
-Refer to Figure 16.3.2.The figure shows the market for good B.Under public production,consumers pay ________ for each unit of B.

Accepted Answer

A) zero 
B) $1 
C) $2 
D) $3 
E) $4 
A) zero 
B) $1 
C) $2 
D) $3 
E) $4

Question 7

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.How many units of good A are produced in an unregulated market?

Accepted Answer

A) 0 units 
B) 5 units 
C) 6 units 
D) 8 units 
E) 9 units 
A) 0 units 
B) 5 units 
C) 6 units 
D) 8 units 
E) 9 units

Question 8

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 quantity produced is

Accepted Answer

A) 1 unit. 
B) 2 units. 
C) 3 units. 
D) 4 units. 
E) 5 units. 
A) 1 unit. 
B) 2 units. 
C) 3 units. 
D) 4 units. 
E) 5 units.

Question 9

Use the table below to answer the following questions.
Table 16.2.1
  
-Refer to Table 16.2.1.Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer.Under these circumstances,

Accepted Answer

A) there are positive externalities in this market. 
B) there are negative externalities in this market, equal to $10 per unit. 
C) there are no externalities in this market. 
D) not enough information is provided to determine whether or not there are externalities. 
E) there are negative externalities in this market, equal to $20 per unit. 
A) there are positive externalities in this market. 
B) there are negative externalities in this market, equal to $10 per unit. 
C) there are no externalities in this market. 
D) not enough information is provided to determine whether or not there are externalities. 
E) there are negative externalities in this market, equal to $20 per unit.

Question 10

Consider the production of pesticide that pollutes a lake used by a trout farmer.A marketable permit

Accepted Answer

A) creates an efficient outcome when the price of the permit is set equal to the external cost. 
B) cannot result in the same outcome as when property rights are assigned to the pesticide producer. 
C) cannot result in the same outcome as when property rights are assigned to the trout farm. 
D) cannot result in the same outcome as when the government imposes a Pigovian tax. 
E) creates an efficient outcome when the price of the permits is set equal to the external benefit. 
A) creates an efficient outcome when the price of the permit is set equal to the external cost. 
B) cannot result in the same outcome as when property rights are assigned to the pesticide producer. 
C) cannot result in the same outcome as when property rights are assigned to the trout farm. 
D) cannot result in the same outcome as when the government imposes a Pigovian tax. 
E) creates an efficient outcome when the price of the permits is set equal to the external benefit.

Question 11

Use the table below to answer the following questions.
Table 16.2.1
  
-Refer to Table 16.2.1.Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer.If the market is unregulated,the market price is

Accepted Answer

A) $10 a unit. 
B) $20 a unit. 
C) $30 a unit. 
D) $40 a unit. 
E) $50 a unit. 
A) $10 a unit. 
B) $20 a unit. 
C) $30 a unit. 
D) $40 a unit. 
E) $50 a unit.

Question 12

Use the figure below to answer the following questions.
   
Figure 16.2.1
-Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If a constant per unit tax is imposed that generates an efficient allocation of resources,then consumers pay a per unit price of

Accepted Answer

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

Question 13

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.To promote an efficient quantity the government could grant a subsidy equal to

Accepted Answer

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

Question 14

Use the table below to answer the following questions.
Table 16.2.2
Chemical Fertilizer Market
  
-Refer to Table 16.2.2.The efficient output of fertilizer is

Accepted Answer

A) 1 tonne. 
B) 2 tonnes. 
C) 3 tonnes. 
D) 4 tonnes. 
E) 5 tonnes. 
A) 1 tonne. 
B) 2 tonnes. 
C) 3 tonnes. 
D) 4 tonnes. 
E) 5 tonnes.

Question 15

An example of an activity that creates a positive consumption externality is

Accepted Answer

A) logging, which pollutes rivers. 
B) locating beehives next to an orange orchard. 
C) smoking, which harms the health of a bystander. 
D) a flu vaccination. 
E) a noisy party. 
A) logging, which pollutes rivers. 
B) locating beehives next to an orange orchard. 
C) smoking, which harms the health of a bystander. 
D) a flu vaccination. 
E) a noisy party.

Question 16

A patent is an example of

Accepted Answer

A) a subsidy. 
B) a marketable permit. 
C) a voucher. 
D) a tax. 
E) a legal device for creating property rights. 
A) a subsidy. 
B) a marketable permit. 
C) a voucher. 
D) a tax. 
E) a legal device for creating property rights.

Question 17

A private subsidy on a good

Accepted Answer

A) is similar to a tax because it decreases the production of the good being subsidized. 
B) increases demand for the good. 
C) punishes those who consume or produce the subsidized good. 
D) has no effect on the quantity of the good produced. 
E) increases production of that good. 
A) is similar to a tax because it decreases the production of the good being subsidized. 
B) increases demand for the good. 
C) punishes those who consume or produce the subsidized good. 
D) has no effect on the quantity of the good produced. 
E) increases production of that good.

Question 18

Which of the following illustrates the concept of external cost?

Accepted Answer

A) Bad weather reduces the size of the wheat crop. 
B) A reduction in the size of the wheat crop causes income of wheat farmers to fall. 
C) Smoking harms the health of the smoker. 
D) Smoking harms the health of nearby nonsmokers. 
E) Public health services reduce the transmission of disease. 
A) Bad weather reduces the size of the wheat crop. 
B) A reduction in the size of the wheat crop causes income of wheat farmers to fall. 
C) Smoking harms the health of the smoker. 
D) Smoking harms the health of nearby nonsmokers. 
E) Public health services reduce the transmission of disease.

Question 19

Use the figure below to answer the following questions.
   
Figure 16.2.3
-Refer to Figure 16.2.3.In this market there is a marginal external

Accepted Answer

A) cost of $14 a tonne. 
B) cost of $12 a tonne. 
C) cost of $2 a tonne. 
D) benefit of $2 a tonne. 
E) benefit of $12 a tonne. 
A) cost of $14 a tonne. 
B) cost of $12 a tonne. 
C) cost of $2 a tonne. 
D) benefit of $2 a tonne. 
E) benefit of $12 a tonne.

Question 20

Use the table below to answer the following question.
Table 16.2.3
  
-Refer to Table 16.2.3.The first two columns of the table show the demand schedule for electricity from a coal burning utility;the second and third columns show the utility's cost of producing electricity.
The marginal external cost of the pollution created is equal to the marginal cost.
Suppose the government levies a pollution tax such that the utility generates the efficient quantity of electricity.The pollution tax is ________ cents a kilowatt hour.

Accepted Answer

A) 2 
B) 4 
C) 6 
D) 8 
E) 10 
A) 2 
B) 4 
C) 6 
D) 8 
E) 10

Exam 16: Externalities

Means of coping with negative externalities include all of the following except

Use the figure below to answer the following questions. Figure 16.3.3 -Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.Society's external benefit from university graduates is $10,000 each.With no subsidy

The Coase theorem states that

Most governments subsidize basic education because

The devices the government can use to achieve a more efficient allocation of resources in the presence of external benefits include all of the following except

Use the figure below to answer the following questions. Figure 16.3.2 -Refer to Figure 16.3.2.The figure shows the market for good B.Under public production,consumers pay ________ for each unit of B.

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.How many units of good A are produced in an unregulated market?

Consider the production of pesticide that pollutes a lake used by a trout farmer.A marketable permit

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.To promote an efficient quantity the government could grant a subsidy equal to

Use the table below to answer the following questions. Table 16.2.2 Chemical Fertilizer Market -Refer to Table 16.2.2.The efficient output of fertilizer is

An example of an activity that creates a positive consumption externality is

A patent is an example of

A private subsidy on a good

Which of the following illustrates the concept of external cost?

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3.In this market there is a marginal external

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