Question 1

-The above figure shows the marginal social benefit, marginal private cost and marginal social cost of producing steel. What is the efficient quantity of steel?

Accepted Answer

A)  0 tons 
B)  2 tons 
C)  4 tons 
D)  8 tons 
A)  0 tons 
B)  2 tons 
C)  4 tons 
D)  8 tons B

Question 2

-The above figure shows the market for fertilizer. When fertilizer is applied to lawns, it runs off into neighboring streams and ponds, killing fish and creating an external cost.
a) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market?
b) What is the efficient quantity of fertilizer?
c) Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax?
d) At the output level in part (c), how much is the tax?
e) How much tax revenue does government collect?
f) What is the deadweight loss borne by society if the externality is left uncorrected?

Accepted Answer

a) The equilibrium price is $1,000 a ton and the equilibrium quantity is 6 tons per day.
b) The efficient quantity is 4 tons per day.
c) The price paid by consumers after the tax is $1,200 a ton and the equilibrium quantity is the efficient quantity, 4 tons per day.
d) The tax is $400 a ton.
e) The government collects $1,600 a day in taxes.
f) The deadweight loss with no government action is $600 a day.

Question 3

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. To limit overuse of this park, suppose a limited number of permits are sold each year to climbers who can sell them at any time to other climbers. This method of achieving efficient use of a common resource is most like what government policy?

Accepted Answer

A)  production quota 
B)  property right 
C)  individual transferable quota 
D)  marginal social benefit right 
A)  production quota 
B)  property right 
C)  individual transferable quota 
D)  marginal social benefit right C

Question 4

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 the output is 180 tons per month, what is the marginal social cost of producing the pesticide?

Accepted Answer

A)  $60 
B)  $30 
C)  $40 
D)  $50 
A)  $60 
B)  $30 
C)  $40 
D)  $50

Question 5

When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because

Accepted Answer

A) MSC = MC. B) MSC = MSB. C) MSC > MSB. D) MSC < MSB. A) MSC = MC. B) MSC = MSB. C) MSC > MSB. D) MSC < MSB.

Question 6

"According to the Coase theorem, if Gabriel wants the local television station to cease having helicopters fly over his house at night, he will be more likely to be able to reach an agreement with the station if the property right to the airspace is clearly defined and the transaction costs of negotiating are high." Is this statement true or false? Explain your answer.

Accepted Answer

The statement is false. The first part o

Question 7

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the efficient amount of paper?

Accepted Answer

A)  10 tons per week 
B)  60 tons per week 
C)  40 tons per week 
D)  30 tons per week 
A)  10 tons per week 
B)  60 tons per week 
C)  40 tons per week 
D)  30 tons per week

Question 8

-In the above table, if the market is perfectly competitive and unregulated, at the equilibrium level of output, the marginal social benefit per unit is

Accepted Answer

A)  zero. 
B)  $20 per unit. 
C)  $50 per unit. 
D)  $70 per unit. 
A)  zero. 
B)  $20 per unit. 
C)  $50 per unit. 
D)  $70 per unit.

Question 9

The tragedy of the commons is the absence of incentives to

Accepted Answer

A)  use commonly owned resources. 
B)  prevent the overuse of commonly owned resources. 
C)  use privately owned resources. 
D)  have commonly owned resources. 
A)  use commonly owned resources. 
B)  prevent the overuse of commonly owned resources. 
C)  use privately owned resources. 
D)  have commonly owned resources.

Question 10

In which of the following markets are external benefits most likely to exist?

Accepted Answer

A)  in the market for gasoline 
B)  in the market for ball pens 
C)  in the market for flu shots 
D)  in the market for cigarettes 
A)  in the market for gasoline 
B)  in the market for ball pens 
C)  in the market for flu shots 
D)  in the market for cigarettes

Question 11

The difference between the marginal social cost and the marginal private cost equals the

Accepted Answer

A)  cost of producing an additional unit of a good. 
B)  marginal external benefit. 
C)  marginal external cost. 
D)  marginal private benefit. 
A)  cost of producing an additional unit of a good. 
B)  marginal external benefit. 
C)  marginal external cost. 
D)  marginal private benefit.

Question 12

An externality occurs when

Accepted Answer

A)  the costs of producing a good are paid entirely by the producer. 
B)  some of the costs of producing a good are paid by someone other than the producer. 
C)  the marginal social cost of an activity increases as that activity is increased. 
D)  Both answers A and C are correct. 
A)  the costs of producing a good are paid entirely by the producer. 
B)  some of the costs of producing a good are paid by someone other than the producer. 
C)  the marginal social cost of an activity increases as that activity is increased. 
D)  Both answers A and C are correct.

Question 13

If a good has an external cost, then the marginal private cost curve

Accepted Answer

A)  lies below the marginal social cost curve. 
B)  lies above the marginal social cost curve. 
C)  is negative. 
D)  is the same as the marginal external cost curve. 
A)  lies below the marginal social cost curve. 
B)  lies above the marginal social cost curve. 
C)  is negative. 
D)  is the same as the marginal external cost curve.

Question 14

Those opposed to fracking, a method of extracting natural gas through breaking up underground rocks with chemicals and water, warn that this method might pollute nearby sources of drinking water.
-If this pollution occurs, the market equilibrium with no government intervention extracts ________ natural gas than the efficient quantity and ________ a deadweight loss.

Accepted Answer

A)  less; does not create 
B)  more; does not create 
C)  less; creates 
D)  more; creates 
A)  less; does not create 
B)  more; does not create 
C)  less; creates 
D)  more; creates

Question 15

A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be

Accepted Answer

A)  efficient only if the trout farmer owns the river. 
B)  inefficient if the farming operation owns the river. 
C)  efficient if either the farming operation or the trout farmer own the river. 
D)  always inefficient. 
A)  efficient only if the trout farmer owns the river. 
B)  inefficient if the farming operation owns the river. 
C)  efficient if either the farming operation or the trout farmer own the river. 
D)  always inefficient.

Question 16

When external benefits are present

Accepted Answer

A)  competitive markets are efficient. 
B)  competitive markets are inefficient. 
C)  a tax is required to eliminate the inefficiency. 
D)  property rights have already been established. 
A)  competitive markets are efficient. 
B)  competitive markets are inefficient. 
C)  a tax is required to eliminate the inefficiency. 
D)  property rights have already been established.

Question 17

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for raising goats on a common pasture. The efficient outcome is raising

Accepted Answer

A)  0 goats. 
B)  40 goats. 
C)  50 goats. 
D)  55 goats. 
A)  0 goats. 
B)  40 goats. 
C)  50 goats. 
D)  55 goats.

Question 18

-In the above table, if the market is perfectly competitive and unregulated, the equilibrium price will be

Accepted Answer

A)  $50 per unit. 
B)  $60 per unit. 
C)  $70 per unit. 
D)  $110 per unit. 
A)  $50 per unit. 
B)  $60 per unit. 
C)  $70 per unit. 
D)  $110 per unit.

Question 19

What is marginal external cost? Give an example.

Accepted Answer

Marginal external cost is the additional

Question 20

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. The efficient quantity of transportation services is ________ and the corresponding price is ________.

Accepted Answer

A)  120; $14 
B)  120; $8 
C)  80; $12 
D)  80; $6 
A)  120; $14 
B)  120; $8 
C)  80; $12 
D)  80; $6

-The above figure shows the marginal social benefit, marginal private cost and marginal social cost of producing steel. What is the efficient quantity of steel?

When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the efficient amount of paper?

-In the above table, if the market is perfectly competitive and unregulated, at the equilibrium level of output, the marginal social benefit per unit is

The tragedy of the commons is the absence of incentives to

In which of the following markets are external benefits most likely to exist?

The difference between the marginal social cost and the marginal private cost equals the

An externality occurs when

If a good has an external cost, then the marginal private cost curve

A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be

When external benefits are present

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for raising goats on a common pasture. The efficient outcome is raising

-In the above table, if the market is perfectly competitive and unregulated, the equilibrium price will be

What is marginal external cost? Give an example.

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. The efficient quantity of transportation services is and the corresponding price is .

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Exam 17: Externalities

-The above figure shows the marginal social benefit, marginal private cost and marginal social cost of producing steel. What is the efficient quantity of steel?

When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the efficient amount of paper?

-In the above table, if the market is perfectly competitive and unregulated, at the equilibrium level of output, the marginal social benefit per unit is

The tragedy of the commons is the absence of incentives to

In which of the following markets are external benefits most likely to exist?

The difference between the marginal social cost and the marginal private cost equals the

An externality occurs when

If a good has an external cost, then the marginal private cost curve

A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be

When external benefits are present

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for raising goats on a common pasture. The efficient outcome is raising

-In the above table, if the market is perfectly competitive and unregulated, the equilibrium price will be

What is marginal external cost? Give an example.

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. The efficient quantity of transportation services is ________ and the corresponding price is ________.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. The efficient quantity of transportation services is and the corresponding price is .