Question 1

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. C

Question 2

When the production of a good has an external cost, the

Accepted Answer

A) marginal social cost curve lies below the marginal private cost curve. 
B) marginal social benefit curve lies above the marginal private benefit curve. 
C) equilibrium quantity in an unregulated, competitive market has a marginal social cost greater than the marginal social benefit. 
D) equilibrium quantity in an unregulated, competitive market has a marginal social cost less than the marginal social benefit. 
E) good should not be produced. 
A) marginal social cost curve lies below the marginal private cost curve. 
B) marginal social benefit curve lies above the marginal private benefit curve. 
C) equilibrium quantity in an unregulated, competitive market has a marginal social cost greater than the marginal social benefit. 
D) equilibrium quantity in an unregulated, competitive market has a marginal social cost less than the marginal social benefit. 
E) good should not be produced. C

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. E

Question 4

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 5

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 6

To increase efficiency,

Accepted Answer

A) taxes are used to overcome both external benefits and external costs. 
B) subsidies are used to overcome both external benefits and external costs. 
C) subsidies are used to overcome external benefits, and taxes to overcome external costs. 
D) taxes are used to overcome external benefits, and subsidies to overcome external costs. 
E) public provision used to overcome external benefits, and vouchers to overcome external costs. 
A) taxes are used to overcome both external benefits and external costs. 
B) subsidies are used to overcome both external benefits and external costs. 
C) subsidies are used to overcome external benefits, and taxes to overcome external costs. 
D) taxes are used to overcome external benefits, and subsidies to overcome external costs. 
E) public provision used to overcome external benefits, and vouchers to overcome external costs.

Question 7

Choose the statement that is incorrect.

Accepted Answer

A) Between 2008 and 2012, carbon emissions in British Columbia remained constant. 
B) As of 2012, British Columbia applies a carbon tax of $30 per tonne of carbon emitted. 
C) British Columbia's carbon tax is revenue-neutral. 
D) Australia has a carbon tax. 
E) A high gas tax in the United Kingdom cuts carbon emissions by inducing people to drive smaller cars and to drive less. 
A) Between 2008 and 2012, carbon emissions in British Columbia remained constant. 
B) As of 2012, British Columbia applies a carbon tax of $30 per tonne of carbon emitted. 
C) British Columbia's carbon tax is revenue-neutral. 
D) Australia has a carbon tax. 
E) A high gas tax in the United Kingdom cuts carbon emissions by inducing people to drive smaller cars and to drive less.

Question 8

The economic benefit of a patent or copyright must be balanced against

Accepted Answer

A) the external benefit from the good. 
B) the external cost of the good. 
C) the marginal private cost of the good. 
D) the cost of temporary monopoly. 
E) the marginal social cost of the good. 
A) the external benefit from the good. 
B) the external cost of the good. 
C) the marginal private cost of the good. 
D) the cost of temporary monopoly. 
E) the marginal social cost of the good.

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. 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 10

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 11

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 the quantity produced is

Accepted Answer

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

Question 12

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 13

In recent years, as provincial governments attempt to balance their budgets, they have increased tuition fees considerably. This increase will likely result in

Accepted Answer

A) more students. 
B) fewer students. 
C) underprovision of education compared to the efficient level. 
D) overprovision of education compared to the efficient level. 
E) B and C. 
A) more students. 
B) fewer students. 
C) underprovision of education compared to the efficient level. 
D) overprovision of education compared to the efficient level. 
E) B and C.

Question 14

If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the marginal social cost of each kilowatt equals nine cents, then the marginal external cost equals ________ per kilowatt.

Accepted Answer

A) five cents 
B) nine cents 
C) four cents 
D) fourteen cents 
E) forty-five cents 
A) five cents 
B) nine cents 
C) four cents 
D) fourteen cents 
E) forty-five cents

Question 15

A patent is an example of

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

When an additional unit of output is produced, the extra cost to society is the

Accepted Answer

A) average total cost. 
B) marginal social cost. 
C) marginal private cost. 
D) marginal external cost. 
E) marginal damage. 
A) average total cost. 
B) marginal social cost. 
C) marginal private cost. 
D) marginal external cost. 
E) marginal damage.

Question 18

A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the chemical factory is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced

Accepted Answer

A) decreases. 
B) stays the same. 
C) increases. 
D) changes but the direction of the change is unknown. 
E) decreases only if the marginal external benefit decreases. 
A) decreases. 
B) stays the same. 
C) increases. 
D) changes but the direction of the change is unknown. 
E) decreases only if the marginal external benefit decreases.

Question 19

When individuals make decisions about how much schooling to obtain, they

Accepted Answer

A) do not consider the personal benefits that education creates. 
B) overvalue the personal benefits that education creates. 
C) overvalue the external benefits that education creates. 
D) do not consider the external benefits that education creates. 
E) set marginal social benefit equal to tuition. 
A) do not consider the personal benefits that education creates. 
B) overvalue the personal benefits that education creates. 
C) overvalue the external benefits that education creates. 
D) do not consider the external benefits that education creates. 
E) set marginal social benefit equal to tuition.

Question 20

When the marginal social cost of the production of Good A is greater than the marginal private cost of the production of Good A, then

Accepted Answer

A) a competitive, unregulated market produces less than the efficient quantity of Good A. 
B) a competitive, unregulated market produces the efficient quantity of Good A. 
C) a competitive, unregulated market produces more than the efficient quantity of Good A. 
D) the government should levy a tax on the production of Good A that is equal to the horizontal distance between the two marginal cost curves. 
E) a competitive, unregulated market does not create a deadweight loss. 
A) a competitive, unregulated market produces less than the efficient quantity of Good A. 
B) a competitive, unregulated market produces the efficient quantity of Good A. 
C) a competitive, unregulated market produces more than the efficient quantity of Good A. 
D) the government should levy a tax on the production of Good A that is equal to the horizontal distance between the two marginal cost curves. 
E) a competitive, unregulated market does not create a deadweight loss.

Exam 16: Externalities

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

When the production of a good has an external cost, the

The Coase theorem states that

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

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 ________.

To increase efficiency,

Choose the statement that is incorrect.

The economic benefit of a patent or copyright must be balanced against

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 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

In recent years, as provincial governments attempt to balance their budgets, they have increased tuition fees considerably. This increase will likely result in

If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the marginal social cost of each kilowatt equals nine cents, then the marginal external cost equals ________ per kilowatt.

A patent is an example of

When an additional unit of output is produced, the extra cost to society is the

When individuals make decisions about how much schooling to obtain, they

When the marginal social cost of the production of Good A is greater than the marginal private cost of the production of Good A, then

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

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Possibilities, Preferences, and Choices

Organizing Production

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Perfect Competition

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Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

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Money, the Price Level, and Inflation

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Macro Only: International Trade Policy

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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 .