Question 1

If negative externalities exist, then in a market with no property rights,

Accepted Answer

A)  MSC = MSB. 
B)  MSC  MSB. 
D)  MSC = marginal external cost. 
E)  MC > MSC. 
A)  MSC = MSB. 
B)  MSC  MSB. 
D)  MSC = marginal external cost. 
E)  MC > MSC.

Question 2

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 3

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

Accepted Answer

A) the quantity produced is the efficient quantity. 
B) the quantity produced is greater than the efficient quantity. 
C) the quantity produced is less than the efficient quantity. 
D) marginal external cost is maximized. 
E) production is technologically inefficient. 
A) the quantity produced is the efficient quantity. 
B) the quantity produced is greater than the efficient quantity. 
C) the quantity produced is less than the efficient quantity. 
D) marginal external cost is maximized. 
E) production is technologically inefficient.

Question 4

Complete the following sentence. Knowledge

Accepted Answer

A) generates external benefits. 
B) generates external costs. 
C) displays diminishing marginal benefit. 
D) is encouraged by intellectual property rights. 
E) A and D are correct. 
A) generates external benefits. 
B) generates external costs. 
C) displays diminishing marginal benefit. 
D) is encouraged by intellectual property rights. 
E) A and D are correct.

Question 5

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 voucher is given to consumers that generates an efficient outcome, then consumers pay

Accepted Answer

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

Question 6

A person driving while talking on a cellphone creates ________. A beautiful sunset creates ________.

Accepted Answer

A) a negative production externality; a positive consumption externality 
B) a negative production externality; no externality 
C) a negative consumption externality; a positive consumption externality 
D) a negative consumption externality; no externality 
E) a negative consumption externality; a positive production externality 
A) a negative production externality; a positive consumption externality 
B) a negative production externality; no externality 
C) a negative consumption externality; a positive consumption externality 
D) a negative consumption externality; no externality 
E) a negative consumption externality; a positive production externality

Question 7

Which one of the following is a means of coping with a negative externality?

Accepted Answer

A) emission subsidies 
B) patents 
C) vouchers 
D) Pigovian taxes 
E) copyrights 
A) emission subsidies 
B) patents 
C) vouchers 
D) Pigovian taxes 
E) copyrights

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 figure below to answer the following questions.
   
Figure 16.2.3
-Refer to Figure 16.2.3. The unregulated outcome in the paper market is

Accepted Answer

A) a quantity of 40 tonnes and a price of $11 a tonne. 
B) a quantity of 40 tonnes and a price of $13 a tonne. 
C) a quantity of 50 tonnes and a price of $12 a tonne. 
D) a quantity of 50 tonnes and a price of $14 a tonne. 
E) a quantity of 60 tonnes and a price of $13 a tonne. 
A) a quantity of 40 tonnes and a price of $11 a tonne. 
B) a quantity of 40 tonnes and a price of $13 a tonne. 
C) a quantity of 50 tonnes and a price of $12 a tonne. 
D) a quantity of 50 tonnes and a price of $14 a tonne. 
E) a quantity of 60 tonnes and a price of $13 a tonne.

Question 10

Effective strategies for addressing the problem of negative externalities include

Accepted Answer

A) taxing the profit of polluting companies at twice the rate of non-polluting companies. 
B) imposing taxes on the activity that generates the pollution. 
C) stressing the use of renewable resources. 
D) imposing recycling laws. 
E) closing down a polluting industry. 
A) taxing the profit of polluting companies at twice the rate of non-polluting companies. 
B) imposing taxes on the activity that generates the pollution. 
C) stressing the use of renewable resources. 
D) imposing recycling laws. 
E) closing down a polluting industry.

Question 11

Use the information below to answer the following question.
Fact 16.2.1 Global Solutions for Local Gridlock
Gridlock costs Toronto $6 billion a year, with average commutes of 80 minutes. By 2013, an additional 27 minutes will be added to the daily grind. Civic leaders are looking at road tolls, a regional gas tax, and parking levies.
Source: Toronto Star, June 24, 2011
   
Figure 16.2.1
-Refer to Figure 16.2.1. Toll roads, a regional gas tax, and parking levies ________ make Toronto streets less congested because ________.

Accepted Answer

A) will not; drivers will switch to using public transport only if TTC prices fall 
B) will not; additional charges on Toronto's motorists will not change driving habits 
C) will; motorists will consider the external benefit from driving in Toronto 
D) will; motorists will consider the external cost of driving in Toronto 
E) will not; construction on Toronto's streets always results in congestion 
A) will not; drivers will switch to using public transport only if TTC prices fall 
B) will not; additional charges on Toronto's motorists will not change driving habits 
C) will; motorists will consider the external benefit from driving in Toronto 
D) will; motorists will consider the external cost of driving in Toronto 
E) will not; construction on Toronto's streets always results in congestion

Question 12

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 13

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. If society's external benefit from university graduates is $10,000 each, then the

Accepted Answer

A) marginal social cost curve lies $10,000 to the left of the private marginal benefit curve. 
B) marginal social cost curve lies $10,000 to the right of the private marginal benefit curve. 
C) marginal social benefit curve lies $10,000 below the private marginal benefit curve. 
D) marginal social benefit curve lies $10,000 above the private marginal benefit curve. 
E) marginal social benefit curve is horizontal. 
A) marginal social cost curve lies $10,000 to the left of the private marginal benefit curve. 
B) marginal social cost curve lies $10,000 to the right of the private marginal benefit curve. 
C) marginal social benefit curve lies $10,000 below the private marginal benefit curve. 
D) marginal social benefit curve lies $10,000 above the private marginal benefit curve. 
E) marginal social benefit curve is horizontal.

Question 14

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

Question 15

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 16

If the marginal social benefit of a good equals the marginal private benefit of the good, then the marginal external benefit of the good

Accepted Answer

A) equals the marginal private cost. 
B) is zero. 
C) equals the marginal social cost. 
D) equals the marginal social benefit. 
E) is increasing. 
A) equals the marginal private cost. 
B) is zero. 
C) equals the marginal social cost. 
D) equals the marginal social benefit. 
E) is increasing.

Question 17

All of the following statements are correct except

Accepted Answer

A) knowledge about one process spills over into other segments of the economy. 
B) additional knowledge makes people more productive, and there seems to be no tendency for the additional productivity from additional knowledge to diminish. 
C) knowledge has no external benefit. 
D) knowledge might be an exception to the principle of diminishing marginal benefit. 
E) it is necessary to use public policies to ensure that those who develop new ideas have incentives to encourage an efficient level of effort. 
A) knowledge about one process spills over into other segments of the economy. 
B) additional knowledge makes people more productive, and there seems to be no tendency for the additional productivity from additional knowledge to diminish. 
C) knowledge has no external benefit. 
D) knowledge might be an exception to the principle of diminishing marginal benefit. 
E) it is necessary to use public policies to ensure that those who develop new ideas have incentives to encourage an efficient level of effort.

Question 18

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 19

Post-secondary education in Canada is subsidized. This fact suggests that i. less than the efficient amount of education would be provided by an unregulated market.
Ii. the marginal private benefit from education equals the marginal social benefit from education.
Iii. post-secondary education has no externalities.
Which statements are correct?

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and ii only 
E) i, ii, and iii 
A) i only 
B) ii only 
C) iii only 
D) i and ii only 
E) i, ii, and iii

Question 20

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 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.

Exam 16: Externalities

If negative externalities exist, then in a market with no property rights,

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

Complete the following sentence. Knowledge

A person driving while talking on a cellphone creates ________. A beautiful sunset creates ________.

Which one of the following is a means of coping with a negative externality?

Use the figure below to answer the following questions. Figure 16.2.3 -Refer to Figure 16.2.3. The unregulated outcome in the paper market is

Effective strategies for addressing the problem of negative externalities include

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.

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. If society's external benefit from university graduates is $10,000 each, then the

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

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

If the marginal social benefit of a good equals the marginal private benefit of the good, then the marginal external benefit of the good

All of the following statements are correct except

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters

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

A person driving while talking on a cellphone creates . A beautiful sunset creates .

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.