Question 1

If a market is subject to a positive externality,

Accepted Answer

A)  the demand curve reflecting social benefit will be to the right of the demand curve representing private benefit. 
B)  there is only one demand curve. 
C)  the demand curve reflecting social benefit will be to the left of the demand curve representing private benefit. 
D)  private benefit will exceed social benefit. 
A)  the demand curve reflecting social benefit will be to the right of the demand curve representing private benefit. 
B)  there is only one demand curve. 
C)  the demand curve reflecting social benefit will be to the left of the demand curve representing private benefit. 
D)  private benefit will exceed social benefit.

Question 2

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Accepted Answer

A)  marginal benefit to the median voter. 
B)  marginal benefit to each individual. 
C)  sum of all individual marginal benefits. 
D)  sum of all individual marginal benefits divided by the number of voters. 
A)  marginal benefit to the median voter. 
B)  marginal benefit to each individual. 
C)  sum of all individual marginal benefits. 
D)  sum of all individual marginal benefits divided by the number of voters.

Question 3

Which of the following goods has the property of rivalry?

Accepted Answer

A)  national defense 
B)  a highway 
C)  a public beach 
D)  a movie screening 
A)  national defense 
B)  a highway 
C)  a public beach 
D)  a movie screening

Question 4

Which of the following statements about private and social costs is TRUE in the presence of negative externalities created by pollution?

Accepted Answer

A)  Competitive market produces excessive pollution. 
B)  The optimal amount of pollution is zero. 
C)  Social costs exclude externalities. 
D)  Social producer surplus exceeds private producer surplus. 
A)  Competitive market produces excessive pollution. 
B)  The optimal amount of pollution is zero. 
C)  Social costs exclude externalities. 
D)  Social producer surplus exceeds private producer surplus.

Question 5

If a production process creates positive externalities,a competitive market produces too few positive externalities because the producer

Accepted Answer

A)  does not pay all the costs of the externalities. 
B)  does not receive compensation for the externalities. 
C)  Both A and B. 
D)  None of the above. 
A)  does not pay all the costs of the externalities. 
B)  does not receive compensation for the externalities. 
C)  Both A and B. 
D)  None of the above.

Question 6

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce

Accepted Answer

A)  less than the social optimum of the good. 
B)  more than the social optimum of the good. 
C)  the social optimum of the good. 
D)  no externality. 
A)  less than the social optimum of the good. 
B)  more than the social optimum of the good. 
C)  the social optimum of the good. 
D)  no externality.

Question 7

When majority rule voting is used to determine whether to purchase a public good,

Accepted Answer

A)  the efficient outcome is assured. 
B)  the median voter gets her way. 
C)  the sum of the marginal benefits must equal marginal cost. 
D)  the marginal benefit of the good to the median voter equals the good's marginal cost. 
A)  the efficient outcome is assured. 
B)  the median voter gets her way. 
C)  the sum of the marginal benefits must equal marginal cost. 
D)  the marginal benefit of the good to the median voter equals the good's marginal cost.

Question 8

Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MCᵖ = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MCᵉ = Q.What specific tax would result in a competitive market producing the socially optimal quantity of paper?

Accepted Answer

The socially optimal quantity of paper i

Question 9

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,the optimal level of trash in the park can be achieved if

Accepted Answer

A)  Al is fined by the government. 
B)  Al has the right to leave trash and Bert cannot do anything about it. 
C)  Al has the right to leave trash and Bert can pay him to limit his dumping. 
D)  Bert moves. 
A)  Al is fined by the government. 
B)  Al has the right to leave trash and Bert cannot do anything about it. 
C)  Al has the right to leave trash and Bert can pay him to limit his dumping. 
D)  Bert moves.

Question 10

In the presence of no externalities,

Accepted Answer

A)  social marginal cost exceeds private marginal cost. 
B)  social marginal cost is less than private marginal cost. 
C)  social marginal cost equals private marginal cost. 
D)  social marginal cost and private marginal cost cannot be compared. 
A)  social marginal cost exceeds private marginal cost. 
B)  social marginal cost is less than private marginal cost. 
C)  social marginal cost equals private marginal cost. 
D)  social marginal cost and private marginal cost cannot be compared.

Question 11

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,one necessary condition to alleviate the externality is that

Accepted Answer

A)  Al is fined by the government. 
B)  Al has the right to leave trash and Bert cannot do anything about it. 
C)  Bert has the right to a clean park and Al cannot leave trash. 
D)  Either Al or Bert owns the park. 
A)  Al is fined by the government. 
B)  Al has the right to leave trash and Bert cannot do anything about it. 
C)  Bert has the right to a clean park and Al cannot leave trash. 
D)  Either Al or Bert owns the park.

Question 12

A common resource is best described as a resource where

Accepted Answer

A)  there is a positive externality in consumption. 
B)  there is a negative externality in consumption. 
C)  there is a positive externality in production. 
D)  there is a negative externality in production. 
A)  there is a positive externality in consumption. 
B)  there is a negative externality in consumption. 
C)  there is a positive externality in production. 
D)  there is a negative externality in production.

Question 13

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If nobody owns the lake,then

Accepted Answer

A)  the beach shuts down and the chemical firm produces 1 ton of pollution. 
B)  the beach shuts down and the chemical firm produces two tons of pollution. 
C)  the beach operates and the chemical firm produces 1 ton of pollution. 
D)  the beach operates and the chemical firm produces two tons of pollution. 
A)  the beach shuts down and the chemical firm produces 1 ton of pollution. 
B)  the beach shuts down and the chemical firm produces two tons of pollution. 
C)  the beach operates and the chemical firm produces 1 ton of pollution. 
D)  the beach operates and the chemical firm produces two tons of pollution.

Question 14

The total demand for a public good is found by

Accepted Answer

A)  horizontally summing all individual demands. 
B)  vertically summing all individual demands. 
C)  finding the demand from the median voter. 
D)  dividing the marginal cost of the good by the number of voters. 
A)  horizontally summing all individual demands. 
B)  vertically summing all individual demands. 
C)  finding the demand from the median voter. 
D)  dividing the marginal cost of the good by the number of voters.

Question 15

-Suppose the government wishes to regulate mercury emissions of factories in a specific industry by either setting an emissions standard or imposing an emissions fee (per ton of mercury).The government is uncertain as to the marginal abatement costs,which may be high (MC₁)or low (MC₂).
MC₁ = 15M + 500
MC₂ = 15M - 500
where M is the units of mercury abated.The government believes there is a 50% chance of each of the marginal abatement costs.The marginal benefit of abatement is known to be:
MB = 1500 - 10M
a.What is the optimal level of emissions for each of the cost curves above?
b.What is the expected marginal abatement cost (equation)?
c.What is the optimal emissions standard according to the expected abatement costs?
d.What is the optimal abatement fee according to the expected abatement costs?
e.Which regulation will result in a lower DWL in the presence of the uncertainty? Explicitly compute the expected DWL arising from each proposal.

Accepted Answer

a.For each marginal cost curve,determine

Question 16

-Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?

Accepted Answer

Under competition,the deadweight loss eq

Question 17

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If the beach owner also owns the lake,and the chemical firm must pay $10 per ton to pollute,then

Accepted Answer

A)  the beach shuts down and the chemical firm produces 1 ton of pollution. 
B)  the beach shuts down and the chemical firm produces two tons of pollution. 
C)  the beach operates and the chemical firm produces 1 ton of pollution. 
D)  the beach operates and the chemical firm produces two tons of pollution. 
A)  the beach shuts down and the chemical firm produces 1 ton of pollution. 
B)  the beach shuts down and the chemical firm produces two tons of pollution. 
C)  the beach operates and the chemical firm produces 1 ton of pollution. 
D)  the beach operates and the chemical firm produces two tons of pollution.

Question 18

In the presence of a negative externality in production,a monopoly will produce

Accepted Answer

A)  more than the social optimum. 
B)  less than the social optimum. 
C)  the social optimum. 
D)  All of the above are possible. 
A)  more than the social optimum. 
B)  less than the social optimum. 
C)  the social optimum. 
D)  All of the above are possible.

Question 19

If the government wanted to efficiently limit the emission of Carbon Monoxide by all firms to exactly 4 Million tons it could

Accepted Answer

A)  issue rights to pollute worth 4 Million tons and let the firms trade those rights in a market. 
B)  appeal to firms' environmental conscience to pollute less. 
C)  subsidize production. 
D)  rely on the Coase Theorem. 
A)  issue rights to pollute worth 4 Million tons and let the firms trade those rights in a market. 
B)  appeal to firms' environmental conscience to pollute less. 
C)  subsidize production. 
D)  rely on the Coase Theorem.

Question 20

The optimal provision of a public good occurs when the sum of the marginal rate of substitution for all members of society equals 1,the marginal rate of transformation.What is the relationship between the marginal rates of substitution in the competitive market? Use this relationship to explain why too few public goods are provided in the competitive market.

Accepted Answer

The competitive market allocation occurs

If a market is subject to a positive externality,

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Which of the following goods has the property of rivalry?

Which of the following statements about private and social costs is TRUE in the presence of negative externalities created by pollution?

If a production process creates positive externalities,a competitive market produces too few positive externalities because the producer

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce

When majority rule voting is used to determine whether to purchase a public good,

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,the optimal level of trash in the park can be achieved if

In the presence of no externalities,

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,one necessary condition to alleviate the externality is that

A common resource is best described as a resource where

The total demand for a public good is found by

-Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?

In the presence of a negative externality in production,a monopoly will produce

If the government wanted to efficiently limit the emission of Carbon Monoxide by all firms to exactly 4 Million tons it could

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 17: Property Rights, externalities, rivalry, and Exclusion

If a market is subject to a positive externality,

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Which of the following goods has the property of rivalry?

Which of the following statements about private and social costs is TRUE in the presence of negative externalities created by pollution?

If a production process creates positive externalities,a competitive market produces too few positive externalities because the producer

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce

When majority rule voting is used to determine whether to purchase a public good,

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,the optimal level of trash in the park can be achieved if

In the presence of no externalities,

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,one necessary condition to alleviate the externality is that

A common resource is best described as a resource where

The total demand for a public good is found by

-Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?

In the presence of a negative externality in production,a monopoly will produce

If the government wanted to efficiently limit the emission of Carbon Monoxide by all firms to exactly 4 Million tons it could

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters