Question 1

Markets tend to produce too little of an excludable public good because

Accepted Answer

A)  transaction costs are high. 
B)  of the lack of rivalry. 
C)  these goods are depletable. 
D)  All of the above. 
A)  transaction costs are high. 
B)  of the lack of rivalry. 
C)  these goods are depletable. 
D)  All of the above.

Question 2

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape.Why?

Accepted Answer

A)  It will make over-fishing less likely. 
B)  They can't come up with better traps. 
C)  They are not educated enough to maximize profit. 
D)  They catch more lobsters this way. 
A)  It will make over-fishing less likely. 
B)  They can't come up with better traps. 
C)  They are not educated enough to maximize profit. 
D)  They catch more lobsters this way.

Question 3

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

Accepted Answer

If the monopoly is producing more output

Question 4

The Commons Problem arises because

Accepted Answer

A)  firms don't maximize profits. 
B)  social and private incentives are not aligned and property rights are missing. 
C)  social cost equals private cost and property rights are missing. 
D)  social benefit equals private benefit and property rights are missing. 
A)  firms don't maximize profits. 
B)  social and private incentives are not aligned and property rights are missing. 
C)  social cost equals private cost and property rights are missing. 
D)  social benefit equals private benefit and property rights are missing.

Question 5

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the firm's neighbor.The marginal cost of production is zero for the firm.If there is just one neighbor who owns the river,how much pollution is likely to occur?

Accepted Answer

A)  0 units 
B)  500 units 
C)  1000 units 
D)  more than 1000 units. 
A)  0 units 
B)  500 units 
C)  1000 units 
D)  more than 1000 units.

Question 6

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

Accepted Answer

A)  the efficient outcome is not assured. 
B)  the median voter gets her way. 
C)  the sum of the marginal benefits is ignored. 
D)  All of the above. 
A)  the efficient outcome is not assured. 
B)  the median voter gets her way. 
C)  the sum of the marginal benefits is ignored. 
D)  All of the above.

Question 7

If a product provides a positive externality,a duopoly

Accepted Answer

A)  will provide more social welfare than a monopoly. 
B)  will provide less social welfare than a monopoly. 
C)  will provide the same social welfare as a monopoly. 
D)  introduces an interesting and untested twist to the externality story. 
A)  will provide more social welfare than a monopoly. 
B)  will provide less social welfare than a monopoly. 
C)  will provide the same social welfare as a monopoly. 
D)  introduces an interesting and untested twist to the externality story.

Question 8

The exclusive privilege to use an asset is called a(n)

Accepted Answer

A)  property right. 
B)  exclusive use agreement. 
C)  property privilege. 
D)  right to work privilege. 
A)  property right. 
B)  exclusive use agreement. 
C)  property privilege. 
D)  right to work privilege.

Question 9

-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.Determine the Nash equilibrium without property rights.

Accepted Answer

Without property rights,operat

Question 10

A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if

Accepted Answer

A)  the demand curve is relatively inelastic. 
B)  the demand curve is relatively elastic. 
C)  less than the socially optimum is produced before the tax. 
D)  more than the socially optimum is produced before the tax. 
A)  the demand curve is relatively inelastic. 
B)  the demand curve is relatively elastic. 
C)  less than the socially optimum is produced before the tax. 
D)  more than the socially optimum is produced before the tax.

Question 11

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If property rights are not defined,how much pollution will occur?

Accepted Answer

A)  0 units 
B)  500 units 
C)  1000 units 
D)  more than 1000 units 
A)  0 units 
B)  500 units 
C)  1000 units 
D)  more than 1000 units

Question 12

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 13

If children go to school and become productive members of society,

Accepted Answer

A)  a negative externality is created by the schools. 
B)  a positive externality is created by the schools. 
C)  no externality is created by the schools. 
D)  an externality is created that may be positive or negative. 
A)  a negative externality is created by the schools. 
B)  a positive externality is created by the schools. 
C)  no externality is created by the schools. 
D)  an externality is created that may be positive or negative.

Question 14

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 15

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 16

In terms of cost-benefit analysis,explain why a competitive market with an externality produces too much pollution.

Accepted Answer

At the socially optimal level of product

Question 17

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

Accepted Answer

A)  outlaw the production of steel. 
B)  institute a specific tax of $25. 
C)  institute a specific tax of $50. 
D)  institute a specific tax equal to area b. 
A)  outlaw the production of steel. 
B)  institute a specific tax of $25. 
C)  institute a specific tax of $50. 
D)  institute a specific tax equal to area b.

Question 18

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.According to Coase's Theorem,which of the following scenarios is most likely to lead to the socially optimal level of pollution?

Accepted Answer

A)  The firm owns the river and there are a thousand surrounding neighbors. 
B)  The firm owns the river and there is just one nearby neighbor. 
C)  The river is jointly owned by one thousand surrounding neighbors. 
D)  The firm owns the river, and therefore produces the social optimum no matter what. 
A)  The firm owns the river and there are a thousand surrounding neighbors. 
B)  The firm owns the river and there is just one nearby neighbor. 
C)  The river is jointly owned by one thousand surrounding neighbors. 
D)  The firm owns the river, and therefore produces the social optimum no matter what.

Question 19

-The above figure shows the market for steel ingots.The socially optimal quantity of steel is

Accepted Answer

A)  0 units. 
B)  50 units. 
C)  100 units. 
D)  the amount produced if the market were competitive. 
A)  0 units. 
B)  50 units. 
C)  100 units. 
D)  the amount produced if the market were competitive.

Question 20

What is one reason drunk driving is held in such disrepute?

Accepted Answer

A)  Drunk driving imposes high potential costs on non-drunk drivers. 
B)  Drunk driving destroys cars and telephone poles, causing disruption in essential services. 
C)  Only drunk drivers cause automobile fatalities. 
D)  Drunk drivers impose high potential costs on other drunk drivers. 
A)  Drunk driving imposes high potential costs on non-drunk drivers. 
B)  Drunk driving destroys cars and telephone poles, causing disruption in essential services. 
C)  Only drunk drivers cause automobile fatalities. 
D)  Drunk drivers impose high potential costs on other drunk drivers.

Markets tend to produce too little of an excludable public good because

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape.Why?

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

The Commons Problem arises because

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the firm's neighbor.The marginal cost of production is zero for the firm.If there is just one neighbor who owns the river,how much pollution is likely to occur?

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

If a product provides a positive externality,a duopoly

The exclusive privilege to use an asset is called a(n)

A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If property rights are not defined,how much pollution will occur?

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

If children go to school and become productive members of society,

In the presence of no externalities,

A common resource is best described as a resource where

In terms of cost-benefit analysis,explain why a competitive market with an externality produces too much pollution.

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

-The above figure shows the market for steel ingots.The socially optimal quantity of steel is

What is one reason drunk driving is held in such disrepute?

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 18: Externalities, Open-Access, and Public Goods

Markets tend to produce too little of an excludable public good because

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape.Why?

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

The Commons Problem arises because

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the firm's neighbor.The marginal cost of production is zero for the firm.If there is just one neighbor who owns the river,how much pollution is likely to occur?

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

If a product provides a positive externality,a duopoly

The exclusive privilege to use an asset is called a(n)

A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If property rights are not defined,how much pollution will occur?

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

If children go to school and become productive members of society,

In the presence of no externalities,

A common resource is best described as a resource where

In terms of cost-benefit analysis,explain why a competitive market with an externality produces too much pollution.

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

-The above figure shows the market for steel ingots.The socially optimal quantity of steel is

What is one reason drunk driving is held in such disrepute?

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Asymmetric Information

Contracts and Moral Hazards

Filters