Question 1

An important difference between the demand for a private good and the demand for a public good is that

Accepted Answer

A) individuals reveal their preferences for a public good, but they do not have to reveal their preferences for a private good. 
B) the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned. 
C) individuals reveal their preferences for a private good, but they do not have to reveal their preferences for a public good. 
D) the demand for a private good produces consumption externalities; the demand for a public good produces production externalities. 
A) individuals reveal their preferences for a public good, but they do not have to reveal their preferences for a private good. 
B) the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned. 
C) individuals reveal their preferences for a private good, but they do not have to reveal their preferences for a public good. 
D) the demand for a private good produces consumption externalities; the demand for a public good produces production externalities.

Question 2

A positive externality results when

Accepted Answer

A) economists are sure that a good or service provides benefits to consumers. 
B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C) when people who live in one country benefit from the production of a good or service that occurs in another country. 
D) people who are not directly involved in producing or paying for a good or service benefit from it. 
A) economists are sure that a good or service provides benefits to consumers. 
B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C) when people who live in one country benefit from the production of a good or service that occurs in another country. 
D) people who are not directly involved in producing or paying for a good or service benefit from it.

Question 3

Of what is pollution an example?

Accepted Answer

A) Public good 
B) Positive externality 
C) Private cost 
D) Negative externality 
A) Public good 
B) Positive externality 
C) Private cost 
D) Negative externality

Question 4

What does a market supply curve reflect?

Accepted Answer

A) External costs of producing a good or service 
B) External benefits of producing a good or service 
C) Social costs of producing a good or service 
D) Private costs of producing a good or service 
A) External costs of producing a good or service 
B) External benefits of producing a good or service 
C) Social costs of producing a good or service 
D) Private costs of producing a good or service

Question 5

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

Accepted Answer

Private cost of production is the cost b

Question 6

The social cost of cutting trees for firewood in a government forest is

Accepted Answer

A) the increased likelihood of flooding as more trees are cut. 
B) the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C) opportunity cost to the individual of cutting the wood. 
D) the marginal costs of cutting the last tree. 
A) the increased likelihood of flooding as more trees are cut. 
B) the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C) opportunity cost to the individual of cutting the wood. 
D) the marginal costs of cutting the last tree.

Question 7

A public good that is a good that is both rival and excludable.

Accepted Answer

A) True 
 B)False

Question 8

Figure 15.2   Figure 15.2 shows a market with a negative externality.
-Refer to Figure 15.2.What price represents the marginal benefit of the last unit produced?

Accepted Answer

A) Pa 
B) Pb 
C) Pc 
D) Pf 
A) Pa 
B) Pb 
C) Pc 
D) Pf

Question 9

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

Accepted Answer

A) external costs. 
B) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution. 
A) external costs. 
B) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution.

Question 10

The social cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following conditions holds in economically efficient competitive market equilibrium?

Accepted Answer

A) The deadweight loss is positive but at a minimum. 
B) Producer and consumer surplus are exactly equal in size. 
C) There are no positive and no negative external effects from consumption and production. 
D) The marginal benefit of the last unit produced and consumed is maximised. 
A) The deadweight loss is positive but at a minimum. 
B) Producer and consumer surplus are exactly equal in size. 
C) There are no positive and no negative external effects from consumption and production. 
D) The marginal benefit of the last unit produced and consumed is maximised.

Question 12

When there is an externality in a market,

Accepted Answer

A) the externality will move the market to an economically efficient equilibrium. 
B) the externality will cause the market price to be less than or greater than the equilibrium price. 
C) the government should use price controls to enable the market to reach equilibrium. 
D) government intervention may increase economic efficiency. 
A) the externality will move the market to an economically efficient equilibrium. 
B) the externality will cause the market price to be less than or greater than the equilibrium price. 
C) the government should use price controls to enable the market to reach equilibrium. 
D) government intervention may increase economic efficiency.

Question 13

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem

Accepted Answer

A) an equitable solution can be reached only if property rights are assigned to the victims of pollution and not the polluters. 
B) an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution. 
C) an efficient solution can be reached regardless of the initial assignment of property rights. 
D) government intervention is necessary to reach an efficient and equitable solution. 
A) an equitable solution can be reached only if property rights are assigned to the victims of pollution and not the polluters. 
B) an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution. 
C) an efficient solution can be reached regardless of the initial assignment of property rights. 
D) government intervention is necessary to reach an efficient and equitable solution.

Question 14

Figure 15.3  
-Refer to Figure 15.3.At the competitive market equilibrium, what is true for the last unit produced?

Accepted Answer

A) The size of the external benefit is Pm - Po. 
B) The size of the external cost is Pm - Po. 
C) The size of the external cost is Pn - Po. 
D) The size of the external benefit is Pn - Po. 
A) The size of the external benefit is Pm - Po. 
B) The size of the external cost is Pm - Po. 
C) The size of the external cost is Pn - Po. 
D) The size of the external benefit is Pn - Po.

Question 15

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price, but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good, but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. 
A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price, but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good, but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Question 16

Figure 15.6   Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 15.6.Why is there a deadweight loss?

Accepted Answer

A) Because the marginal private benefit for each additional unit between Q1 and Q2 exceeds the marginal cost 
B) Because the marginal private cost for each additional unit between Q1 and Q2 exceeds the marginal private benefit 
C) Because the marginal social cost for each additional unit between Q1 and Q2 exceeds the marginal social benefit 
D) Because the marginal social benefit for each additional unit between Q1 and Q2 exceeds the marginal cost 
A) Because the marginal private benefit for each additional unit between Q1 and Q2 exceeds the marginal cost 
B) Because the marginal private cost for each additional unit between Q1 and Q2 exceeds the marginal private benefit 
C) Because the marginal social cost for each additional unit between Q1 and Q2 exceeds the marginal social benefit 
D) Because the marginal social benefit for each additional unit between Q1 and Q2 exceeds the marginal cost

Question 17

Figure 15.7  
-Refer to Figure 15.7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Accepted Answer

A) PE 
B) the value of the area QBBEQE 
C) PE × QE 
D) the value of the area BEF 
A) PE 
B) the value of the area QBBEQE 
C) PE × QE 
D) the value of the area BEF

Question 18

What is an externality?

Accepted Answer

A) A benefit realised by the purchaser of a good or service. 
B) A cost paid for by the producer of a good or service. 
C) A benefit or cost experienced by someone who is not a producer or consumer of a good or service. 
D) Anything that is external or not relevant to the production of a good or service. 
A) A benefit realised by the purchaser of a good or service. 
B) A cost paid for by the producer of a good or service. 
C) A benefit or cost experienced by someone who is not a producer or consumer of a good or service. 
D) Anything that is external or not relevant to the production of a good or service.

Question 19

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Accepted Answer

A) True 
 B)False

Question 20

Figure 15.11   Coal burning utilities release sulphur dioxide and nitric acid which react with water to produce acid rain.Acid rain damages trees and crops and kills fish.Because the utilities do not bear the cost of the acid rain, they overproduce the quantity of electricity.This is illustrated in Figure 15.11.
-Refer to Figure 15.11.S1 represents the supply curve that reflects the private cost of production, and S2 represents the supply curve that reflects the social cost of production.One way to internalise the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalise the cost of the externality?

Accepted Answer

A) P0 
B) P2 - P0 
C) P1 - P0 
D) P2 - P1 
A) P0 
B) P2 - P0 
C) P1 - P0 
D) P2 - P1

An important difference between the demand for a private good and the demand for a public good is that

A positive externality results when

Of what is pollution an example?

What does a market supply curve reflect?

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

The social cost of cutting trees for firewood in a government forest is

A public good that is a good that is both rival and excludable.

Figure 15.2 Figure 15.2 shows a market with a negative externality. -Refer to Figure 15.2.What price represents the marginal benefit of the last unit produced?

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

The social cost of a good or service is the cost borne by the producer.

Which of the following conditions holds in economically efficient competitive market equilibrium?

When there is an externality in a market,

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem

Figure 15.3 -Refer to Figure 15.3.At the competitive market equilibrium, what is true for the last unit produced?

How does the construction of a market demand curve for a private good differ from that for a public good?

Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.Why is there a deadweight loss?

Figure 15.7 -Refer to Figure 15.7.What is the incremental cost of increasing the quantity of pollution reduction from Q_Bto Q_Eunits?

What is an externality?

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

The Distribution of Income and Social Policy

Filters

Exam 15: Externalities, Environmental Policy and Public Goods

An important difference between the demand for a private good and the demand for a public good is that

A positive externality results when

Of what is pollution an example?

What does a market supply curve reflect?

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

The social cost of cutting trees for firewood in a government forest is

A public good that is a good that is both rival and excludable.

Figure 15.2 Figure 15.2 shows a market with a negative externality. -Refer to Figure 15.2.What price represents the marginal benefit of the last unit produced?

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

The social cost of a good or service is the cost borne by the producer.

Which of the following conditions holds in economically efficient competitive market equilibrium?

When there is an externality in a market,

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem

Figure 15.3 -Refer to Figure 15.3.At the competitive market equilibrium, what is true for the last unit produced?

How does the construction of a market demand curve for a private good differ from that for a public good?

Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.Why is there a deadweight loss?

Figure 15.7 -Refer to Figure 15.7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

What is an externality?

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

The Distribution of Income and Social Policy

Filters

Figure 15.7 -Refer to Figure 15.7.What is the incremental cost of increasing the quantity of pollution reduction from Q_Bto Q_Eunits?