Question 1

The marginal social cost and marginal private cost curves of an economic activity coincide:

Accepted Answer

A) when there are no negative externalities. 
B) if the marginal social cost is a ray from the origin. 
C) when marginal external benefits are small,but positive. 
D) at very high output levels. 
A) when there are no negative externalities. 
B) if the marginal social cost is a ray from the origin. 
C) when marginal external benefits are small,but positive. 
D) at very high output levels.

Question 2

The Red List of Threatened Species,compiled by the World Conservation Union,gives details of 11,167 species of animals and plants that are known to be at risk of extinction.Among the 10 animals that are of most concern,because of their commercial value,is the hawksbill sea turtle,which is threatened because of the demand for its beautiful shell.The species is the sole source of "tortoiseshell" used to make curios and jewelry.Which of the following most closely explains/supports the information given above?

Accepted Answer

A) Resources that generate external benefits are always overpriced. 
B) Resources are overused if private property rights over the resources are not ensured. 
C) Government intervention in the market for tortoiseshell will fail to rectify this market imperfection. 
D) A tax imposed by the government on the producers of curios will definitely prevent the extinction of hawksbill sea turtles. 
A) Resources that generate external benefits are always overpriced. 
B) Resources are overused if private property rights over the resources are not ensured. 
C) Government intervention in the market for tortoiseshell will fail to rectify this market imperfection. 
D) A tax imposed by the government on the producers of curios will definitely prevent the extinction of hawksbill sea turtles.

Question 3

A defining attribute of a public good is that:

Accepted Answer

A) to consume this good,consumers must reduce consumption of other goods. 
B) consumers can easily enforce ownership rights over such goods. 
C) it is not possible to exclude people from the enjoyment of this good. 
D) the consumption by one person influences the consumption of others. 
A) to consume this good,consumers must reduce consumption of other goods. 
B) consumers can easily enforce ownership rights over such goods. 
C) it is not possible to exclude people from the enjoyment of this good. 
D) the consumption by one person influences the consumption of others.

Question 4

The government can overcome the free rider problem in the provision of a public good by:

Accepted Answer

A) encouraging private firms to produce it. 
B) producing the good at a zero marginal cost. 
C) providing the goods only to those who pay taxes. 
D) subsidizing the production of public goods. 
A) encouraging private firms to produce it. 
B) producing the good at a zero marginal cost. 
C) providing the goods only to those who pay taxes. 
D) subsidizing the production of public goods.

Question 5

When do externalities arise?

Accepted Answer

A) When the explicit costs of producing a good or service are not borne by the producer 
B) When an economic activity imposes a burden on them who are not directly involved in it 
C) When the government produces such goods and services which are consumed by only a particular class of people 
D) When goods of mass consumption are not produced as they do not yield profit for the producers 
A) When the explicit costs of producing a good or service are not borne by the producer 
B) When an economic activity imposes a burden on them who are not directly involved in it 
C) When the government produces such goods and services which are consumed by only a particular class of people 
D) When goods of mass consumption are not produced as they do not yield profit for the producers

Question 6

Free rider behavior is:

Accepted Answer

A) always irrational since the individual who free rides causes a misallocation of resources. 
B) a rational behavior in the case of public goods. 
C) more likely to cause a problem if it is provided by private firms. 
D) less likely to cause a problem if it is consumed by a large number of people. 
A) always irrational since the individual who free rides causes a misallocation of resources. 
B) a rational behavior in the case of public goods. 
C) more likely to cause a problem if it is provided by private firms. 
D) less likely to cause a problem if it is consumed by a large number of people.

Question 7

In the figure given below,the competitive supply curve of a commodity is given by SS1U1B11S1U1B0,the private marginal benefit curve is DS1U1B11S1U1B0,the marginal social benefit curve is DS1U1B12S1U1B0,and the MBS1U1B1ES1U1B0 curve reflects the marginal external benefits.  
-In Figure 20-2,the efficient output is _____ than the market equilibrium output by _____ units.

Accepted Answer

A) more;300 
B) less;300 
C) more;100 
D) less;100 
A) more;300 
B) less;300 
C) more;100 
D) less;100

Question 8

Externalities mainly arise because:

Accepted Answer

A) consumers have more market power than sellers. 
B) producers have more market power than consumers. 
C) of inadequate provision of public goods. 
D) of inappropriate assignment of property rights. 
A) consumers have more market power than sellers. 
B) producers have more market power than consumers. 
C) of inadequate provision of public goods. 
D) of inappropriate assignment of property rights.

Question 9

All of the following statements are true in the context of the Coase theorem,except:

Accepted Answer

A) private bargaining will not always produce an efficient outcome. 
B) as long as the property rights are clearly defined and enforced,bargaining between the parties can ensure an efficient outcome. 
C) the initial assignment of property rights has distributional implications but will not affect the attainment of an efficient outcome,as long as there is a small number of parties involved. 
D) government intervention is necessary to achieve an efficient outcome in the presence of externalities. 
A) private bargaining will not always produce an efficient outcome. 
B) as long as the property rights are clearly defined and enforced,bargaining between the parties can ensure an efficient outcome. 
C) the initial assignment of property rights has distributional implications but will not affect the attainment of an efficient outcome,as long as there is a small number of parties involved. 
D) government intervention is necessary to achieve an efficient outcome in the presence of externalities.

Question 10

A congested,non-toll road is characterized by:

Accepted Answer

A) nonexclusion and nonrivalry in consumption. 
B) nonexclusion and rivalry in consumption. 
C) exclusion and nonrivalry in consumption. 
D) exclusion and rivalry in consumption. 
A) nonexclusion and nonrivalry in consumption. 
B) nonexclusion and rivalry in consumption. 
C) exclusion and nonrivalry in consumption. 
D) exclusion and rivalry in consumption.

Question 11

Which of the following problems can be associated with goods characterized by nonexclusion?

Accepted Answer

A) Externality 
B) Decreasing returns to scale 
C) Adverse selection problem 
D) Free riding 
A) Externality 
B) Decreasing returns to scale 
C) Adverse selection problem 
D) Free riding

Question 12

The cost imposed by an economic activity on others,who are not directly involved in the transaction,is referred to as:

Accepted Answer

A) a sunk cost. 
B) an implicit cost. 
C) an external cost. 
D) resource overutilization. 
A) a sunk cost. 
B) an implicit cost. 
C) an external cost. 
D) resource overutilization.

Question 13

The social cost of producing a commodity is equal to the:

Accepted Answer

A) the sum of fixed and variable costs. 
B) the difference between the total cost and opportunity cost. 
C) the sum of private and external costs. 
D) the difference between the private and external cost. 
A) the sum of fixed and variable costs. 
B) the difference between the total cost and opportunity cost. 
C) the sum of private and external costs. 
D) the difference between the private and external cost.

Question 14

When an economic activity generates a benefit for those who are not directly involved in it a(n)_____ is said to exist.

Accepted Answer

A) competitive advantage 
B) marginal benefit 
C) external benefit 
D) tragedy of commons problem. 
A) competitive advantage 
B) marginal benefit 
C) external benefit 
D) tragedy of commons problem.

Question 15

Which of the following characteristics can be associated with a museum charging entry fees to all the visitors above 12 years of age?

Accepted Answer

A) Nonexclusion 
B) Positive externality 
C) Exclusion 
D) Negative externality 
A) Nonexclusion 
B) Positive externality 
C) Exclusion 
D) Negative externality

Question 16

Government financing of a public good with taxes:

Accepted Answer

A) leads to a more efficient allocation of resources compared to private markets. 
B) reveals accurately the society's demand for the public good. 
C) leads to deficit in the current account of the trade balance. 
D) inevitably results in a budget surplus. 
A) leads to a more efficient allocation of resources compared to private markets. 
B) reveals accurately the society's demand for the public good. 
C) leads to deficit in the current account of the trade balance. 
D) inevitably results in a budget surplus.

Question 17

For which of the following goods will the free rider problem arise?

Accepted Answer

A) A private golf course 
B) Cable television 
C) Movie theatres 
D) A toll free highway 
A) A private golf course 
B) Cable television 
C) Movie theatres 
D) A toll free highway

Question 18

Reducing automobile pollution beyond a certain point is not efficient when:

Accepted Answer

A) the marginal benefit from reduced pollution is less than the marginal cost of reducing the pollution. 
B) the marginal cost of reducing pollution is less than the marginal benefit from reduced pollution. 
C) the marginal private cost of producing automobiles is less than the marginal social cost. 
D) the marginal external cost of pollution is zero. 
A) the marginal benefit from reduced pollution is less than the marginal cost of reducing the pollution. 
B) the marginal cost of reducing pollution is less than the marginal benefit from reduced pollution. 
C) the marginal private cost of producing automobiles is less than the marginal social cost. 
D) the marginal external cost of pollution is zero.

Question 19

A uniform per-unit tax on pollution achieves abatement in the least costly manner because:

Accepted Answer

A) the government is completely informed about the marginal costs of installing environment friendly equipment to the firms. 
B) the government subsidizes the equipment required for pollution control. 
C) each firm will ensure that reduce pollution to zero. 
D) each firm reduces pollution until the marginal cost of abatement equals the per-unit tax. 
A) the government is completely informed about the marginal costs of installing environment friendly equipment to the firms. 
B) the government subsidizes the equipment required for pollution control. 
C) each firm will ensure that reduce pollution to zero. 
D) each firm reduces pollution until the marginal cost of abatement equals the per-unit tax.

Question 20

If the production of a certain commodity generates external benefits for those who do not participate directly in the production process,then:

Accepted Answer

A) too large a quantity of the good will be produced. 
B) at equilibrium,the marginal social benefit is less than the cost of producing an extra unit. 
C) the government can subsidize consumption of the good and improve efficiency. 
D) a government intervention in this market will cause the marginal social benefit to exceed the marginal social cost. 
A) too large a quantity of the good will be produced. 
B) at equilibrium,the marginal social benefit is less than the cost of producing an extra unit. 
C) the government can subsidize consumption of the good and improve efficiency. 
D) a government intervention in this market will cause the marginal social benefit to exceed the marginal social cost.

The marginal social cost and marginal private cost curves of an economic activity coincide:

A defining attribute of a public good is that:

The government can overcome the free rider problem in the provision of a public good by:

When do externalities arise?

Free rider behavior is:

Externalities mainly arise because:

All of the following statements are true in the context of the Coase theorem,except:

A congested,non-toll road is characterized by:

Which of the following problems can be associated with goods characterized by nonexclusion?

The cost imposed by an economic activity on others,who are not directly involved in the transaction,is referred to as:

The social cost of producing a commodity is equal to the:

When an economic activity generates a benefit for those who are not directly involved in it a(n)_____ is said to exist.

Which of the following characteristics can be associated with a museum charging entry fees to all the visitors above 12 years of age?

Government financing of a public good with taxes:

For which of the following goods will the free rider problem arise?

Reducing automobile pollution beyond a certain point is not efficient when:

A uniform per-unit tax on pollution achieves abatement in the least costly manner because:

If the production of a certain commodity generates external benefits for those who do not participate directly in the production process,then:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

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Exam 20: Public Goods and Externalities

The marginal social cost and marginal private cost curves of an economic activity coincide:

A defining attribute of a public good is that:

The government can overcome the free rider problem in the provision of a public good by:

When do externalities arise?

Free rider behavior is:

Externalities mainly arise because:

All of the following statements are true in the context of the Coase theorem,except:

A congested,non-toll road is characterized by:

Which of the following problems can be associated with goods characterized by nonexclusion?

The cost imposed by an economic activity on others,who are not directly involved in the transaction,is referred to as:

The social cost of producing a commodity is equal to the:

When an economic activity generates a benefit for those who are not directly involved in it a(n)_____ is said to exist.

Which of the following characteristics can be associated with a museum charging entry fees to all the visitors above 12 years of age?

Government financing of a public good with taxes:

For which of the following goods will the free rider problem arise?

Reducing automobile pollution beyond a certain point is not efficient when:

A uniform per-unit tax on pollution achieves abatement in the least costly manner because:

If the production of a certain commodity generates external benefits for those who do not participate directly in the production process,then:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Filters