Question 1

Which of the following is true with respect to the rationing problem in case of a public good?

Accepted Answer

A) The rationing problem associated with a public good is greater than a private good. 
B) The rationing problem does not exist in case of a public good. 
C) The rationing problem in case of a public good can be solved through taxation. 
D) The rationing problem increases with an increase in the number of people consuming the good. 
A) The rationing problem associated with a public good is greater than a private good. 
B) The rationing problem does not exist in case of a public good. 
C) The rationing problem in case of a public good can be solved through taxation. 
D) The rationing problem increases with an increase in the number of people consuming the good.

Question 2

Use the following figure to answer the question : Figure 20-2 : shows 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.  
-From Figure 20-2,we can conclude that to help the market attain the efficient level of output,the government should:

Accepted Answer

A) provide a subsidy of $8 per unit to the producer. 
B) impose a tax of $4 per unit of production. 
C) provide a subsidy of $3 per unit to the producer. 
D) impose a tax of $3 per unit of production. 
A) provide a subsidy of $8 per unit to the producer. 
B) impose a tax of $4 per unit of production. 
C) provide a subsidy of $3 per unit to the producer. 
D) impose a tax of $3 per unit of production.

Question 3

Which of the following categories of goods is nonrival in consumption and satisfies the nonexclusion condition?

Accepted Answer

A) Inferior goods 
B) Private goods 
C) Common resources 
D) Public goods 
A) Inferior goods 
B) Private goods 
C) Common resources 
D) Public goods

Question 4

The Coase theorem states that when transaction costs are low and property rights are enforced,then:

Accepted Answer

A) bargaining between parties will never lead to an efficient outcome. 
B) bargaining between parties will lead to an efficient outcome only if liability is placed on the party that is responsible for the externality. 
C) bargaining between parties will lead to an efficient outcome only if the liability is placed on the people affected by the externality. 
D) bargaining between parties will lead to an efficient outcome regardless of where liability is placed. 
A) bargaining between parties will never lead to an efficient outcome. 
B) bargaining between parties will lead to an efficient outcome only if liability is placed on the party that is responsible for the externality. 
C) bargaining between parties will lead to an efficient outcome only if the liability is placed on the people affected by the externality. 
D) bargaining between parties will lead to an efficient outcome regardless of where liability is placed.

Question 5

The severity of the free rider problem that arises in case of a public good:

Accepted Answer

A) is lower if the good is provided by the government. 
B) varies directly with the cost of producing it. 
C) is overstated in expensive public projects. 
D) varies directly with the number of people who consume it. 
A) is lower if the good is provided by the government. 
B) varies directly with the cost of producing it. 
C) is overstated in expensive public projects. 
D) varies directly with the number of people who consume it.

Question 6

Competitive markets are unlikely to produce the efficient quantity of a public good because:

Accepted Answer

A) public goods are nonrival in consumption but exclusion costs are low. 
B) public goods are nonrival and are characterized by nonexclusion. 
C) the marginal benefit derived from a public good is less than the marginal cost of producing the good. 
D) the marginal benefit of a public good increase with an increase in consumption of the good. 
A) public goods are nonrival in consumption but exclusion costs are low. 
B) public goods are nonrival and are characterized by nonexclusion. 
C) the marginal benefit derived from a public good is less than the marginal cost of producing the good. 
D) the marginal benefit of a public good increase with an increase in consumption of the good.

Question 7

Assume that the economy of Wonderland has only two individuals: Rhea and Ron.The table given below shows the marginal benefit received by these two individuals from the consumption of different units of a public good.Given that the marginal cost of producing the public good is $500,calculate the efficient amount of the public good to be produced.Also illustrate your answer graphically.

Accepted Answer

The social marginal benefit derived from

Question 8

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 9

Use the following figure to answer the question : Figure 20-2 : shows 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,if the efficient output is being produced,the market price of the commodity must be:

Accepted Answer

A) $12. 
B) $17. 
C) $20. 
D) $24. 
A) $12. 
B) $17. 
C) $20. 
D) $24.

Question 10

Use the following figure to answer the question : Figure 20-1 : DS1U1B11S1U1B0 and SS1U1B11S1U1B0 are the private demand and supply curves,of a commodity produced by a competitive firm.SS1U1B12S1U1B0 reflects the social marginal cost of production,while SS1U1B10S1U1B0 represents the external marginal cost.  
-In Figure 20-1,if the government levies a tax of $8 per unit of output,then:

Accepted Answer

A) the marginal social benefit will exceed the marginal social cost and the good will be underproduced. 
B) marginal social benefit will not exceed the marginal social cost and the good will not be overproduced. 
C) marginal social benefit will exceed the marginal social cost and the good will be overproduced. 
D) marginal social cost will exceed the marginal social benefit and the good will be overproduced. 
A) the marginal social benefit will exceed the marginal social cost and the good will be underproduced. 
B) marginal social benefit will not exceed the marginal social cost and the good will not be overproduced. 
C) marginal social benefit will exceed the marginal social cost and the good will be overproduced. 
D) marginal social cost will exceed the marginal social benefit and the good will be overproduced.

Question 11

The efficient output of a public good occurs at the point where the:

Accepted Answer

A) curve formed by the horizontal summation of marginal benefit curves of users intersects the marginal cost curve. 
B) curve formed by the horizontal summation of the individual demand curves intersects the marginal cost curve. 
C) curve formed by the vertical summation of all users' demand curves intersects the marginal cost curve. 
D) curve formed by the vertical summation of the social cost curves intersects the social benefit curve. 
A) curve formed by the horizontal summation of marginal benefit curves of users intersects the marginal cost curve. 
B) curve formed by the horizontal summation of the individual demand curves intersects the marginal cost curve. 
C) curve formed by the vertical summation of all users' demand curves intersects the marginal cost curve. 
D) curve formed by the vertical summation of the social cost curves intersects the social benefit curve.

Question 12

Use the following figure to answer the question : Figure 20-1 : DS1U1B11S1U1B0 and SS1U1B11S1U1B0 are the private demand and supply curves,of a commodity produced by a competitive firm.SS1U1B12S1U1B0 reflects the social marginal cost of production,while SS1U1B10S1U1B0 represents the external marginal cost.  
-Refer to Figure 20-1.If the government levies a tax of $28 per unit of output,then:

Accepted Answer

A) the marginal social benefit will exceed the marginal social cost and the good will be underproduced. 
B) marginal social cost will exceed the marginal social benefit and the good will be underproduced. 
C) marginal social benefit will exceed the marginal social cost and the good will be overproduced. 
D) marginal social cost will exceed the marginal social benefit and the good will be overproduced. 
A) the marginal social benefit will exceed the marginal social cost and the good will be underproduced. 
B) marginal social cost will exceed the marginal social benefit and the good will be underproduced. 
C) marginal social benefit will exceed the marginal social cost and the good will be overproduced. 
D) marginal social cost will exceed the marginal social benefit and the good will be overproduced.

Question 13

Which of the following activities entails an external cost?

Accepted Answer

A) Bob chooses engineering as a major because engineers earn more than other professionals. 
B) Sarah gets in her car and drives to the beach. 
C) Tom paints the walls of his room. 
D) Victoria purchases tomatoes from the local grocery store. 
A) Bob chooses engineering as a major because engineers earn more than other professionals. 
B) Sarah gets in her car and drives to the beach. 
C) Tom paints the walls of his room. 
D) Victoria purchases tomatoes from the local grocery store.

Question 14

The combined or market demand curve for a public good is:

Accepted Answer

A) the locus of the quantity demanded of the public good by a user at different price levels. 
B) formed by the horizontal summation of all the individual demand curves. 
C) formed by the vertical summation of all the individual demand curves. 
D) the positively sloping portion of the community indifference curve. 
A) the locus of the quantity demanded of the public good by a user at different price levels. 
B) formed by the horizontal summation of all the individual demand curves. 
C) formed by the vertical summation of all the individual demand curves. 
D) the positively sloping portion of the community indifference curve.

Question 15

A congested,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 16

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 17

Which of the following is true of patents?

Accepted Answer

A) Patents encourage unlimited investment in research and development. 
B) Patents have no associated costs. 
C) Patents grant temporary monopoly power. 
D) Patents are not binding unless the product is a luxury good. 
A) Patents encourage unlimited investment in research and development. 
B) Patents have no associated costs. 
C) Patents grant temporary monopoly power. 
D) Patents are not binding unless the product is a luxury good.

Question 18

Use the following figure to answer the question : Figure 20-1 : DS1U1B11S1U1B0 and SS1U1B11S1U1B0 are the private demand and supply curves,of a commodity produced by a competitive firm.SS1U1B12S1U1B0 reflects the social marginal cost of production,while SS1U1B10S1U1B0 represents the external marginal cost.  
-Refer to Figure 20-1.A comparison between the efficient outcome and the market equilibrium reveals that:

Accepted Answer

A) the price level when the outcome is efficient is higher than the price at the market equilibrium by $30. 
B) the price level when the outcome is efficient is lower than the price at the market equilibrium by $10. 
C) the price level when the outcome is efficient is lower than the price at the market equilibrium by $40. 
D) the price level when the outcome is efficient is higher than the price at the market equilibrium by $20. 
A) the price level when the outcome is efficient is higher than the price at the market equilibrium by $30. 
B) the price level when the outcome is efficient is lower than the price at the market equilibrium by $10. 
C) the price level when the outcome is efficient is lower than the price at the market equilibrium by $40. 
D) the price level when the outcome is efficient is higher than the price at the market equilibrium by $20.

Question 19

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 20

Perfect competition in an industry ensures:

Accepted Answer

A) both production and output efficiency. 
B) production efficiency but not necessarily output efficiency. 
C) output efficiency but not necessarily production efficiency. 
D) external benefits but not external costs. 
A) both production and output efficiency. 
B) production efficiency but not necessarily output efficiency. 
C) output efficiency but not necessarily production efficiency. 
D) external benefits but not external costs.

Which of the following is true with respect to the rationing problem in case of a public good?

Which of the following categories of goods is nonrival in consumption and satisfies the nonexclusion condition?

The Coase theorem states that when transaction costs are low and property rights are enforced,then:

The severity of the free rider problem that arises in case of a public good:

Competitive markets are unlikely to produce the efficient quantity of a public good because:

A defining attribute of a public good is that:

The efficient output of a public good occurs at the point where the:

Which of the following activities entails an external cost?

The combined or market demand curve for a public good is:

A congested,toll road is characterized by:

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

Which of the following is true of patents?

When do externalities arise?

Perfect competition in an industry ensures:

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

Which of the following is true with respect to the rationing problem in case of a public good?

Which of the following categories of goods is nonrival in consumption and satisfies the nonexclusion condition?

The Coase theorem states that when transaction costs are low and property rights are enforced,then:

The severity of the free rider problem that arises in case of a public good:

Competitive markets are unlikely to produce the efficient quantity of a public good because:

A defining attribute of a public good is that:

The efficient output of a public good occurs at the point where the:

Which of the following activities entails an external cost?

The combined or market demand curve for a public good is:

A congested,toll road is characterized by:

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

Which of the following is true of patents?

When do externalities arise?

Perfect competition in an industry ensures:

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