Question 1

Figure 5-3  
-Refer to Figure 5-3. The private profit maximizing output level is

Accepted Answer

A)  Qm. 
B)  Qn. 
C)  Qo. 
D)  Qo - Qm. 
A)  Qm. 
B)  Qn. 
C)  Qo. 
D)  Qo - Qm.

Question 2

Figure 5-7  
-Refer to Figure 5-7. The marginal benefit of reducing pollution curve is the same curve as

Accepted Answer

A)  the supply of pollution reduction curve. 
B)  the demand for pollution reduction curve. 
C)  the positive externality curve. 
D)  the external benefit curve. 
A)  the supply of pollution reduction curve. 
B)  the demand for pollution reduction curve. 
C)  the positive externality curve. 
D)  the external benefit curve.

Question 3

Which of the following is an example of a nonexcludable product?

Accepted Answer

A)  college education 
B)  a public library 
C)  public transportation 
D)  Internet service for your home computer 
A)  college education 
B)  a public library 
C)  public transportation 
D)  Internet service for your home computer

Question 4

"When it comes to public goods, individuals do not reveal their true preferences because it is not in their self-interest to do so." Evaluate this statement.

Accepted Answer

The statement is True. For example, in t

Question 5

Which of the following would result in a positive externality?

Accepted Answer

A)  A local government establishes a price ceiling on rental apartments. 
B)  An electric utility burns coal that causes acid rain. 
C)  Medical research results in a cure for malaria. 
D)  McDonald's adds new fat-free items to its menu. 
A)  A local government establishes a price ceiling on rental apartments. 
B)  An electric utility burns coal that causes acid rain. 
C)  Medical research results in a cure for malaria. 
D)  McDonald's adds new fat-free items to its menu.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Classifying a good as excludable means

Accepted Answer

A)  that someone can be barred from consuming the good based on race, creed or some other irrelevant characteristic. 
B)  that anyone who does not pay for the good cannot consume it. 
C)  that consumption of the good causes no externalities. 
D)  that a producer with patent or copyright protection can exclude any other producer from selling his product. 
A)  that someone can be barred from consuming the good based on race, creed or some other irrelevant characteristic. 
B)  that anyone who does not pay for the good cannot consume it. 
C)  that consumption of the good causes no externalities. 
D)  that a producer with patent or copyright protection can exclude any other producer from selling his product.

Question 8

An advantage of imposing a tax on the producer that generates pollution is that

Accepted Answer

A)  it forces the polluting producer to internalize the external cost of the pollution. 
B)  the government can keep tabs on exactly what is produced in an industry. 
C)  it will eliminate pollution. 
D)  a producer can pass the cost of the pollution to consumers. 
A)  it forces the polluting producer to internalize the external cost of the pollution. 
B)  the government can keep tabs on exactly what is produced in an industry. 
C)  it will eliminate pollution. 
D)  a producer can pass the cost of the pollution to consumers.

Question 9

Governments can increase the consumption of a product that creates positive externalities by

Accepted Answer

A)  subsidizing the production of the product so that the supply is increased and market price is reduced. 
B)  taxing the production and consumption of the product. 
C)  convincing everyone to consume the good. 
D)  assigning property rights to the producers of the product. 
A)  subsidizing the production of the product so that the supply is increased and market price is reduced. 
B)  taxing the production and consumption of the product. 
C)  convincing everyone to consume the good. 
D)  assigning property rights to the producers of the product.

Question 10

Figure 5-9   Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?

Accepted Answer

A)  (P2- P1) per ton of output 
B)  (P2- P0) per ton of output 
C)  (P1- P0) per ton of output 
D)  P1 per ton of output 
A)  (P2- P1) per ton of output 
B)  (P2- P0) per ton of output 
C)  (P1- P0) per ton of output 
D)  P1 per ton of output

Question 11

What is meant by the term "internalizing an externality"? How does a Pigovian tax or subsidy internalize an externality?

Accepted Answer

Internalizing an externality refers to t

Question 12

Figure 5-7  
-Refer to Figure 5-7. What is the incremental benefit of increasing the quantity of pollution reduction from QB to QE units?

Accepted Answer

A)  PF 
B)  PF × QE 
C)  the value of the area BEF 
D)  the value of the area QBBFQE 
A)  PF 
B)  PF × QE 
C)  the value of the area BEF 
D)  the value of the area QBBFQE

Question 13

Figure 5-10   Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-10.
-Refer to Figure 5-10. What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations?

Accepted Answer

A)  (PE × Q
E)  
B)  (PF × QF) 
C)  value equal to the area of FEG 
D)  value equal to the area of QFFGQE 
A)  (PE × Q
E)  
B)  (PF × QF) 
C)  value equal to the area of FEG 
D)  value equal to the area of QFFGQE

Question 14

The tragedy of the commons was avoided in the Middle Ages by

Accepted Answer

A)  selling common grounds to individuals. 
B)  the local police who monitored entry into the commons. 
C)  social pressure to uphold traditionally accepted limits on family use of the commons. 
D)  the government which imposed a tax for the use of the commons. 
A)  selling common grounds to individuals. 
B)  the local police who monitored entry into the commons. 
C)  social pressure to uphold traditionally accepted limits on family use of the commons. 
D)  the government which imposed a tax for the use of the commons.

Question 15

The cost borne by a producer in the production of a good or service is called

Accepted Answer

A)  private cost. 
B)  public cost. 
C)  social cost. 
D)  internal cost. 
A)  private cost. 
B)  public cost. 
C)  social cost. 
D)  internal cost.

Question 16

Conceptually, the efficient level of carbon emissions is the level for which

Accepted Answer

A)  the marginal benefit of reducing carbon emissions is maximized. 
B)  the marginal cost of reducing carbon emissions is minimized. 
C)  the marginal benefit of reducing carbon emissions is equal to the cost of reducing carbon emissions. 
D)  the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized. 
A)  the marginal benefit of reducing carbon emissions is maximized. 
B)  the marginal cost of reducing carbon emissions is minimized. 
C)  the marginal benefit of reducing carbon emissions is equal to the cost of reducing carbon emissions. 
D)  the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized.

Question 17

Because producers do not bear the external cost of pollution,

Accepted Answer

A)  the economically efficient level of production is achieved. 
B)  private production is below the economically efficient level. 
C)  private production exceeds the economically efficient level. 
D)  the market price is too high. 
A)  the economically efficient level of production is achieved. 
B)  private production is below the economically efficient level. 
C)  private production exceeds the economically efficient level. 
D)  the market price is too high.

Question 18

Figure 5-6   Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 5-6. What does D2 represent?

Accepted Answer

A)  the social welfare curve 
B)  the demand curve reflecting social benefit 
C)  the demand curve reflecting private benefit 
D)  the positive externalities curve 
A)  the social welfare curve 
B)  the demand curve reflecting social benefit 
C)  the demand curve reflecting private benefit 
D)  the positive externalities curve

Question 19

Figure 5-9   Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. An efficient way to get the firm to produce the socially optimal output level is

Accepted Answer

A)  for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B)  to impose a tax to make the industry bear the external costs it creates. 
C)  to grant a subsidy to enable the industry to internalize the external costs of production. 
D)  to assign property rights to the firms in the industry. 
A)  for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B)  to impose a tax to make the industry bear the external costs it creates. 
C)  to grant a subsidy to enable the industry to internalize the external costs of production. 
D)  to assign property rights to the firms in the industry.

Question 20

Private solutions to the problem of externalities are most likely when

Accepted Answer

A)  government actively encourages these solutions. 
B)  transaction costs are low and the number of bargaining parties is small. 
C)  transaction costs are low and the number of bargaining parties is large. 
D)  transaction costs are low and the monetary damages to third parties is high. 
A)  government actively encourages these solutions. 
B)  transaction costs are low and the number of bargaining parties is small. 
C)  transaction costs are low and the number of bargaining parties is large. 
D)  transaction costs are low and the monetary damages to third parties is high.

Exam 5: Externalities, Environmental Policy, and Public Goods

Figure 5-3 -Refer to Figure 5-3. The private profit maximizing output level is

Figure 5-7 -Refer to Figure 5-7. The marginal benefit of reducing pollution curve is the same curve as

Which of the following is an example of a nonexcludable product?

"When it comes to public goods, individuals do not reveal their true preferences because it is not in their self-interest to do so." Evaluate this statement.

Which of the following would result in a positive externality?

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

Classifying a good as excludable means

An advantage of imposing a tax on the producer that generates pollution is that

Governments can increase the consumption of a product that creates positive externalities by

What is meant by the term "internalizing an externality"? How does a Pigovian tax or subsidy internalize an externality?

Figure 5-7 -Refer to Figure 5-7. What is the incremental benefit of increasing the quantity of pollution reduction from QB to QE units?

The tragedy of the commons was avoided in the Middle Ages by

The cost borne by a producer in the production of a good or service is called

Conceptually, the efficient level of carbon emissions is the level for which

Because producers do not bear the external cost of pollution,

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. What does D2 represent?

Private solutions to the problem of externalities are most likely when

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

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Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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