Question 1

Figure 5-3  
-Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Accepted Answer

A)  mso. 
B)  msn. 
C)  nso. 
D)  mtn. 
A)  mso. 
B)  msn. 
C)  nso. 
D)  mtn.

Question 2

A market supply curve reflects the

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 3

Figure 5-7  
 Figure 5-7 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 5-7.Identify the area that shows the deadweight loss from overfishing.

Accepted Answer

A)  egh 
B)  ekh 
C)  efh 
D)  eghk 
A)  egh 
B)  ekh 
C)  efh 
D)  eghk

Question 4

For-profit producers will produce only private goods because

Accepted Answer

A)  markets exist for private goods but not for public goods. 
B)  the cost of production can be easily determined. 
C)  buyers will be willing to pay for the goods since the benefits are excludable. 
D)  all external benefits can be internalized using market prices. 
A)  markets exist for private goods but not for public goods. 
B)  the cost of production can be easily determined. 
C)  buyers will be willing to pay for the goods since the benefits are excludable. 
D)  all external benefits can be internalized using market prices.

Question 5

Which of the following is an example of a product that is nonexcludable and rivalrous?

Accepted Answer

A)  free concert (with limited seating) in a park 
B)  national defense 
C)  automobiles 
D)  flu vaccinations 
A)  free concert (with limited seating) in a park 
B)  national defense 
C)  automobiles 
D)  flu vaccinations

Question 6

Which of the following must be present to reach a private solution to an externality problem?

Accepted Answer

A)  A majority of the parties affected by the externality must agree to a solution. 
B)  The transaction costs to negotiate a solution must be relatively low. 
C)  The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution. 
D)  The government must approve the solution for it to be a legal solution. 
A)  A majority of the parties affected by the externality must agree to a solution. 
B)  The transaction costs to negotiate a solution must be relatively low. 
C)  The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution. 
D)  The government must approve the solution for it to be a legal solution.

Question 7

Which of the following is an example of a common resource?

Accepted Answer

A)  catfish in a private pond in Mississippi 
B)  impounded dogs in a dog pound 
C)  public health care services in the United States 
D)  sea otters in the coastal waters of the Pacific Ocean 
A)  catfish in a private pond in Mississippi 
B)  impounded dogs in a dog pound 
C)  public health care services in the United States 
D)  sea otters in the coastal waters of the Pacific Ocean

Question 8

Figure 5-6  
 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 5-6.
-Refer to Figure 5-6.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 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)  transaction costs. 
C)  marginal benefits. 
D)  social costs of the pollution. 
A)  external costs. 
B)  transaction costs. 
C)  marginal benefits. 
D)  social costs of the pollution.

Question 10

In the city of Alvarez,with the exception of guide dogs for blind people,all dogs are banned from its three public parks,regardless of whether the animals are leashed.Many residents are pushing for a change in policy.Canine lover Sara Northridge observed,"There are 800 or more homes here.There are three parks within 10 minutes,and almost everyone has a dog,but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks.Tim Cortis retorted,"We're not preventing dog lovers from enjoying the park,just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group?

Accepted Answer

A)  impose a two-tier entry fee system - a lower fee for non dog owners and a higher fee for dog owners 
B)  impose a fee only for dog-owners to use the public parks; non dog owners do not pay a fee 
C)  dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park 
D)  allow dog owners to bring their dogs to the park but insist that they keep watch over their dogs 
A)  impose a two-tier entry fee system - a lower fee for non dog owners and a higher fee for dog owners 
B)  impose a fee only for dog-owners to use the public parks; non dog owners do not pay a fee 
C)  dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park 
D)  allow dog owners to bring their dogs to the park but insist that they keep watch over their dogs

Question 11

Figure 5-3  
-Refer to Figure 5-3.At the competitive market equilibrium,for the last unit produced,

Accepted Answer

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

Question 12

A market failure arises when an entire sector of the economy (for example,the airline industry)collapses because of some unforeseen event.

Accepted Answer

A) True 
 B)False

Question 13

Figure 5-3  
-Refer to Figure 5-3.In the absence of any government intervention,the private market

Accepted Answer

A)  under produces by Qo - Qm units. 
B)  over produces by Qo - Qm units. 
C)  over produces by Qn - Qm units. 
D)  under produces by Qn - Qm units. 
A)  under produces by Qo - Qm units. 
B)  over produces by Qo - Qm units. 
C)  over produces by Qn - Qm units. 
D)  under produces by Qn - Qm units.

Question 14

Which of the following conditions holds in an 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 maximized. 
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 maximized.

Question 15

Which of the following is a source of market failure?

Accepted Answer

A)  unforeseen circumstances which leads to the bankruptcy of many firms 
B)  a lack of government intervention in a market 
C)  incomplete property rights or inability to enforce property rights 
D)  an inequitable income distribution 
A)  unforeseen circumstances which leads to the bankruptcy of many firms 
B)  a lack of government intervention in a market 
C)  incomplete property rights or inability to enforce property rights 
D)  an inequitable income distribution

Question 16

The demand curve for a public good is also called the

Accepted Answer

A)  total welfare curve. 
B)  marginal social benefit curve. 
C)  total social benefit curve. 
D)  total willingness-to-pay curve. 
A)  total welfare curve. 
B)  marginal social benefit curve. 
C)  total social benefit curve. 
D)  total willingness-to-pay curve.

Question 17

What does the phrase "internalizing an external cost" mean?

Accepted Answer

A)  limiting the extent to which domestic firms can outsource production 
B)  prohibiting economic activities that create externalities 
C)  forcing producers to factor into their production costs the cost of the externalities created in the production of their output 
D)  finding a way to address cross-border pollution 
A)  limiting the extent to which domestic firms can outsource production 
B)  prohibiting economic activities that create externalities 
C)  forcing producers to factor into their production costs the cost of the externalities created in the production of their output 
D)  finding a way to address cross-border pollution

Question 18

When a tax on output is imposed to internalize the external costs of pollution,the supply curve shifts down by the amount of the tax.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Figure 5-6  
 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 5-6.
-Refer to Figure 5-6.One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidize these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits?

Accepted Answer

A)  PE 
B)  (PE - PG) 
C)  (PE - PF) 
D)  (PF - PG) 
A)  PE 
B)  (PE - PG) 
C)  (PE - PF) 
D)  (PF - PG)

Exam 5: Externalities, environmental Policy, and Public Goods

Figure 5-3 -Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

A market supply curve reflects the

Figure 5-7 Figure 5-7 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. -Refer to Figure 5-7.Identify the area that shows the deadweight loss from overfishing.

For-profit producers will produce only private goods because

Which of the following is an example of a product that is nonexcludable and rivalrous?

Which of the following must be present to reach a private solution to an externality problem?

Which of the following is an example of a common resource?

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

Figure 5-3 -Refer to Figure 5-3.At the competitive market equilibrium,for the last unit produced,

A market failure arises when an entire sector of the economy (for example,the airline industry)collapses because of some unforeseen event.

Figure 5-3 -Refer to Figure 5-3.In the absence of any government intervention,the private market

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

Which of the following is a source of market failure?

The demand curve for a public good is also called the

What does the phrase "internalizing an external cost" mean?

When a tax on output is imposed to internalize the external costs of pollution,the supply curve shifts down by the amount of the tax.

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,

Economics: Foundations and Models

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Figure 5-7 Figure 5-7 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-7.Identify the area that shows the deadweight loss from overfishing.