Question 1

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Accepted Answer

A)  is true only if there are positive externalities in production in the market. 
B)  is true only if there are no negative externalities in the market. 
C)  is true only if there are no positive or negative externalities in the market. 
D)  is true in theory, but economic efficiency cannot be achieved in a real market. 
A)  is true only if there are positive externalities in production in the market. 
B)  is true only if there are no negative externalities in the market. 
C)  is true only if there are no positive or negative externalities in the market. 
D)  is true in theory, but economic efficiency cannot be achieved in a real market.

Question 2

State the Coase theorem.

Accepted Answer

The Coase theorem states that if transac

Question 3

An externality is an example of a market failure.

Accepted Answer

A) True 
 B)False

Question 4

What are property rights?

Accepted Answer

A)  the title to ownership of any physical asset 
B)  a legal document verifying ownership of intangible assets 
C)  the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it 
D)  the right of the government to appropriate private assets for the good of society 
A)  the title to ownership of any physical asset 
B)  a legal document verifying ownership of intangible assets 
C)  the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it 
D)  the right of the government to appropriate private assets for the good of society

Question 5

Figure 5-4   Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 5-4 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 5-4.Why is there a deadweight loss?

Accepted Answer

A)  because the marginal social cost of producing each additional unit in excess of Q2 exceeds the marginal benefit 
B)  because the marginal private cost of producing each additional unit in excess of Q2 exceeds the marginal benefit 
C)  because the marginal social benefit of producing each additional unit in excess of Q2 exceeds the private cost 
D)  because the marginal private benefit of producing each additional unit in excess of Q2 exceeds the social cost 
A)  because the marginal social cost of producing each additional unit in excess of Q2 exceeds the marginal benefit 
B)  because the marginal private cost of producing each additional unit in excess of Q2 exceeds the marginal benefit 
C)  because the marginal social benefit of producing each additional unit in excess of Q2 exceeds the private cost 
D)  because the marginal private benefit of producing each additional unit in excess of Q2 exceeds the social cost

Question 6

Figure 5-4   Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 5-4 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 5-4.What is the economically efficient output level?

Accepted Answer

A)  Q1 
B)  Q2 minus Q1 
C)  Q2 
D)  Q1 plus Q2 
A)  Q1 
B)  Q2 minus Q1 
C)  Q2 
D)  Q1 plus Q2

Question 7

Goods can be classified on the basis of whether their consumption is

Accepted Answer

A)  internal and excludable. 
B)  rival and competitive. 
C)  includable and cooperative. 
D)  rival and excludable. 
A)  internal and excludable. 
B)  rival and competitive. 
C)  includable and cooperative. 
D)  rival and excludable.

Question 8

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

Accepted Answer

A)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, each consumer chooses the price she is willing to pay for a fixed quantity. 
B)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity. 
C)  with a private good, each consumer receives different amounts of benefit from consuming the product but with a public good, every consumer realizes the same amount of benefit from consuming the product. 
D)  the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the former. 
A)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, each consumer chooses the price she is willing to pay for a fixed quantity. 
B)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity. 
C)  with a private good, each consumer receives different amounts of benefit from consuming the product but with a public good, every consumer realizes the same amount of benefit from consuming the product. 
D)  the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the former.

Question 9

Economic incentives are designed to make individual self-interest coincide with social interest.According to economists,which of the following methods of pollution control best uses economic incentives to reduce pollution?

Accepted Answer

A)  Rewarding environmental groups for monitoring the activities of private firms that produce products which generate pollution. 
B)  Imposing quantitative limits on the amount of pollution and imposing a penalty for non-compliance with these limits. 
C)  Requiring the installation of specific pollution control devices. 
D)  Instituting a system of tradable emissions allowances. 
A)  Rewarding environmental groups for monitoring the activities of private firms that produce products which generate pollution. 
B)  Imposing quantitative limits on the amount of pollution and imposing a penalty for non-compliance with these limits. 
C)  Requiring the installation of specific pollution control devices. 
D)  Instituting a system of tradable emissions allowances.

Question 10

Common resources differ from public goods in that

Accepted Answer

A)  common resources are non-excludable while public goods are excludable to those who do not pay for the good. 
B)  unlike public goods, common resources are rivalrous in consumption. 
C)  common resources are collectively owned by a group of people while public goods are government owned. 
D)  common resources are resources that cannot be renewed but the production of public goods can be increased any time. 
A)  common resources are non-excludable while public goods are excludable to those who do not pay for the good. 
B)  unlike public goods, common resources are rivalrous in consumption. 
C)  common resources are collectively owned by a group of people while public goods are government owned. 
D)  common resources are resources that cannot be renewed but the production of public goods can be increased any time.

Question 11

Figure 5-5   Figure 5-5 shows a market with an externality. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 5-5.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does D1 represent?

Accepted Answer

A)  the demand curve reflecting external benefits 
B)  the demand curve reflecting social benefits 
C)  the demand curve reflecting private benefits 
D)  the demand curve reflecting the sum of private and social benefits 
A)  the demand curve reflecting external benefits 
B)  the demand curve reflecting social benefits 
C)  the demand curve reflecting private benefits 
D)  the demand curve reflecting the sum of private and social benefits

Question 12

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

Accepted Answer

Transactions costs refer to the costs in

Question 13

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.

Question 14

A modern example of the tragedy of the commons is the forests in many poor countries.

Accepted Answer

A) True 
 B)False

Question 15

Figure 5-13   Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13.The actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.

Accepted Answer

A)  $3.00 
B)  $3.75 
C)  $4.25 
D)  $5.00 
A)  $3.00 
B)  $3.75 
C)  $4.25 
D)  $5.00

Question 16

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 D1 represent?

Accepted Answer

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

Question 17

Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry,installing this equipment may not be the most cost effective method of reducing pollution.

Accepted Answer

A) True 
 B)False

Question 18

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Should they hire a housecleaner?

Accepted Answer

A)  Yes, if each contributes $50, then each stands to gain a consumer surplus. 
B)  No, because each will wait for the other to hire the housecleaner. 
C)  Yes, but only if a housecleaner will accept $50 so that each can take turns to pay the housecleaner. 
D)  No, because it will be difficult for them to agree on which housecleaning service to use. 
A)  Yes, if each contributes $50, then each stands to gain a consumer surplus. 
B)  No, because each will wait for the other to hire the housecleaner. 
C)  Yes, but only if a housecleaner will accept $50 so that each can take turns to pay the housecleaner. 
D)  No, because it will be difficult for them to agree on which housecleaning service to use.

Question 19

Figure 5-2   Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Accepted Answer

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

Question 20

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.

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

State the Coase theorem.

An externality is an example of a market failure.

What are property rights?

Goods can be classified on the basis of whether their consumption is

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

Economic incentives are designed to make individual self-interest coincide with social interest.According to economists,which of the following methods of pollution control best uses economic incentives to reduce pollution?

Common resources differ from public goods in that

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

Private solutions to the problem of externalities are most likely when

A modern example of the tragedy of the commons is the forests in many poor countries.

Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13.The actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.

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 D₁ represent?

Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry,installing this equipment may not be the most cost effective method of reducing pollution.

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Should they hire a housecleaner?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

When there is an externality in a market

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

Filters

Exam 5: Externalities, environmental Policy, and Public Goods

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

State the Coase theorem.

An externality is an example of a market failure.

What are property rights?

Goods can be classified on the basis of whether their consumption is

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

Economic incentives are designed to make individual self-interest coincide with social interest.According to economists,which of the following methods of pollution control best uses economic incentives to reduce pollution?

Common resources differ from public goods in that

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

Private solutions to the problem of externalities are most likely when

A modern example of the tragedy of the commons is the forests in many poor countries.

Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13.The actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.

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 D1 represent?

Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry,installing this equipment may not be the most cost effective method of reducing pollution.

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Should they hire a housecleaner?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

When there is an externality in a market

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

Filters

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 D₁ represent?