Question 1

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

A) There is no difference;in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference;in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. 
A) There is no difference;in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference;in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Question 2

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Accepted Answer

A) it does not lead to significant reductions in pollution. 
B) they believe a market-based approach will reduce pollution more efficiently. 
C) the "command-and-control" approach is designed to help firms at the expense of consumers. 
D) the "command-and-control" approach leads to negative externalities. 
A) it does not lead to significant reductions in pollution. 
B) they believe a market-based approach will reduce pollution more efficiently. 
C) the "command-and-control" approach is designed to help firms at the expense of consumers. 
D) the "command-and-control" approach leads to negative externalities.

Question 3

Economists argue that the level of pollution should be

Accepted Answer

A) reduced completely to zero because by definition,it has a negative external effect. 
B) ignored because it has always been present since the beginning of history. 
C) reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. 
D) best determined by elected officials who can speak on behalf of the public. 
A) reduced completely to zero because by definition,it has a negative external effect. 
B) ignored because it has always been present since the beginning of history. 
C) reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. 
D) best determined by elected officials who can speak on behalf of the public.

Question 4

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Accepted Answer

A) enforcement costs. 
B) implicit costs. 
C) explicit costs. 
D) transactions costs. 
A) enforcement costs. 
B) implicit costs. 
C) explicit costs. 
D) transactions costs.

Question 5

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter.If the victims of the pollution could not legally enforce the right of their property not to be damaged,the amount of pollution reduction

Accepted Answer

A) would be significantly less than if the owners of the smelter were legally liable for damages. 
B) would be less than the amount at which the marginal benefit of pollution reduction equaled the marginal cost. 
C) would be the same as if it would be if the owners of the smelter were legally liable. 
D) would be too small;the government would have to intervene to bring about an efficient outcome. 
A) would be significantly less than if the owners of the smelter were legally liable for damages. 
B) would be less than the amount at which the marginal benefit of pollution reduction equaled the marginal cost. 
C) would be the same as if it would be if the owners of the smelter were legally liable. 
D) would be too small;the government would have to intervene to bring about an efficient outcome.

Question 6

A positive externality results when

Accepted Answer

A) economists are sure that a good or service provides benefits to consumers. 
B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C) people who live in one country benefit from the production of a good or service that occurs in another country. 
D) people who are not directly involved in producing or paying for a good or service benefit from it. 
A) economists are sure that a good or service provides benefits to consumers. 
B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C) people who live in one country benefit from the production of a good or service that occurs in another country. 
D) people who are not directly involved in producing or paying for a good or service benefit from it.

Question 7

When there is a negative externality,the marginal private cost of production ________ the marginal social cost of production.

Accepted Answer

A) is greater than 
B) is equal to 
C) eliminates 
D) is less than 
A) is greater than 
B) is equal to 
C) eliminates 
D) is less than

Question 8

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.The private profit-maximizing output level is

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4.

Question 9

Amit and Bree are the only two homeowners on an isolated private road.Both agree that installing street lights along the road would be beneficial and want to do so.Figure 5-16 shows their willingness to pay for different quantities of street lights,the market demand for street lights,and the marginal cost of installing the street lights.
-Refer to Figure 5-16.How much is Amit willing to pay per street light to have 4 street lights installed?

Accepted Answer

A) $3,600 
B) $2,700 
C) $1,800 
D) $900 
A) $3,600 
B) $2,700 
C) $1,800 
D) $900

Question 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.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)

Question 11

When a negative externality exists,the private market produces

Accepted Answer

A) more than the economically efficient output level. 
B) less than the economically efficient output level. 
C) products at a low opportunity cost. 
D) products at a high opportunity cost. 
A) more than the economically efficient output level. 
B) less than the economically efficient output level. 
C) products at a low opportunity cost. 
D) products at a high opportunity cost.

Question 12

Which of the following is an example of a positive externality?

Accepted Answer

A) raising the speed limit to 60 mph in school zones 
B) planting trees along a sidewalk which add beauty and create shade 
C) permitting smoking on commercial airplanes 
D) a police department stops enforcing DUI laws 
A) raising the speed limit to 60 mph in school zones 
B) planting trees along a sidewalk which add beauty and create shade 
C) permitting smoking on commercial airplanes 
D) a police department stops enforcing DUI laws

Question 13

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) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution. 
A) external costs. 
B) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution.

Question 14

Figure 5-1 shows a market with an externality.The current market equilibrium output of Q1 is not the economically efficient output.The economically efficient output is Q2.
-Refer to Figure 5-1.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does S1 represent?

Accepted Answer

A) the market supply curve reflecting external cost 
B) the market supply curve reflecting implicit cost 
C) the market supply curve reflecting marginal social cost 
D) the market supply curve reflecting marginal private cost 
A) the market supply curve reflecting external cost 
B) the market supply curve reflecting implicit cost 
C) the market supply curve reflecting marginal social cost 
D) the market supply curve reflecting marginal private cost

Question 15

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 16

The Coase theorem states that

Accepted Answer

A) government intervention is always needed if externalities are present. 
B) assigning property rights is the only thing the government should do in a market economy. 
C) if transactions costs are low,private bargaining will result in an efficient solution to the problem of externalities. 
D) a free-market equilibrium is the best solution to address externalities. 
A) government intervention is always needed if externalities are present. 
B) assigning property rights is the only thing the government should do in a market economy. 
C) if transactions costs are low,private bargaining will result in an efficient solution to the problem of externalities. 
D) a free-market equilibrium is the best solution to address externalities.

Question 17

Figure 5-1 shows a market with an externality.The current market equilibrium output of Q1 is not the economically efficient output.The economically efficient output is Q2.
-Refer to Figure 5-1.Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality.The economically efficient output is Q2.In that case,the diagram shows

Accepted Answer

A) the effect of a positive externality in the production of a good. 
B) the effect of a negative externality in the production of a good. 
C) the effect of an external cost imposed on a producer. 
D) the effect of an external benefit such as a subsidy granted to consumers of a good. 
A) the effect of a positive externality in the production of a good. 
B) the effect of a negative externality in the production of a good. 
C) the effect of an external cost imposed on a producer. 
D) the effect of an external benefit such as a subsidy granted to consumers of a good.

Question 18

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 19

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.The efficient output is

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4.

Question 20

If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.

Accepted Answer

A) True 
 B)False

Exam 5: Externalities, environmental Policy, and Public Goods

How does the construction of a market demand curve for a private good differ from that for a public good?

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Economists argue that the level of pollution should be

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter.If the victims of the pollution could not legally enforce the right of their property not to be damaged,the amount of pollution reduction

A positive externality results when

When there is a negative externality,the marginal private cost of production ________ the marginal social cost of production.

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.The private profit-maximizing output level is

When a negative externality exists,the private market produces

Which of the following is an example of a positive externality?

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

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

The Coase theorem states that

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

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.The efficient output is

If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.

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

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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