Question 1

The marginal private cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 2

When products that create positive externalities are produced,at the market equilibrium output,the social benefit generated by consuming the product exceeds the private benefit.

Accepted Answer

A) True 
 B)False

Question 3

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

Accepted Answer

A) a transactions cost. 
B) a Pigovian tax. 
C) a Pigovian subsidy. 
D) the Coase Theorem. 
A) a transactions cost. 
B) a Pigovian tax. 
C) a Pigovian subsidy. 
D) the Coase Theorem.

Question 4

State the Coase theorem.

Accepted Answer

The Coase theorem states that if transac

Question 5

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Accepted Answer

A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease 
A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease

Question 6

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

Accepted Answer

A) individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good. 
B) the resources used to provide public goods are common resources or government owned;the resources used to produce private goods are all privately owned. 
C) individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good. 
D) the demand for a private good produces consumption externalities;the demand for a public good produces production externalities. 
A) individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good. 
B) the resources used to provide public goods are common resources or government owned;the resources used to produce private goods are all privately owned. 
C) individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good. 
D) the demand for a private good produces consumption externalities;the demand for a public good produces production externalities.

Question 7

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.Let's suppose the government imposes a tax of $50 per unit of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Accepted Answer

A) It rises by $50 per unit. 
B) It rises by more than $50 per unit. 
C) It rises by less than $50 per unit. 
D) It remains the same because the tax is imposed on producers who create the externality. 
A) It rises by $50 per unit. 
B) It rises by more than $50 per unit. 
C) It rises by less than $50 per unit. 
D) It remains the same because the tax is imposed on producers who create the externality.

Question 8

Which of the following describes how a negative externality affects a competitive market?

Accepted Answer

A) The externality causes a difference between the private cost of production and the social cost. 
B) The externality causes a difference between the private cost of production and the private benefit from consumption. 
C) The externality causes consumer surplus to exceed producer surplus. 
D) The externality causes a difference between the private cost of production and the equilibrium price. 
A) The externality causes a difference between the private cost of production and the social cost. 
B) The externality causes a difference between the private cost of production and the private benefit from consumption. 
C) The externality causes consumer surplus to exceed producer surplus. 
D) The externality causes a difference between the private cost of production and the equilibrium price.

Question 9

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 10

The supply curve of a public good shows

Accepted Answer

A) the total quantities that all producers are willing and able to supply at each price. 
B) the maximum amount suppliers require to produce each quantity of the good. 
C) the total cost of producing each unit of the good. 
D) the marginal cost of producing each unit of the good. 
A) the total quantities that all producers are willing and able to supply at each price. 
B) the maximum amount suppliers require to produce each quantity of the good. 
C) the total cost of producing each unit of the good. 
D) the marginal cost of producing each unit of the good.

Question 11

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 product. 
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 product. 
D) assigning property rights to the producers of the product.

Question 12

An externality is

Accepted Answer

A) a benefit realized by the purchaser of a good or service. 
B) a cost paid for by the producer of a good or service. 
C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. 
D) anything that is external or not relevant to the production of a good or service. 
A) a benefit realized by the purchaser of a good or service. 
B) a cost paid for by the producer of a good or service. 
C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. 
D) anything that is external or not relevant to the production of a good or service.

Question 13

Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain.Acid rain damages trees and crops and kills fish.Because the utilities do not bear the cost of the acid rain,they overproduce the quantity of electricity.This is illustrated in Figure 5-11.
-Refer to Figure 5-11.S1 represents the supply curve that reflects the private cost of production and S2 represents the supply curve that reflects the social cost of production.One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalize the cost of the externality?

Accepted Answer

A) P0 
B) P2-P0 
C) P1-P0 
D) P2-P1 
A) P0 
B) P2-P0 
C) P1-P0 
D) P2-P1

Question 14

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 15

The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.

Accepted Answer

A) True 
 B)False

Question 16

If there is pollution in producing a product,then the market equilibrium price

Accepted Answer

A) is too high and equilibrium quantity is too low. 
B) and equilibrium quantity are too low. 
C) and equilibrium quantity are too high. 
D) is too low and equilibrium quantity is too high. 
A) is too high and equilibrium quantity is too low. 
B) and equilibrium quantity are too low. 
C) and equilibrium quantity are too high. 
D) is too low and equilibrium quantity is too high.

Question 17

For the Coase theorem to work there must be clear assignment of property rights.

Accepted Answer

A) True 
 B)False

Question 18

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 does S1 represent?

Accepted Answer

A) the market supply curve that reflects social cost 
B) the market supply curve that reflects only external cost 
C) the market supply curve that reflects only private benefit 
D) the market supply curve that reflects private cost 
A) the market supply curve that reflects social cost 
B) the market supply curve that reflects only external cost 
C) the market supply curve that reflects only private benefit 
D) the market supply curve that reflects private cost

Question 19

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

Accepted Answer

A) equal to the marginal external cost at the economically efficient level of pollution. 
B) equal to the marginal private cost of production at the economically efficient level of pollution. 
C) equal to the amount of the deadweight loss created in the absence of a pollution tax. 
D) at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product. 
A) equal to the marginal external cost at the economically efficient level of pollution. 
B) equal to the marginal private cost of production at the economically efficient level of pollution. 
C) equal to the amount of the deadweight loss created in the absence of a pollution tax. 
D) at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

Question 20

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Accepted Answer

A) the Pigovian method of pollution control. 
B) a command-and-control approach to pollution reduction. 
C) a Coasian solution to pollution reduction. 
D) a tradable emission allowance system of pollution control. 
A) the Pigovian method of pollution control. 
B) a command-and-control approach to pollution reduction. 
C) a Coasian solution to pollution reduction. 
D) a tradable emission allowance system of pollution control.

Exam 5: Externalities, environmental Policy, and Public Goods

The marginal private cost of a good or service is the cost borne by the producer.

When products that create positive externalities are produced,at the market equilibrium output,the social benefit generated by consuming the product exceeds the private benefit.

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

State the Coase theorem.

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

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

Which of the following describes how a negative externality affects a competitive market?

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

The supply curve of a public good shows

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

An externality is

For-profit producers will produce only private goods because

The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.

If there is pollution in producing a product,then the market equilibrium price

For the Coase theorem to work there must be clear assignment of property rights.

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

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

Filters

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would and the equilibrium price of soda would .