Question 1

Street lights are a public good. If street lights were provided by the private market, at the equilibrium quantity, it would be the case that

Accepted Answer

A)   MSB = MSC
B)   MSC > MC
C)   MSB > MSC
D)   MSB > MB C

Question 2

Compare the inefficient market equilibriums for the case of an external benefit and the case of an external cost. Which of the following is true?

Accepted Answer

A)   Both result in a deadweight loss.
B)   Both result in too much production.
C)   Both result in too little production.
D)   The market with the negative externality is the only one with a deadweight loss. A

Question 3

A crowded freeway during the rush hour is

Accepted Answer

A)   rival and nonexcludable.
B)   nonrival and excludable.
C)   nonrival and nonexcludable.
D)   rival and excludable. A

Question 4

An unregulated market produces too ________ of a good with an external cost and too ________ of a good with an external benefit.

Accepted Answer

A)   much; much
B)   little; much
C)   much; little
D)   little; little

Question 5

At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $30 per ton. This means that the current level of production is

Accepted Answer

A)   greater than the efficient level.
B)   efficient.
C)   less than the efficient level.
D)   the equilibrium quantity attained in an unregulated perfectly competitive market.

Question 6

A crowded freeway during the rush hour is a ________ and so it is ________.

Accepted Answer

A)   common resource; overutilized
B)   private good; efficiently utilized
C)   public good; overutilized
D)   natural monopoly; underutilized

Question 7

The marginal private cost of a chemical is $80 per ton and its marginal external cost is $10 per ton. What is the marginal social cost of the chemical?

Accepted Answer

A)   $70 per ton
B)   $85 per ton
C)   $90 per ton
D)   $45 per ton

Question 8

To increase efficiency,

Accepted Answer

A)   taxes can be used to overcome the problems created by both external benefits and external costs.
B)   subsidies can be used to overcome problems created by both external benefits and external costs.
C)   taxes can be used to overcome the problems created by external benefits, and subsidies can be used to overcome the problems created by external costs.
D)   subsidies can be used to overcome the problems created by external benefits, and taxes can be used to overcome the problems created by external costs.

Question 9

A non-crowded freeway is

Accepted Answer

A)   rival and nonexcludable.
B)   nonrival and excludable.
C)   nonrival and nonexcludable.
D)   rival and excludable.

Question 10

The marginal social cost of a chemical is $45 per ton and its marginal private cost is $30 per ton. What is the marginal external cost of the chemical?

Accepted Answer

A)   $75 per ton
B)   $30 per ton
C)   $15 per ton
D)   zero

Question 11

At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $20 per ton. The market for paper is competitive and unregulated. This means that at the current level of production,

Accepted Answer

A)   the market for paper is in equilibrium.
B)   the efficient quantity of paper is produced.
C)   there is a shortage of paper.
D)   the quantity of paper produced is less than the efficient level of output.

Exam 25: Extension E: Review