Question 1

-The figure above shows the market for annual influenza immunizations the United States.If the government intervenes in the market and provides a subsidy to providers of immunizations to immunize the efficient number of people,the amount of the subsidy is ________ per person.

Accepted Answer

A)  $25 
B)  $50 
C)  $35 
D)  $15 
E)  $40

Question 2

Pell grants are money given to students attending college.Pell grants are most closely similar to

Accepted Answer

A)  public provision of a good. 
B)  private subsidies given to producers of a good. 
C)  vouchers given to consumers of a good. 
D)  property rights assigned to consumers of a good. 
E)  a subsidy given to the producer of a good.

Question 3

If the production of a good creates an external cost,is the supply curve the same as the marginal social cost or the same as the marginal private cost curve or both?

Accepted Answer

The answer of If the production of a good creates...

Question 4

Which of the following is the best example of a good or service with an external benefit?

Accepted Answer

A)  gasoline 
B)  education 
C)  garbage disposal 
D)  fertilizers 
E)  bread

Question 5

-The figure above shows the market for annual influenza immunizations the United States.The marginal external benefit associated with immunizing 14 million people is ________ per person per year.

Accepted Answer

A)  $40 
B)  $20 
C)  $90 
D)  $30 
E)  $60

Question 6

A marginal external cost of a product is equal to

Accepted Answer

A)  what the producer has to pay to hire resources to produce another unit. 
B)  the cost someone other than the producer incurs when another unit is produced. 
C)  the cost the producer incurs to produce another unit. 
D)  what the consumer must pay when he or she buys the good or service. 
E)  None of these answers describes a marginal external cost.

Question 7

-The figure above shows the market for private elementary school education in Chicago.There is no external cost of private elementary education.If the marginal social benefit of private elementary education equaled the marginal social cost,the deadweight loss in Chicago's private education market would equal

Accepted Answer

A)  0. 
B)  $800,000. 
C)  $1,600,000. 
D)  more than $1,600,000. 
E)  more than $800,000 and less than $1,600,000.

Question 8

When the production of a good has a marginal external cost,which of the following occurs in an unregulated market?
i.Overproduction relative to the efficient level will occur.
ii.The market price is less than the marginal social cost at the equilibrium quantity.
iii.A deadweight loss occurs.

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  i, ii, and iii

Question 9

The Coase theorem says that if property rights exist and the costs of enforcing them are ________,then the market outcome is ________ and it doesn't matter who has the property rights.

Accepted Answer

A)  low; inefficient 
B)  high; inefficient 
C)  low; efficient 
D)  high; efficient 
E)  stable; efficient

Question 10

Pollution is an example of a ________ externality.

Accepted Answer

A)  negative production 
B)  positive production 
C)  negative consumption 
D)  positive consumption 
E)  Coasian

Question 11

The production of electricity creates pollution.When deciding how much electricity to buy,customers ________ the cost of pollution.When deciding how much electricity to buy,producers ________ the cost of pollution.

Accepted Answer

A)  take into account; take into account 
B)  do not take into account; do not take into account 
C)  take into account; do not take into account 
D)  do not take into account; take into account 
E)  None of the above answers is correct.

Question 12

If a good has an external cost,the

Accepted Answer

A)  unregulated competitive market outcome is efficient. 
B)  marginal private cost reflects the external cost. 
C)  unregulated competitive market outcome is inefficient. 
D)  marginal social benefit is equal to the marginal social cost when the market is in equilibrium. 
E)  external benefit must equal the external cost.

Question 13

If the government provides a subsidy to producers,what is the effect of this policy in a supply and demand diagram?

Accepted Answer

A)  The demand curve shifts leftward and the price rises. 
B)  The supply curve shifts rightward and the price falls. 
C)  The supply curve shifts leftward and the price falls. 
D)  The supply curve shifts leftward and the price rises. 
E)  The demand curve shifts rightward and the price rises.

Question 14

-The figure above shows the market for private elementary school education in Chicago.There is no external cost of private elementary education.If the government does not intervene in this market,the equilibrium number of students being privately educated is

Accepted Answer

A)  0 students. 
B)  200 students. 
C)  400 students. 
D)  600 students. 
E)  None of the above answers is correct.

Question 15

If the marginal external cost of building a children's playground equals zero,then the
i.marginal private cost equals the marginal social cost.
ii.marginal social cost equals zero.
iii.marginal private cost equals zero.

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  ii and iii 
E)  i and ii

Question 16

"If production of a good creates an external cost,then,when production is such that the marginal private costs are equal to the marginal private benefits,the market outcome will be inefficient." Explain whether this assertion is correct or incorrect.

Accepted Answer

The answer of "If production of a good creates an...

Question 17

Discuss the difference between a private cost and a social cost.

Accepted Answer

The answer of Discuss the difference between a private cost...

Question 18

Which of the following best describes an externality?

Accepted Answer

A)  something that is external to the economy 
B)  a sales tax on a good in addition to the market price 
C)  an effect of a transaction felt by someone other than the buyer or seller 
D)  anything produced in other countries 
E)  a change from what is normal

Question 19

The figure above shows the demand for college education (D), the marginal social benefit of college education (MSB), and the marginal cost of the private schools (MC).
-Using the figure above,suppose education is provided by public colleges,where tuition is set at $10,000 a year.Then,________ million students are enrolled,and the taxpayers cover ________ of the marginal cost per student.

Accepted Answer

A)  15; $15,000 
B)  7.5; $5,000 
C)  3.5; none 
D)  15; $25,000 
E)  7.5; $15,000

Question 20

-The figure above represents the relationship between output and cost in an industry with an external cost.Which line represents the marginal private cost (MC)curve?

Accepted Answer

A)  Curve 1 
B)  Curve 2 
C)  the dotted line BC 
D)  the y-axis 
E)  the dotted line AB

Exam 10: Externalities