Question 1

It is inefficient for the government to charge a price for consuming a good,such as weather forecasts,because ________.

Accepted Answer

A)  too many forecasts will be produced 
B)  the price cannot be set to cover all research costs 
C)  no one will be willing to pay for these forecasts 
D)  the marginal cost of providing this information to another consumer is zero

Question 2

If a good is excludable,________.

Accepted Answer

A)  one person's use of the good reduces the amount of the good available to others 
B)  people can be prevented from using the good 
C)  more than one person cannot use the good at the same time 
D)  several people can use the good simultaneously

Question 3

________ are highly excludable but non-rival in consumption.

Accepted Answer

A)  Public goods 
B)  Private goods 
C)  Common pool resource goods 
D)  Club goods

Question 4

Overfishing leading to a rapid depletion of the stock of fish is an example of the ________.

Accepted Answer

A)  tragedy of the commons 
B)  free-rider problem 
C)  paradox of thrift 
D)  prisoners' dilemma

Question 5

Private solutions to externalities are most effective if ________.

Accepted Answer

A)  the transaction costs associated with bargaining are low 
B)  the transaction costs associated with bargaining are high 
C)  property rights are not defined clearly 
D)  a large number of people are affected by the externalities

Question 6

A Pigouvian tax is also called a(n)________.

Accepted Answer

A)  subjective tax 
B)  objective tax 
C)  corrective tax 
D)  subsidy

Question 7

A room heater is a ________.

Accepted Answer

A)  club good because it is excludable but non-rival in consumption 
B)  club good because it is non-excludable but rival in consumption 
C)  public good because it is non-excludable and non-rival in consumption 
D)  private good because it is excludable and rival in consumption

Question 8

A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ used to solve an externality.

Accepted Answer

A)  social enforcement mechanism 
B)  command-and-control approach 
C)  market-based approach 
D)  Coasian approach

Question 9

The figure below shows the demand, supply, and marginal social benefit curves for Good Y.
 
-Refer to the figure above.How many units of Good Y will be supplied when the market is free?

Accepted Answer

A)  9 million 
B)  16 million 
C)  13 million 
D)  20 million

Question 10

People seldom break a line while waiting for checkout in a supermarket.In this example,________ is used to solve an externality.

Accepted Answer

A)  the Coasian approach 
B)  the Pigouvian approach 
C)  a command-and-control mechanism 
D)  a social enforcement mechanism

Question 11

What causes the overexploitation and depletion of common pool resource goods?

Accepted Answer

The answer of What causes the overexploitation and depletion of...

Question 12

If the government taxed away all profits in a market economy,the likely result would be ________.

Accepted Answer

A)  a more rapid shift of resources to expanding industries 
B)  the removal of the incentive for resource allocation 
C)  improved market signals and responses 
D)  enhanced efficiency in resource allocation

Question 13

Which of the following is the best definition of an externality?

Accepted Answer

A)  When firms sell products at a price greater than marginal cost 
B)  When government intervention in a market reduces consumer surplus 
C)  When an economic activity imposes spillover costs or benefits on a third party 
D)  When a worker takes a job "off the books" to avoid paying taxes

Question 14

Government invention is required to solve externality problems if ________.

Accepted Answer

A)  transaction costs associated with private negotiations are low 
B)  the number of people affected by the externality is small 
C)  the number of people affected by the externality is large 
D)  property rights are clearly defined

Question 15

A good is non-rival in consumption if ________.

Accepted Answer

A)  one person's use of the good does not preclude consumption by others 
B)  the government can regulate its production 
C)  people cannot be prevented from using it 
D)  the demand for the good increases with an increase in the consumer's income

Question 16

The marginal social cost of producing the last unit of a good is $1.10,while the consumers' willingness to pay for the last unit is $0.80.The deadweight loss from the production of the last unit of the good is ________.

Accepted Answer

A)  $1.10 
B)  $1.90 
C)  $0.50 
D)  $0.30

Question 17

How is the market demand curve for a public good derived?

Accepted Answer

The answer of How is the market demand curve for...

Question 18

Rides in a public park are ________ in consumption.

Accepted Answer

A)  non-excludable and non-rival 
B)  excludable but non-rival 
C)  excludable and rival 
D)  non-excludable but rival

Question 19

The practice of fracking by the oil and gas companies produces saltwater as its by-product.The disposal of the saltwater can lead to earthquakes.What did the government of the state of Oklahoma do to reduce the number of earthquakes in the state?

Accepted Answer

A)  It fined the oil and gas companies a certain fee per each earthquake. 
B)  It banned the practice of fracking. 
C)  It put a limit on how much saltwater the oil and gas companies could dispose of. 
D)  It let the market forces achieve the socially optimal outcome by themselves.

Question 20

Explanation: The following figure graphs the answer.
 
-Refer to the figure above.If Good X is a public good,what is the total quantity demanded on the market if the market price is $4?

Accepted Answer

A)  8 
B)  14 
C)  12 
D)  10

Exam 9: Externalities and Public Goods