Question 1

"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 2

If transactions costs are low,then assigning property rights in a market with external costs
i.increases the deadweight loss.
ii.means private transactions are efficient.
iii.means that only consumers must pay the external costs.

Accepted Answer

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

Question 3

Joanne rents a TV production studio to produce an extra hour of a TV show.The rent is

Accepted Answer

A)  a private cost and not an external cost. 
B)  an external cost and not a private cost. 
C)  both a private cost and an external cost. 
D)  neither a private cost nor an external cost. 
E)  a private benefit because viewers will benefit from watching the extra hour of the show.

Question 4

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).
-Based on the figure above,when the market is unregulated and is in equilibrium,the deadweight loss is

Accepted Answer

A)  $86.25 million per year. 
B)  $56.25 million per year. 
C)  $48.75 million per year. 
D)  $37.50 million per year. 
E)  zero.

Question 5

Legally established titles to the ownership,use,and disposal of factors of production are referred to as

Accepted Answer

A)  property rights. 
B)  Coase rights. 
C)  pollution rights. 
D)  emission rights. 
E)  price-setting rights.

Question 6

-The figure above shows the market for the chemical hydrogen sulfide,the production of which creates an external cost.The government imposes the pollution tax shown in the above figure.What quantity is produced after the pollution tax is imposed?

Accepted Answer

A)  zero pounds 
B)  80 million pounds 
C)  160 million pounds 
D)  more than 160 million pounds 
E)  more than 80 million pounds and less than 160 million pounds.

Question 7

Issuing marketable permits to firms that produce a product with external costs will give the firms the incentive to

Accepted Answer

A)  declare bankruptcy. 
B)  buy and sell the permits amongst themselves. 
C)  escape the problem completely. 
D)  quit producing the output. 
E)  increase the external cost because they no longer need to deal with the externality.

Question 8

-The figure above shows the market for annual influenza immunizations the United States.The market equilibrium with no government intervention is ________ because health care generates ________.

Accepted Answer

A)  efficient; positive external benefits 
B)  inefficient; positive external benefits 
C)  inefficient; positive external costs 
D)  efficient; positive external costs 
E)  inefficient; public goods

Question 9

-The figure above shows the market for college education in the United States.If the government does not intervene in this market,the deadweight loss equals ________ per year.

Accepted Answer

A)  $28 billion 
B)  $14 billion 
C)  $280 billion 
D)  $224 billion 
E)  $7 billion

Question 10

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.When the market is in equilibrium,the marginal social benefit is ________,the marginal cost is ________,and the number of students enrolled is ________.

Accepted Answer

A)  $25,000; $25,000; efficient 
B)  $25,000; $10,000; inefficient 
C)  $15,000; $25,000; inefficient 
D)  $15,000; $15,000; efficient 
E)  $25,000; $15,000; inefficient

Question 11

When people decide whether or not to get a flu vaccination,they ignore the ________ and as a result ________.

Accepted Answer

A)  marginal private benefit; too few vaccinations are given 
B)  external benefit; too few vaccinations are given 
C)  private cost; too many vaccinations are given 
D)  marginal external cost; vouchers must be provided 
E)  social cost; too many vaccinations are given

Question 12

-The figure shows the market for college education.In order for the efficient amount of education to occur,the government could provide a subsidy of ________ per student.

Accepted Answer

A)  $4,000 
B)  $8,000 
C)  $12,000 
D)  $20,000 
E)  $16,000

Question 13

-Producing leather creates external costs in the form of water pollution.The figure above illustrates the market for leather.If the government sets a pollution limit that achieves efficiency,how many tons of leather are produced?

Accepted Answer

A)  0 tons 
B)  200 tons 
C)  300 tons 
D)  more than 300 tons 
E)  more than 0 tons and less than 200 tons

Question 14

-The figure above shows the market for college education.The efficient quantity of education is

Accepted Answer

A)  0 students. 
B)  4 million students. 
C)  6 million students. 
D)  more than 6 million students. 
E)  more than 4 million students and less than 6 million students.

Question 15

In an unregulated market with an external benefit,the

Accepted Answer

A)  quantity produced is greater than the efficient quantity. 
B)  price charged is too high for efficiency. 
C)  quantity produced is less than the efficient quantity. 
D)  producer is causing pollution but not paying for it. 
E)  government might impose a tax to help move the market toward the efficient amount of production.

Question 16

-The figure above shows the market for college education in the United States.The efficient quantity of college education is ________ students per year.

Accepted Answer

A)  10 million 
B)  12 million 
C)  17 million 
D)  18 million 
E)  14 million

Question 17

When Keisha receives a flu vaccination,the additional benefit enjoyed by Keisha's friends is the

Accepted Answer

A)  marginal private benefit. 
B)  marginal external benefit. 
C)  marginal social benefit. 
D)  private benefit. 
E)  marginal private cost.

Question 18

A voucher is

Accepted Answer

A)  the production of a good by some public institution. 
B)  a payment that government makes to private producers. 
C)  a token that government provides to households to use in purchasing a specific good. 
D)  a permit to pollute. 
E)  a tax that is imposed on consumers rather than producers.

Question 19

If the marginal private benefit of attending college for Shelly is $40,000 and the marginal external benefit is $15,000,she will attend college if the cost of attendance is no more than

Accepted Answer

A)  $55,000. 
B)  $45,000. 
C)  $40,000. 
D)  $25,000. 
E)  $15,000.

Question 20

Which of the following is true?
i.In an unregulated market with an external benefit,consumers don't take it into account and consume less than the efficient quantity.
ii.Marginal social cost equals marginal private cost minus marginal external cost.
iii.An unregulated market produces more than the efficient quantity of a good with an external cost.

Accepted Answer

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

Exam 10: Externalities