Question 1

What is the biggest problem of using government actions such as taxes and pollution charges to control external costs?

Accepted Answer

A) insufficient legal power to enforce the controls 
B) obtaining enough data to determine how much the tax or pollution charge will be 
C) In some situations,there is no known way to control the external costs. 
D) political lobbying and voter disagreement 
E) The Coase theorem points out that taxes and pollution charges work only in the short run and not in the long run.

Question 2

If a product has zero external costs,then

Accepted Answer

A) marginal social cost equals marginal private cost. 
B) marginal social cost is greater than marginal private cost. 
C) marginal social cost is less than marginal private cost. 
D) marginal social cost equals zero. 
E) We need more information to determine the relationship between marginal private cost and marginal social cost.

Question 3

-The table above gives the marginal social cost (which equals the price),marginal private benefit,and marginal social benefit of students attending Diablo Valley College (DVC)in Concord,California.
a.When 4,500 students attend DVC,what does the marginal external benefit equal?
b.If the market is competitive and left without government intervention,what is the quantity of students that will attend DVC and what will be the price of a course?
c.What is the efficient quantity of students attending DVC?
d.If the government can set the price per course,in order to have the efficient quantity of students attending DVC,what should the government set as the price?

Accepted Answer

The answer of 
-The table above gives the marginal social...

Question 4

One reason why property rights help achieve an efficient level of pollution is because property rights

Accepted Answer

A) force the marginal private cost to equal the marginal social cost. 
B) force the marginal social cost to zero. 
C) force the marginal external cost to a lower level than marginal private cost. 
D) eliminate marginal private costs. 
E) change the marginal external cost so that they are equal to the marginal social benefit.

Question 5

Evidence of external costs in the production of a product is present if

Accepted Answer

A) the price of the product is higher than it should be. 
B) the production cost increases because of an increase in the minimum wage. 
C) non-buyers and/or non-producers of the product experience a loss for which they are not compensated. 
D) buyers refuse to purchase the product. 
E) producers pay all of the costs of producing the good or service.

Question 6

-The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal cost paid by the producers and everyone else in society when 100 billion kilowatt hours are produced is

Accepted Answer

A) 0¢ per kilowatt. 
B) 5¢ per kilowatt. 
C) 10¢ per kilowatt. 
D) 20¢ per kilowatt. 
E) 15¢ per kilowatt.

Question 7

If the government taxes an industry that creates pollution,the tax
I.decreases the pollution.
Ii.increases the price of the product produced by the firms.
Iii.decreases the quantity of the good produced.

Accepted Answer

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

Question 8

-The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.It also illustrates the marginal benefit.There is no external benefit.If the city of Seattle puts on 5 concerts per year,then the marginal benefit will

Accepted Answer

A) exceed the marginal social cost. 
B) equal the marginal private cost. 
C) be less than the marginal social cost. 
D) equal the marginal social cost. 
E) None of the above answers is correct.

Question 9

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 10

-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

Question 11

-The figure above shows the market for a good with an external benefit.If the government wants to grant a subsidy so that the efficient quantity is produced,the subsidy must equal ________ per unit.

Accepted Answer

A) $100 
B) $150 
C) $250 
D) $300 
E) $50

Question 12

-The figure above shows the market for college education in the United States.If the government intervenes in the market and provides a subsidy to colleges to enroll the efficient number of students,the amount of the subsidy equals ________ per student.

Accepted Answer

A) $5,000 
B) $16,000 
C) $13,000 
D) $11,000 
E) $7,000

Question 13

The cost of producing an additional unit of a good or service that is borne by the producer of that good or service

Accepted Answer

A) always equals the benefit the consumer derives from that good or service. 
B) equals the cost borne by people other than the producer. 
C) is the marginal private cost. 
D) is the external cost. 
E) is the marginal social cost.

Question 14

When production of a good results in an external cost,the unregulated competitive market equilibrium is inefficient because ________.

Accepted Answer

A) MSC = MC 
B) MSC = MB 
C) MSC > MB 
D) MSC < MB 
E) MSC is undefined

Question 15

The cost of producing an additional unit of a good or service that is borne by the producer of that good or service is the marginal

Accepted Answer

A) external cost. 
B) private cost. 
C) social cost. 
D) public cost. 
E) None of the above answers is correct.

Question 16

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 17

-The figure above shows the market for annual influenza immunizations the United States.With no government intervention,the market equilibrium is at a price of ________ and ________ million immunizations per year.

Accepted Answer

A) $60;14 
B) $40;14 
C) $30;14 
D) $40;22 
E) None of the above answers is correct.

Question 18

If a pollution tax in a market with an external cost changes the market so that it produces the efficient level of output,which of the following occurs?
I.The supply curve shifts leftward.
Ii.The price increases.
Iii.The quantity produced decreases.

Accepted Answer

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

Question 19

-The figure above shows the market for polio vaccination in Pakistan.Polio vaccination confers an external benefit because one person's vaccination makes it less likely that other people will catch polio.
a.If the market is competitive and left unregulated,how many doses of vaccine will be administered?
b.If the Melinda and Bill Gates Foundation underwrites the cost of the vaccine by paying for a large fraction of the preparation and delivery cost,what will happen to the number of doses administered? Why?

Accepted Answer

The answer of 
-The figure above shows the market for...

Question 20

-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

Exam 9: Externalities: Pollution, education, and Health Care