Question 1

Which of the following is true?

Accepted Answer

A)   social costs = internal costs − external costs
B)   social costs = internal costs + external costs
C)   internal costs = social costs + external costs
D)   external costs = social costs + internal costs
E)   internal costs − social costs = external costsF) All of the above
G) A) and E)

Question 2

A free-rider problem exists when:

Accepted Answer

A)   people receive a benefit they do not need to pay for.
B)   firms impose a cost on third parties.
C)   negative externalities exist.
D)   a private good is produced.
E)   any market is in equilibrium.F) B) and D)
G) A) and D)

Question 3

Refer to the accompanying table, where Q represents the quantity produced, internal cost and social cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.  Q Internal Cost  Social Cost P100$40$60$80200$50$70$70300$60$80$60400$70$90$50500$80$100$40600$90$110$30\begin{array}{lll}Q&	ext { Internal Cost }&	ext { Social Cost }&P\100&\$ 40 & \$ 60 & \$ 80 \200&\$ 50 & \$ 70 & \$ 70 \300&\$ 60 & \$ 80 & \$ 60 \400&\$ 70 & \$ 90 & \$ 50 \500&\$ 80 & \$ 100 & \$ 40 \600&\$ 90 & \$ 110 & \$ 30\end{array}Q100200300400500600​ Internal Cost $40$50$60$70$80$90​ Social Cost $60$70$80$90$100$110​P$80$70$60$50$40$30​  The external cost is equal to _________ per unit.

Accepted Answer

A)   $60
B)   $70
C)   $20
D)   $50
E)   $30 F) A) and E)
G) B) and E)

Question 4

Positive externalities have _________ for third parties.

Accepted Answer

A)   internal costs
B)   internal benefits
C)   external costs
D)   external benefits
E)   social costsF) B) and E)
G) None of the above

Question 5

Your neighbor is an avid gardener who changes his flower displays four times per year and who was given the "best yard on the block" award last year. While you personally enjoy these changing flower displays, some of your neighbors have said they do not like some of the flowers your neighbor chooses to plant. For you, this is an example of:

Accepted Answer

A)   a positive externality.
B)   the tragedy of the commons.
C)   an internal cost.
D)   internalizing the external cost.
E)   a negative externality.F) A) and C)
G) All of the above

Question 6

Visiting the public beach during summer is an example of an activity that is:

Accepted Answer

A)   excludable.
B)   rival.
C)   nonexcludable and rival.
D)   nonrival.
E)   excludable and nonrival.F) A) and B)
G) A) and D)

Question 7

When a negative externality is not internalized, then the equilibrium price of the good produced is too _________ and the equilibrium quantity produced is too _________.

Accepted Answer

A)   high; high
B)   low; low
C)   low; high
D)   high; low
E)   expensive; inefficientF) A) and C)
G) All of the above

Question 8

Refer to the accompanying figure to answer the questions. 
-The figure best illustrates what type of market?

Accepted Answer

A)   The good produced creates a positive externality.
B)   The good produced creates a negative externality.
C)   The good produced is a club good.
D)   The good produced is a public good.
E)   Firms in this industry have been given a subsidy to encourage more production.F) None of the above
G) B) and C)

Question 9

Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Accepted Answer

A)   A
B)   B
C)   C
D)   D
E)   either C or DF) A) and C)
G) B) and E)

Question 10

The third-party problem:

Accepted Answer

A)   occurs when a market activity leads to a negative externality.
B)   occurs when a market activity leads to a positive externality.
C)   occurs when a market activity leads to a negative or a positive externality.
D)   is the same as the free-rider problem.
E)   is associated with the production of private goods but not public goods.F) B) and E)
G) C) and D)

Question 11

A good that is rival and excludable is defined as a:

Accepted Answer

A)   private good.
B)   public good.
C)   common-resource good.
D)   club good.
E)   government good.F) A) and C)
G) A) and D)

Question 12

Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point:

Accepted Answer

A)   B.
B)   C.
C)   E.
D)   F.
E)   G.F) All of the above
G) B) and E)

Question 13

When a positive externality exists, which point best identifies the social optimum?

Accepted Answer

A)   A
B)   B
C)   C
D)   D
E)   either A or DF) A) and B)
G) A) and C)

Question 14

Refer to the following scenario to answer the questions.
Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does
-If four boats operate, then each boat will make a profit of:

Accepted Answer

A)   $775.00.
B)   $500.00.
C)   $275.00.
D)   $675.00.
E)   $68.75.F) None of the above
G) B) and E)

Question 15

A major reason why the market equilibrium for a manufactured good may not be efficient is:

Accepted Answer

A)   there is too much government regulation.
B)   property rights are not well defined.
C)   there is likely to be a positive externality associated with production.
D)   the industry is likely to be a monopoly.
E)   the industry is producing too little output.F) A) and B)
G) A) and C)

Question 16

External benefits arise from the actions of:

Accepted Answer

A)   firms.
B)   consumers.
C)   firms and consumers.
D)   the government.
E)   firms, consumers, and the government.F) C) and D)
G) None of the above

Question 17

A government decision to impose a tax on the sale of plastic disposable water bottles is an example of:

Accepted Answer

A)   a positive externality.
B)   internalizing the externality.
C)   the third-party problem.
D)   an external cost.
E)   the Coase theorem.F) A) and B)
G) C) and E)

Question 18

Consider the following scenario when answering the questions:
Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is
-If property rights over the river are assigned to Jones, then:

Accepted Answer

A)   Jones will force Smith to close his resort.
B)   Smith will pay Jones up to $75 per day to install the filter.
C)   Smith will pay Jones up to $125 to install the filter.
D)   Jones will install a filter and pay Smith at least $75 per day.
E)   Jones will not install a filter.F) B) and D)
G) B) and C)

Question 19

The amount you pay for gasoline for your car is an example of a(n) :

Accepted Answer

A)   internal cost.
B)   social cost.
C)   external cost.
D)   third-party cost.
E)   public-good cost.F) B) and D)
G) A) and B)

Question 20

Which of the following is a cost of internalizing a negative externality?

Accepted Answer

A)   Less output is produced.
B)   The deadweight loss is larger.
C)   The level of pollution rises.
D)   Taxes must increase to cover the external cost.
E)   The government must pay firms to encourage them to change production techniques.F) A) and B)
G) B) and E)

Exam 7: Market Inefficiencies: Externalities and Public Goods

When a positive externality exists, which point best identifies the social optimum?

Correct Answer
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A government decision to impose a tax on the sale of plastic disposable water bottles is an example of:

Correct Answer
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Positive externalities have _________ for third parties.

Correct Answer
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A good that is rival and excludable is defined as a:

Correct Answer
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Refer to the accompanying figure to answer the questions. -The figure best illustrates what type of market?

Correct Answer
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Which of the following is a cost of internalizing a negative externality?

Correct Answer
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Visiting the public beach during summer is an example of an activity that is:

Correct Answer
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Correct Answer
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Correct Answer
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Consider the following scenario when answering the questions: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is -If property rights over the river are assigned to Jones, then:

Correct Answer
verified

Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Correct Answer
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A free-rider problem exists when:

Correct Answer
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Which of the following is true?

Correct Answer
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When a negative externality is not internalized, then the equilibrium price of the good produced is too _ and the equilibrium quantity produced is too _.

Correct Answer
verified

A major reason why the market equilibrium for a manufactured good may not be efficient is:

Correct Answer
verified

Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point:

Correct Answer
verified

The amount you pay for gasoline for your car is an example of a(n) :

Correct Answer
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External benefits arise from the actions of:

Correct Answer
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The third-party problem:

Correct Answer
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Refer to the following scenario to answer the questions. Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does -If four boats operate, then each boat will make a profit of:

Correct Answer
verified

Exam 7: Market Inefficiencies: Externalities and Public Goods

When a positive externality exists, which point best identifies the social optimum?

Correct AnswerverifiedShow Answer

A government decision to impose a tax on the sale of plastic disposable water bottles is an example of:

Correct AnswerverifiedShow Answer

Positive externalities have _________ for third parties.

Correct AnswerverifiedShow Answer

A good that is rival and excludable is defined as a:

Correct AnswerverifiedShow Answer

Refer to the accompanying figure to answer the questions. -The figure best illustrates what type of market?

Correct AnswerverifiedShow Answer

Which of the following is a cost of internalizing a negative externality?

Correct AnswerverifiedShow Answer

Visiting the public beach during summer is an example of an activity that is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider the following scenario when answering the questions: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is -If property rights over the river are assigned to Jones, then:

Correct AnswerverifiedShow Answer

Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Correct AnswerverifiedShow Answer

A free-rider problem exists when:

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

When a negative externality is not internalized, then the equilibrium price of the good produced is too _________ and the equilibrium quantity produced is too _________.

Correct AnswerverifiedShow Answer

A major reason why the market equilibrium for a manufactured good may not be efficient is:

Correct AnswerverifiedShow Answer

Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point:

Correct AnswerverifiedShow Answer

The amount you pay for gasoline for your car is an example of a(n) :

Correct AnswerverifiedShow Answer

External benefits arise from the actions of:

Correct AnswerverifiedShow Answer

The third-party problem:

Correct AnswerverifiedShow Answer

Refer to the following scenario to answer the questions. Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does -If four boats operate, then each boat will make a profit of:

Correct AnswerverifiedShow Answer

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Correct Answer
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When a negative externality is not internalized, then the equilibrium price of the good produced is too _ and the equilibrium quantity produced is too _.

Correct Answer
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Correct Answer
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Correct Answer
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