Question 1

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry.The marginal social cost production can be expressed as MSC = 2Q + 30.The consultants calculate the marginal private cost production to be MPC = Q+30.The market demand curve can be expressed as  If the consultants have accurately measured the impact of the pollution externality,the change in social surplus from moving to the social optimum (rather than at the private optimum)  is

Accepted Answer

A)   $30
B)   $37.5.
C)   $55.
D)   $67.5.E) B) and C)
F) C) and D) B

Question 2

A rural road is generally considered

Accepted Answer

A)   a public good, but if it gets congested at times, it may not be considered as such because it is no longer true that one person's use of the road does not reduce the ability of others to "consume it"/use it productively.
B)   a positive externality.
C)   a public good, even when congested.
D)   a natural monopoly.E) B) and C)
F) B) and D) A

Question 3

According to the Coase Theorem,in the absence of bargaining costs,

Accepted Answer

A)   property rights are key to determining the final outcome of a dispute.
B)   regardless of the initial assignment of property rights, the parties will successfully bargain to the efficient outcome.
C)   whichever party has more money will determine the outcome of a dispute.
D)   whichever party has the larger initial assignment of property rights will control the outcome of a dispute.E) B) and C)
F) A) and D)

Question 4

________________ states that regardless of how property rights are assigned with an externality,the allocation of resources will be will be efficient when the parties can costlessly bargain with each other.

Accepted Answer

A)   Bargaining power
B)   Opportunity cost
C)   The Coase Theorem
D)   Common PropertyE) None of the above
F) A) and C)

Question 5

A non-rival good

Accepted Answer

A)   is also nonexclusive.
B)   is also exclusive.
C)   must be free.
D)   is one where the consumption of the good by one person does not reduce the quantity available for consumption by another person.E) None of the above
F) B) and C)

Question 6

If the detriment to society from a negative externality is measure as $5 per unit of output of a particular good,the best way of moving closer to the social optimum would be to

Accepted Answer

A)   subsidize consumers who purchase the good by $5 per unit to offset the negative externality that they may endure.
B)   limit the production of the good to four days per week.
C)   calculate the negative value of the externality and assess a fine on each producer to pay for clean up in proportion to their profits from production of the good.
D)   assess a simple tax of $5 per unit of production on suppliers of the good.E) B) and D)
F) A) and D)

Question 7

Suppose that the marginal private benefit of a new vaccine could be measured as  Suppose that the marginal social benefit could be measured as  Suppose that the private marginal cost curve could be measured as  If there is no subsidy in this market,

Accepted Answer

A)   society will over-consume this product by 2 units.
B)   society will over-consume this product by 1 unit.
C)   society will under-consume this product by 2 units.
D)   society will under-consume this product by 1 unit.E) A) and D)
F) None of the above

Question 8

Suppose that a smoker and a non-smoker are seated next to each other in a restaurant.This restaurant does not offer a non-smoking section.The smoker is indifferent between 1)  smoking and 2)  not smoking and consuming a $6 dessert.The non-smoker values being able to eat in a smoke-free environment at $10.According to the Coase Theorem,and assuming no bargaining costs,what will happen?

Accepted Answer

A)   The smoker will continue to smoke because that is his right.
B)   The smoker will stop smoking, just to be a nice guy.
C)   The non-smoker will offer to pay the smoker between $6 and $10 to stop smoking, but the smoker will refuse because he has the right to smoke.
D)   The non-smoker will offer to pay the smoker between $6 and $10 to stop smoking, and the smoker will accept the money and refrain from smoking.E) A) and C)
F) B) and C)

Question 9

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry.The consultants calculate the marginal social cost of production to be MSC = 2Q+30 and the marginal private cost of production to be  +30.The market demand curve can be expressed as  If the consultants have accurately measured the impact of the pollution externality,the equation of the marginal external cost is:

Accepted Answer

A)   MEC = Q.
B)   MEC = 2Q.
C)   MEC = 2Q + 10.
D)   MEC = 10.E) All of the above
F) A) and B)

Question 10

Negative externalities

Accepted Answer

A)   create a deadweight loss as do positive externalities.
B)   move the economy closer to the social optimum.
C)   create a deadweight loss and move the equilibrium away from the social optimum.
D)   should be eliminated completely to move to the social optimum.E) A) and B)
F) None of the above

Question 11

The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that

Accepted Answer

A)   the willingness to pay in a public good market is smaller than that in a standard market.
B)   individual consumers are unlikely to be willing to pay enough to cover the marginal cost of production of a public good.
C)   the marginal social benefit of the Xth unit includes all consumers' marginal social benefits because the public good is non-exclusive and non-rival.
D)   the concept of quantities is meaningless in the case of public goods.E) C) and D)
F) A) and D)

Question 12

An externality arises when

Accepted Answer

A)   an economic good is produced by many firms.
B)   the actions of a decision maker affect other decision makers in a way not reflected in the market price.
C)   the actions of a decision maker do not affect other decision makers.
D)   the market equilibrium is inefficient.E) A) and D)
F) C) and D) B

Question 13

When the government can set emissions standards for polluting industries,which of the following statements is correct?

Accepted Answer

A)   The government should set the emissions standard to zero because pollution is bad for people.
B)   The government should set the emissions standard to achieve the socially optimal level of production which, in general, is not equal to zero.
C)   The government should employ emissions taxes instead because emissions standards cannot generally achieve the social optimum.
D)   The government should not set emissions standards because the market equilibrium will coincide with the social optimum in the absence of intervention.E) A) and D)
F) C) and D)

Question 14

Suppose that an industry emits a chemical that pollutes the ground water.Without considering the effects of the pollution,the industry has a marginal private cost curve of MPC = Q+30.The market demand curve is  ,while the marginal social cost curve is MSC = 2Q + 30.What is the socially optimal emissions standard?

Accepted Answer

A)   15.
B)   10.
C)   5.
D)   0.E) B) and C)
F) C) and D)

Question 15

A nonexclusive good

Accepted Answer

A)   is also non-rival.
B)   is also rival.
C)   must be free.
D)   is one where once the good is produced, no one can be prohibited from consuming the good.E) A) and B)
F) A) and C)

Question 16

A governmental limit on the amount of pollution that may be emitted is referred to as

Accepted Answer

A)   a public good.
B)   an emissions standard.
C)   an emissions fee.
D)   a positive externality.E) C) and D)
F) B) and D)

Question 17

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry.The consultants calculate the marginal social cost of production to be MSC = 2Q+30 and the marginal private cost of production to be  +30.The market demand curve for the industry can be expressed as P = 60-Q.If the industry currently does not take into account the negative externality in its supply decisions,the industry is ________________ by _____________ units relative to the social optimum.

Accepted Answer

A)   under-producing; 5
B)   over-producing; 5
C)   under-producing; 8
D)   over-producing; 8E) All of the above
F) C) and D)

Question 18

Which of the following is a key feature of a public good?

Accepted Answer

A)   The good is rival in its consumption, but a consumer cannot be excluded from the good.
B)   The good is non-rival in its consumption and a consumer cannot be excluded from the good.
C)   The good is non-rival in its consumption, but a consumer can be excluded from the good.
D)   The good is rival in its consumption and a consumer can be excluded from the good.E) B) and C)
F) A) and D)

Question 19

A rival good is one

Accepted Answer

A)   wherein consumption by one person reduces the amount that can be consumed by others.
B)   wherein two individuals may fight to gain access to the good.
C)   which is made more or less freely available by the supplier.
D)   wherein consumption by one person increases the amount that can be consumed by others.E) B) and C)
F) A) and D)

Question 20

Which of the following is not an example of a free rider problem?

Accepted Answer

A)   Sally listens to public radio but never contributes to her local station.
B)   Fred benefits when the National Guard arrives to help create a flood wall around his town, but he is so poor that he pays no taxes.
C)   Joe works with two other students on a group project for his intermediate microeconomics class. The grade is based on a group paper, but Joe goes to a movie instead of working on the paper because he knows that the other group members will write it without him.
D)   John goes into his local corner shop and walks out with an apple without paying for it.E) A) and B)
F) All of the above

Exam 17: Externalities and Public Goods

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B

A rural road is generally considered

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A

According to the Coase Theorem,in the absence of bargaining costs,

Correct Answer
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________________ states that regardless of how property rights are assigned with an externality,the allocation of resources will be will be efficient when the parties can costlessly bargain with each other.

Correct Answer
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A non-rival good

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If the detriment to society from a negative externality is measure as $5 per unit of output of a particular good,the best way of moving closer to the social optimum would be to

Correct Answer
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Suppose that the marginal private benefit of a new vaccine could be measured as Suppose that the marginal social benefit could be measured as Suppose that the private marginal cost curve could be measured as If there is no subsidy in this market,

Correct Answer
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Correct Answer
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Negative externalities

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The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that

Correct Answer
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An externality arises when

Correct Answer
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B

When the government can set emissions standards for polluting industries,which of the following statements is correct?

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A nonexclusive good

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A governmental limit on the amount of pollution that may be emitted is referred to as

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Which of the following is a key feature of a public good?

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A rival good is one

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Which of the following is not an example of a free rider problem?

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Exam 17: Externalities and Public Goods

Correct AnswerverifiedB

A rural road is generally considered

Correct AnswerverifiedA

According to the Coase Theorem,in the absence of bargaining costs,

Correct AnswerverifiedShow Answer

________________ states that regardless of how property rights are assigned with an externality,the allocation of resources will be will be efficient when the parties can costlessly bargain with each other.

Correct AnswerverifiedShow Answer

A non-rival good

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If the detriment to society from a negative externality is measure as $5 per unit of output of a particular good,the best way of moving closer to the social optimum would be to

Correct AnswerverifiedShow Answer

Suppose that the marginal private benefit of a new vaccine could be measured as Suppose that the marginal social benefit could be measured as Suppose that the private marginal cost curve could be measured as If there is no subsidy in this market,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Negative externalities

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The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that

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An externality arises when

Correct AnswerverifiedB

When the government can set emissions standards for polluting industries,which of the following statements is correct?

Correct AnswerverifiedShow Answer

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A nonexclusive good

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A governmental limit on the amount of pollution that may be emitted is referred to as

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Which of the following is a key feature of a public good?

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A rival good is one

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Which of the following is not an example of a free rider problem?

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B

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A

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B

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