Question 1

If the social cost of producing a good or service exceeds the private cost,

Accepted Answer

A)  a positive externality exists.
B)  the sum of consumer surplus and producer surplus is maximised.
C)  the market achieves economic efficiency.
D)  a negative externality exists.E) B) and C)
F) A) and B)

Question 2

Which of the following describes how a negative externality affects a competitive market?

Accepted Answer

A)  The externality causes a difference between the private cost of production and the social cost.
B)  The externality causes a difference between the private cost of production and the private benefit from consumption.
C)  The externality causes consumer surplus to exceed producer surplus.
D)  The externality causes a difference between the private cost of production and the equilibrium price.E) A) and D)
F) B) and C) A

Question 3

Figure 15.2 a B) Pb C) Pc D) Pf." class="answers-bank-image d-inline" rel="preload" > Figure 15.2 shows a market with a negative externality.
-Refer to Figure 15.2.What price represents the true marginal cost of the last unit produced?

Accepted Answer

A)  Pa
B)  Pb
C)  Pc
D)  Pf.E) All of the above
F) None of the above

Question 4

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good.All of the following will result from the tax except

Accepted Answer

A)  an increase in the equilibrium market price.
B)  a decrease in the equilibrium quantity produced and consumed.
C)  a decrease in market supply of the good.
D)  an increase in the demand for the good.E) None of the above
F) All of the above

Question 5

Figure 15.5 1 is not the economically efficient output.The economically efficient output is Q2. -Refer to Figure 15.5.If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent? A) The demand curve reflecting external benefits B) The demand curve reflecting social benefits C) The demand curve reflecting private benefits D) The demand curve reflecting the sum of private and social benefits" class="answers-bank-image d-inline" rel="preload" > Figure 15.5 shows a market with an externality.The current market equilibrium output of Q1 is not the economically efficient output.The economically efficient output is Q2.
-Refer to Figure 15.5.If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?

Accepted Answer

A)  The demand curve reflecting external benefits
B)  The demand curve reflecting social benefits
C)  The demand curve reflecting private benefits
D)  The demand curve reflecting the sum of private and social benefitsE) None of the above
F) A) and B)

Question 6

Figure 15.4 2 exceeds the marginal benefit B) Because the marginal private cost of producing each additional unit in excess of Q2 exceeds the marginal benefit C) Because the marginal social benefit of producing each additional unit in excess of Q2 exceeds the private cost D) Because the marginal private benefit of producing each additional unit in excess of Q2 exceeds the social cost" class="answers-bank-image d-inline" rel="preload" > Suppose there are several paper mills producing paper for a market.These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river.The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source.Figure 15.4 shows the paper market.Use this Figure to answer the following question(s) .
-Refer to Figure 15.4.Why is there a deadweight loss?

Accepted Answer

A)  Because the marginal social cost of producing each additional unit in excess of Q2 exceeds the marginal benefit
B)  Because the marginal private cost of producing each additional unit in excess of Q2 exceeds the marginal benefit
C)  Because the marginal social benefit of producing each additional unit in excess of Q2 exceeds the private cost
D)  Because the marginal private benefit of producing each additional unit in excess of Q2 exceeds the social costE) C) and D)
F) A) and C)

Question 7

Why will for-profit producers not produce public goods?

Accepted Answer

A)  Markets exist for private goods but not for public goods.
B)  The cost of production can be easily determined.
C)  Buyers will not be willing to pay for the goods since the benefits are not excludable.
D)  All external benefits can be internalised using market prices.E) A) and B)
F) All of the above C

Question 8

Which of the following is an example of a command and control approach to reducing pollution?

Accepted Answer

A)  The government sets a target for maximum emissions
B)  The government imposed a per unit tax on the good that creates pollution
C)  The government gives firms a tax rebate for every unit of pollution abated
D)  None of the aboveE) A) and C)
F) A) and D)

Question 9

Medical research that ends in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

Accepted Answer

A)  At equilibrium, less than the economically efficient quantity of medical research is produced.
B)  A deadweight loss occurs because at equilibrium, the marginal social cost of medical research is greater than the marginal social benefit.
C)  At equilibrium, more than the economically efficient quantity of medical research is produced.
D)  A deadweight loss occurs because at equilibrium, the marginal social cost equals the marginal social benefit.E) B) and C)
F) All of the above

Question 10

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalise the externality.

Accepted Answer

A) True 
 B)False

Question 11

Figure 15.14 1 is not the economically efficient output.The economically efficient output is Q2. -Refer to Figure 15.14.The current market equilibrium output is partly the result of overfishing.In that case, what does S1 represent? A) The private marginal cost of harvesting tuna B) The social marginal cost of harvesting tuna C) The private marginal benefit of harvesting tuna D) The social marginal benefit of harvesting tuna" class="answers-bank-image d-inline" rel="preload" > Figure 15.14 shows the market for Atlantic tuna, a common resource.The current market equilibrium output of Q1 is not the economically efficient output.The economically efficient output is Q2.
-Refer to Figure 15.14.The current market equilibrium output is partly the result of overfishing.In that case, what does S1 represent?

Accepted Answer

A)  The private marginal cost of harvesting tuna
B)  The social marginal cost of harvesting tuna
C)  The private marginal benefit of harvesting tuna
D)  The social marginal benefit of harvesting tunaE) None of the above
F) B) and C)

Question 12

An externality is an example of a market failure.

Accepted Answer

A) True 
 B)False

Question 13

Figure 15.6 1 represent? A) The demand curve reflecting social benefit B) The positive externalities curve C) The demand curve reflecting private benefit D) The social welfare curve" class="answers-bank-image d-inline" rel="preload" > Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 15.6.What does D1 represent?

Accepted Answer

A)  The demand curve reflecting social benefit
B)  The positive externalities curve
C)  The demand curve reflecting private benefit
D)  The social welfare curveE) C) and D)
F) All of the above C

Question 14

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

Accepted Answer

A)  externalise the externality.
B)  result in a marginal social benefit greater than the marginal cost of the electricity.
C)  be an example of supply side economic policy.
D)  internalise the externality.E) B) and C)
F) None of the above

Question 15

What does the phrase 'internalising an external cost' mean?

Accepted Answer

A)  Limiting the extent to which domestic firms can outsource production
B)  Prohibiting economic activities that create externalities
C)  Forcing producers to factor into their production costs the cost of the externalities created in the production of their output
D)  Finding a way to address cross-border pollutionE) A) and B)
F) C) and D)

Question 16

One difference between the demand for a private good and that for a public good is that

Accepted Answer

A)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, each consumer chooses the price she is willing to pay for a fixed quantity.
B)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.
C)  with a private good, each consumer receives different amounts of benefit from consuming the product but with a public good, every consumer realises the same amount of benefit from consuming the product.
D)  the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the former.E) A) and B)
F) B) and C)

Question 17

A market failure arises when an entire sector of the economy (for example, the airline industry)collapses because of some unforeseen event.

Accepted Answer

A) True 
 B)False

Question 18

When there is a negative externality, the private cost of production ________ the social cost of production.

Accepted Answer

A)  is greater than
B)  is equal to
C)  eliminates
D)  is less thanE) C) and D)
F) All of the above

Question 19

Figure 15.6  Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 15.6.What is the deadweight loss resulting from producing at the market equilibrium?

Accepted Answer

A)  B + C
B)  E + C
C)  F
D)  CE) All of the above
F) B) and D)

Question 20

What does a positive externality cause?

Accepted Answer

A)  The marginal social benefit to be equal to the marginal private cost of the last unit produced
B)  The marginal social benefit to be less than the marginal private cost of the last unit produced
C)  The marginal social benefit to exceed the marginal private cost of the last unit produced
D)  The marginal private benefit to exceed the marginal social cost of the last unit producedE) None of the above
F) B) and C)

Exam 15: Externalities, Environmental Policy and Public Goods

If the social cost of producing a good or service exceeds the private cost,

Correct Answer
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Which of the following describes how a negative externality affects a competitive market?

Correct Answer
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A

Figure 15.2 Figure 15.2 shows a market with a negative externality. -Refer to Figure 15.2.What price represents the true marginal cost of the last unit produced?

Correct Answer
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Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good.All of the following will result from the tax except

Correct Answer
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Correct Answer
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Correct Answer
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Why will for-profit producers not produce public goods?

Correct Answer
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C

Which of the following is an example of a command and control approach to reducing pollution?

Correct Answer
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Medical research that ends in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

Correct Answer
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When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalise the externality.

Correct Answer
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Correct Answer
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An externality is an example of a market failure.

Correct Answer
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Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What does D₁ represent?

Correct Answer
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C

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

Correct Answer
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What does the phrase 'internalising an external cost' mean?

Correct Answer
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One difference between the demand for a private good and that for a public good is that

Correct Answer
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A market failure arises when an entire sector of the economy (for example, the airline industry)collapses because of some unforeseen event.

Correct Answer
verified

When there is a negative externality, the private cost of production ________ the social cost of production.

Correct Answer
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Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What is the deadweight loss resulting from producing at the market equilibrium?

Correct Answer
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What does a positive externality cause?

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Exam 15: Externalities, Environmental Policy and Public Goods

If the social cost of producing a good or service exceeds the private cost,

Correct AnswerverifiedShow Answer

Which of the following describes how a negative externality affects a competitive market?

Correct AnswerverifiedA

Figure 15.2 Figure 15.2 shows a market with a negative externality. -Refer to Figure 15.2.What price represents the true marginal cost of the last unit produced?

Correct AnswerverifiedShow Answer

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good.All of the following will result from the tax except

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Why will for-profit producers not produce public goods?

Correct AnswerverifiedC

Which of the following is an example of a command and control approach to reducing pollution?

Correct AnswerverifiedShow Answer

Medical research that ends in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

Correct AnswerverifiedShow Answer

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalise the externality.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An externality is an example of a market failure.

Correct AnswerverifiedShow Answer

Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What does D1 represent?

Correct AnswerverifiedC

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

Correct AnswerverifiedShow Answer

What does the phrase 'internalising an external cost' mean?

Correct AnswerverifiedShow Answer

One difference between the demand for a private good and that for a public good is that

Correct AnswerverifiedShow Answer

A market failure arises when an entire sector of the economy (for example, the airline industry)collapses because of some unforeseen event.

Correct AnswerverifiedShow Answer

When there is a negative externality, the private cost of production ________ the social cost of production.

Correct AnswerverifiedShow Answer

Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What is the deadweight loss resulting from producing at the market equilibrium?

Correct AnswerverifiedShow Answer

What does a positive externality cause?

Correct AnswerverifiedShow Answer

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A

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C

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Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What does D₁ represent?

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C

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