Question 1

-In the above figure, the efficient quantity is

Accepted Answer

A)   0 units.
B)   70 units.
C)   80 units.
D)   100 units.E) B) and C)
F) A) and B)

Question 2

Food stamps provided by the U.S. Department of Agriculture are an example of

Accepted Answer

A)   a positive externality.
B)   a private subsidy.
C)   vouchers.
D)   an external benefit.E) B) and C)
F) C) and D)

Question 3

-Based on the data in the above table, the product exhibits

Accepted Answer

A)   external benefits.
B)   external costs.
C)   no externalities.
D)   increasing returns.E) A) and B)
F) A) and C)

Question 4

In 2008, a man was charged with one count of illegally stocking wild animals, a civil offense. State investigators had accused him of bringing 31 wild hogs from Texas to Wisconsin to hunt on his private land, spawning a feral hog population that has caused thousands of dollars in crop damage to hundreds of farms in the region. Can the Coase theorem apply in this example? Why or why not?

Accepted Answer

A)   No; because a large number of parties are involved
B)   Yes
C)   No; because transaction costs are low
D)   No; because all property rights are clearly definedE) A) and B)
F) A) and C)

Question 5

A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the fishing club is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced

Accepted Answer

A)   will decrease.
B)   will stay the same.
C)   will increase.
D)   changes, but the direction of the change is ambiguous.E) A) and B)
F) B) and C)

Question 6

Why does the existence of an external benefit lead to the production of less than the efficient quantity?

Accepted Answer

Buyers ignore the presence of an externa...

Question 7

Most governments subsidize basic education because

Accepted Answer

A)   there are external costs associated with well educated citizens.
B)   the marginal social benefit of education is greater than the marginal private benefit.
C)   of the existence of private schools.
D)   people do not value education enough.E) A) and B)
F) B) and C)

Question 8

The marginal social benefit is the sum of the benefit enjoyed by the consumer of an additional unit of a good or service plus the marginal benefit enjoyed by others.

Accepted Answer

A) True 
 B)False

Question 9

When people make decisions about the quantity of education to undertake, they balance the marginal social benefit against the marginal private cost.

Accepted Answer

A) True 
 B)False

Question 10

Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer's pasture do not suffer from the tragedy of the commons?

Accepted Answer

Fish in the ocean are a common resource ...

Question 11

-In the above figure, the efficient level of chemicals produced per week is

Accepted Answer

A)   0 tons.
B)   4 tons.
C)   between 5 and 7 tons.
D)   8 tons.E) A) and B)
F) B) and D)

Question 12

-In the figure above, if the market is unregulated, then at the equilibrium output level, the marginal social cost of production

Accepted Answer

A)   is less than the marginal benefit to consumers.
B)   exceeds the marginal benefit to consumers.
C)   equals the marginal benefit to consumers.
D)   equals the marginal private cost of production.E) A) and B)
F) A) and C)

Question 13

If the government creates a system of pollution permits, firms with low marginal costs of reducing pollution will

Accepted Answer

A)   buy permits from other firms.
B)   sell permits to other firms.
C)   hold on to the permits they have been issued and not attempt to buy more.
D)   not be issued permits.E) All of the above
F) C) and D)

Question 14

In the case of an external benefit generated by an activity, such as education, a private subsidy for that activity can achieve an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 15

Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution. If it costs $5,000 for firm A to eliminate 100 tons of pollution and it costs firm B $6,000 to eliminate 100 tons of pollution, then

Accepted Answer

A)   firm B will sell its permits to firm A for a price above $6,000.
B)   firm A will sell its permits to firm B for a price below $6,000.
C)   firm A will sell its permits to firm B for a price above $6,000.
D)   firm B will sell its permits to firm A for a price below $6,000.E) None of the above
F) All of the above

Question 16

-In the above figure, the competitive unregulated equilibrium is producing and consuming ________ tons of paper at a price of ________ per ton.

Accepted Answer

A)   100; $150
B)   100; $100
C)   100; $50
D)   200; $100E) A) and B)
F) None of the above

Question 17

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium output, the

Accepted Answer

A)   marginal private cost exceeds the marginal private benefit.
B)   marginal private cost is less than the marginal private benefit.
C)   marginal social cost equals the marginal private benefit.
D)   marginal social cost is greater than the marginal private benefit.E) A) and B)
F) All of the above

Question 18

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, the efficient level of output could be achieved by setting a per ton tax of

Accepted Answer

A)   zero.
B)   $30.
C)   $80.
D)   $110.E) None of the above
F) All of the above

Question 19

When a production quota is used to remedy the problem of the commons, then

Accepted Answer

A)   the production quota is set so that use of the resource is where marginal private benefit equals marginal private cost.
B)   the production quota is set so that use of the resource is where marginal social benefit equals marginal private cost.
C)   the market equilibrium, but not the efficient outcome, is achieved.
D)   all users of the resource have an incentive to cheat on the quota quantity.E) B) and C)
F) B) and D)

Question 20

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. Now suppose a Pigovian tax is successfully implemented and the efficient quantity of paper is produced. What is the total tax revenue collected by the government per week?

Accepted Answer

A)   $120
B)   $840
C)   $1,200
D)   $1,800E) A) and B)
F) A) and C)

Exam 17: Externalities

In the case of an external benefit generated by an activity, such as education, a private subsidy for that activity can achieve an efficient outcome.

Correct Answer
verified

The marginal social benefit is the sum of the benefit enjoyed by the consumer of an additional unit of a good or service plus the marginal benefit enjoyed by others.

Correct Answer
verified

-In the figure above, if the market is unregulated, then at the equilibrium output level, the marginal social cost of production

Correct Answer
verified

Correct Answer
verified

If the government creates a system of pollution permits, firms with low marginal costs of reducing pollution will

Correct Answer
verified

Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer's pasture do not suffer from the tragedy of the commons?

Correct Answer
verified
Fish in the ocean are a common resource ...
View Answer

Correct Answer
verified

Why does the existence of an external benefit lead to the production of less than the efficient quantity?

Correct Answer
verified
Buyers ignore the presence of an externa...
View Answer

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. Now suppose a Pigovian tax is successfully implemented and the efficient quantity of paper is produced. What is the total tax revenue collected by the government per week?

Correct Answer
verified

Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution. If it costs $5,000 for firm A to eliminate 100 tons of pollution and it costs firm B $6,000 to eliminate 100 tons of pollution, then

Correct Answer
verified

When people make decisions about the quantity of education to undertake, they balance the marginal social benefit against the marginal private cost.

Correct Answer
verified

Food stamps provided by the U.S. Department of Agriculture are an example of

Correct Answer
verified

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, the efficient level of output could be achieved by setting a per ton tax of

Correct Answer
verified

-Based on the data in the above table, the product exhibits

Correct Answer
verified

-In the above figure, the efficient level of chemicals produced per week is

Correct Answer
verified

When a production quota is used to remedy the problem of the commons, then

Correct Answer
verified

Most governments subsidize basic education because

Correct Answer
verified

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium output, the

Correct Answer
verified

-In the above figure, the competitive unregulated equilibrium is producing and consuming tons of paper at a price of per ton.

Correct Answer
verified

-In the above figure, the efficient quantity is

Correct Answer
verified

Exam 17: Externalities

In the case of an external benefit generated by an activity, such as education, a private subsidy for that activity can achieve an efficient outcome.

Correct AnswerverifiedShow Answer

The marginal social benefit is the sum of the benefit enjoyed by the consumer of an additional unit of a good or service plus the marginal benefit enjoyed by others.

Correct AnswerverifiedShow Answer

-In the figure above, if the market is unregulated, then at the equilibrium output level, the marginal social cost of production

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the government creates a system of pollution permits, firms with low marginal costs of reducing pollution will

Correct AnswerverifiedShow Answer

Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer's pasture do not suffer from the tragedy of the commons?

Correct AnswerverifiedFish in the ocean are a common resource ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Why does the existence of an external benefit lead to the production of less than the efficient quantity?

Correct AnswerverifiedBuyers ignore the presence of an externa...View AnswerShow Answer

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. Now suppose a Pigovian tax is successfully implemented and the efficient quantity of paper is produced. What is the total tax revenue collected by the government per week?

Correct AnswerverifiedShow Answer

Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution. If it costs $5,000 for firm A to eliminate 100 tons of pollution and it costs firm B $6,000 to eliminate 100 tons of pollution, then

Correct AnswerverifiedShow Answer

When people make decisions about the quantity of education to undertake, they balance the marginal social benefit against the marginal private cost.

Correct AnswerverifiedShow Answer

Food stamps provided by the U.S. Department of Agriculture are an example of

Correct AnswerverifiedShow Answer

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, the efficient level of output could be achieved by setting a per ton tax of

Correct AnswerverifiedShow Answer

-Based on the data in the above table, the product exhibits

Correct AnswerverifiedShow Answer

-In the above figure, the efficient level of chemicals produced per week is

Correct AnswerverifiedShow Answer

When a production quota is used to remedy the problem of the commons, then

Correct AnswerverifiedShow Answer

Most governments subsidize basic education because

Correct AnswerverifiedShow Answer

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium output, the

Correct AnswerverifiedShow Answer

-In the above figure, the competitive unregulated equilibrium is producing and consuming ________ tons of paper at a price of ________ per ton.

Correct AnswerverifiedShow Answer

-In the above figure, the efficient quantity is

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Fish in the ocean are a common resource ...
View Answer

Correct Answer
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Correct Answer
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Buyers ignore the presence of an externa...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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-In the above figure, the competitive unregulated equilibrium is producing and consuming tons of paper at a price of per ton.

Correct Answer
verified

Correct Answer
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