Chapter 18

(7) Refer to the figure at right. The competitive level of output in the industry is A. Q1 B. Q2 C. Q3 D. any level as long as price is P0.

A

The government provides public education because A. public education provides positive externalities. B. public education is a public good. C. public education combats the negative externalities of private education. D. public education is nonrival and nonexclusive. E. private education is rival and exclusive.

A

Under a transferable emissions permit​ system, A. the firms with the lowest marginal abatement cost curves will reduce emissions most. B. the firms with the highest marginal abatement cost curves will reduce emissions most. C. all firms will reduce emissions equally. D. the firms with the lowest marginal social cost curves will reduce emissions most. E. the firms with the highest marginal social cost curves will reduce emissions most.

A

Which of the following is a negative externality connected to automobile​ transportation? A. In an​ accident, a person who chooses not to wear a seat belt becomes an object moving around the inside of the​ car, possibly hitting other​ belted-in passengers with lethal force. B. Driving faster than the 65 mph speed limit is not​ allowed, even though individuals are able to do​ it, and many want to. C. Gasoline is​ imported, and thus increases the trade deficit. D. Gasoline is taxed on a​ per-gallon basis. E. While stuck in​ traffic, you have a chance to listen to your favorite​ CD, which you​ haven't had the time to do in other places.

A

(20) Refer to the figure at right. Which of the following areas represents the total abatement​ cost? A. The rectangle B. The triangle C. Both the rectangle and the triangle D. Neither the rectangle nor the triangle

B

(8) Refer to the figure at right. The efficient level of output is A. q1. B. q2. C. q3. D. a mix of q1 and q3.

B

A consumer or producer who does not pay for use of a nonexclusive good but expects others to pay is known as a A. price setter. B. free rider. C. fringe element. D. none of the above.

B

Public television is funded in part by private​ donations, even though anyone with a television set can watch for free. Can you explain this phenomenon in light of the free rider​ problem? A. When a good is​ nonrival, consumers do not have an incentive to reveal their true willingness to pay. Many will donate much more than their true​ value, knowing that others will not pay.​ Thus, it can be argued that public television is overfunded. B. When a good is​ nonexcludable, consumers do not have an incentive to reveal their true willingness to pay. Many will not​ pay, expecting that others will.​ Thus, it can be argued that public television is underfunded. C. When a good is​ nonexcludable, consumers do not have an incentive to reveal their true willingness to pay. Many will donate much more than their true​ value, knowing that others will not pay.​ Thus, it can be argued that public television is overfunded. D. When a good is​ nonrival, consumers do not have an incentive to reveal their true willingness to pay. Many will not​ pay, expecting that others will.​ Thus, it can be argued that public television is underfunded.

B

Externalities A. do become reflected in market​ prices, so they do not adversely affect economic efficiency. B. may or may not become reflected in market​ prices, but do not have an impact on economic efficiency in either event. C. are not reflected in market​ prices, so they can be a source of economic inefficiency. D. do become reflected in market​ prices, so they can be a source of economic inefficiency. E. are not reflected in market​ prices, so they do not adversely affect economic efficiency.

C

Externalities arise solely because individuals are unaware of the consequences of their actions. Do you agree or​ disagree? Explain. A. Agree. If people and firms were aware of the consequences of their​ actions, then they would consider those consequences when making decisions.​ Unfortunately, most decisions involve a complex set of variables whose relationships are not always clearly understood. B. Agree. Since externalities affect all​ parties, it is in​ everyone's best interest to eliminate them.​ Thus, if people were aware that their actions would result in an​ externality, they would make decisions that would eliminate them. C. Disagree. It is not that people and firms are unaware​ but, rather, that they are not forced to consider and account for all of the consequences of their actions. D. Disagree. Externalities arise as a natural consequence of market activity and do not depend on people being aware of the consequences of their actions or not. For​ example, the increase in the price of a good increases the demand for a related good.

C

A lighthouse is a public good A. because it​ doesn't cost any more to light the way for 105 ships than it does to light the way for 104​ ships, but for no other reason. B. because there is no way to prevent those who​ haven't contributed to the lighthouse from seeing better because of​ it, but for no other reason. C. because the government produces​ it, and for no other reason. D. for the reasons in A and B together. E. for the reasons in​ A, B, and C together.

D

Corn flakes are A. a public good. B. a nonrival good because there are only a few firms in the industry. C. a rival good because many firms produce them. D. a rival good because if another person wants some corn flakes society has to use additional resources to produce corn flakes for that person. E. a nonrival good because even if another person wants some corn flakes so many corn flakes are produced that no additional resources are used to satisfy this new​ customer's needs.

D

If error in setting the policy is​ possible, A. a standard generates smaller welfare losses than a fee when the MSC and MCA are both relatively flat. B. a standard generates smaller welfare losses than a fee when the MSC is relatively flat and the MCA is relatively steep. C. a standard generates smaller welfare losses than a fee when the MSC and MCA are both relatively steep. D. a standard generates smaller welfare losses than a fee when the MSC is relatively steep and the MCA is relatively flat. E. errors in standards and fees have equal welfare​ losses, so long as the errors are the same in percentage terms.

D

The provision of an education in public school is A. a public​ good, regardless of exclusivity and rivalness. B. exclusive and nonrival. C. nonexclusive and nonrival. D. exclusive and rival. E. nonexclusive and rival.

D

Constructing plastic containers produces air pollutants.​ Therefore, in the market for plastic​ containers, A. there is a gap between quantity supplied and quantity demanded in equilibrium. B. the marginal social cost curve is below and to the right of the supply curve. C. the marginal social cost curve is below and to the left of the demand curve. D. the marginal social cost curve is above and to the right of the demand curve. E. the marginal social cost curve is above and to the left of the supply curve.

E

Dry cleaning of clothing produces air pollutants.​ Therefore, in the market for dry cleaning​ services, the equilibrium price A. is too high to be​ optimal, and equilibrium quantity is too low. B. is​ optimal, but there is an excess supply. C. and output are too high to be optimal. D. and output are too low to be optimal. E. is too low to be​ optimal, and equilibrium quantity is too high.

E

If X transferable emissions permits are issued and there are n potential​ polluters, A. emissions will be the same whether or not the permits are split​ equally, so long as none of the permits are issued outside the group. B. the government must assign​ X/n permits to each potential polluter and check periodically that those permits have not moved. C. the government must initially assign each of the potential polluters​ X/n permits. D. emissions will be less if the permits are given initially to firms with lower abatement costs. E. emissions will be the same no matter who receives them​ first, so long as the recipient is willing and able to participate in the permit market.

E

Classify each of the following as a rival or nonrival good and as an exclusive or nonexclusive good. a. A pizza. b. Cable television c. Fishing grounds c. A lighthouse

a. rival, excludable b. nonrival, excludable c. rival, nonexcludable d. nonrival, nonexcludable

(6) Refer to the figure at right. Which of the following statements is​ correct? A. The marginal external cost ​(MEC​) is the difference between marginal social cost ​(MSC​) and marginal cost ​(MC​). B. The marginal external cost ​(MEC​) is the sum of marginal social cost ​(MSC​) and marginal cost ​(MC​). C. When MEC is subtracted from MC​, we obtain MSC. D. When adding MSC and MC​, we obtain MEC.

B

Because of the kind of externalities that tend to be generated from general​ R&D resources bought by​ firms, the equilibrium price of​ R&D A. must fall in order for the market to reach equilibrium. B. and quantity of​ R&D are both below the optimal level. C. is below the optimal​ level, and quantity is above the optimal level. D. and quantity of​ R&D are both above the optimal level. E. is above the optimal​ level, and quantity is below the optimal level.

B

When emissions are measured on the horizontal​ axis, the marginal cost of abating emissions is A. horizontal because the technology to remove emissions is assumed constant. B. downward sloping because a high level of emissions is cheap to attain and a low level of emissions is expensive to attain. C. downward sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. D. upward sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. E. upward sloping because a high level of emissions is cheap to attain and a low level of emissions is expensive to attain.

B

Which of the following is NOT a negative externality for​ Natasha? A. Automobile exhaust from other​ people's cars makes it harder for Natasha to breathe. B. The hurricane that washes away​ Natasha's beach house. C. The new tall building that blocks the view from​ Natasha's mountain house. D. The late night noise made by people in the apartment right above​ Natasha's apartment that keeps her awake.

B

(15) Refer to the figure at right. In which of the following instances does the reduction in the level of emissions outweigh the harm done from​ emissions? A. When the level of emissions is 6 units B. When the level of emissions is 18 units C. When the level of emissions is 12 units D. In all of the cases above

C

(16) Refer to the figure at right. In which of the following instances is the cost of reducing emissions less than the harm done from​ emissions? A. When the level of emissions is 6 units B. When the level of emissions is 12 units C. When the level of emissions is 18 units D. In all of the cases above

C

The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because A. people will buy fewer clothes that need dry cleaning than they otherwise would have. B. people will develop substitutes for dry cleaning that are wasteful. C. firms whose average private cost is less than price will stay in​ (or enter) the dry cleaning industry even though their average social cost exceeds price. D. firms will be induced to leave the industry because of artificially high costs. E. firms whose average private cost exceeds the price will exit​ (or fail to​ enter) the dry cleaning industry even though their average social cost is less than price.

C

To enforce the optimum level of​ emissions, a government could set an emissions standard at the quantity A. located at the vertical intercept of the MCA curve. B. located at the horizontal intercept of the MSB curve. C. where the MSB curve crosses the MCA curve. D. located at the horizontal intercept of the MCA curve. E. located at the vertical intercept of the MSB curve.

C

What type of good is clean​ air? A. Rival and nonexclusive B. Nonrival and exclusive C. Nonrival and nonexclusive D. Rival and exclusive

C

Which of the following describes an externality and which does​ not? Explain the difference. a. A policy of restricted coffee exports in Brazil causes the U.S. price of coffee to rise—an increase which in turn also causes the price of tea to rise. b. An advertising blimp distracts a motorist who then hits a telephone pole. A. Choice​ (a) describes an externality. The restriction on coffee exports has an external​ effect; it causes an increase in the price of tea. The blimp distracting the motorist is a nonmarket issue and therefore​ doesn't count as an economic externality. B. Neither choice describes an externality. Choice​ (a) describes market effects and choice​ (b) describes nonmarket​ effects, neither of which creates an externality. C. Choice​ (b) describes an externality. The advertising blimp imposes a cost on the motorist that is not accounted for in the market price of advertising. The restriction on coffee exports has market​ effects, which are not externalities. D. Both choices describe an externality because both describe actions that affect a third party not directly involved in the initial transaction.

C

Which of the following is a negative externality connected to attending​ college? A. The fact that completion of a college degree acts as a signaling mechanism to employers B. The fact that you will get benefits from college that you​ don't currently anticipate C. The fact that the people in the next room play loud music at hours you want to sleep D. The fact that other​ costs, such as books and​ materials, are incurred in addition to tuition and fees E. The fact that your college has required that all individuals living in student housing either get or show they have already obtained vaccinations against all communicable diseases

C

Loud music from a​ neighbor's party is A. a negative externality if you like the​ music, and a positive externality if you​ don't. B. a positive externality whether or not you like it. C. not an externality. D. a positive externality if you like the​ music, and a negative externality if you​ don't. E. a negative externality whether or not you like it.

D

To enforce the optimum level of​ emissions, a government could set an emissions​ fee, which would be A. the dollar value indicated by the intersection of the MSB and MCA​ curves, and would apply to every unit of pollutants the firm emitted above the standard. B. the vertical distance between the intercepts of the MSB curve and the MCA curve. C. the vertical intercept of the MSB curve. D. the dollar value indicated by the intersection of the MSB and MCA​ curves, and would apply to every unit of pollutants the firm emitted. E. the vertical intercept of the MCA curve.

D

Which of the following is a public​ good? A. The Red Cross B. Telephone service C. A daily newspaper D. Broadcast TV E. All of the above

D

Access to the movie​ "Casablanca," showing in a​ half-empty theater, is A. a public good only if the theater is run by the government. B. not a public good because it is a rival good. C. not a public good because it is both a rival good and an exclusive good. D. a public good because individuals watch movies together. E. not a public good because it is an exclusive good.

E