Ch 18

The above figure shows the market for steel ingots. If the market is competitive, then the competitive market level of output is A) 100 units. B) 150 units. C) 50 units. D) 300 units.

100 units

The above figure shows the market for steel ingots. The socially optimal quantity of steel is A) 0 units. B) 50 units. C) 100 units. D) the amount produced if the market were competitive

50 units

Negative externalities are created when A) an increase in the price of butterfat drives up the price of ice cream. B) a driver leaves his car in a parking space after the meter expires and receives a ticket. C) a driver drives recklessly on a busy highway. D) a driver pulls over to help a stranded motorist fix a flat tire.

A driver drives recklessly on a busy highway

Which of the following is not a common property? A) a city park B) a main street C) a public beach D) a movie screening

A movie screening

Your new neighbor does not mow his lawn or prune the trees in his front yard. As a result, your house value decreases. Your neighbor generated A) a negative externality. B) a positive externality. C) no externality. D) a non-rival good.

A negative externality

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, the optimal level of trash in the park can be achieved if A) Al is fined by the government. B) Al has the right to leave trash and Bert cannot do anything about it. C) Al has the right to leave trash and Bert can pay him to limit his dumping. D) Bert moves.

Al has the right to leave trash and Bert can pay him to limit his dumping

To alleviate the commons problem, the government can A) apply a tax. B) set a quota. C) assign property rights. D) All of the above.

All of the above

The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is A) a. B) b. C) c. D) zero

C

The above figure shows the market for steel ingots. The optimal quantity of pollution A) is 0 units. B) is 50 units. C) is 100 units. D) cannot be determined from the information provided.

Cannot be determined from the information provided

Students who talk loudly with each other in class A) create an externality because other students cannot follow the lecture as well. B) disturb nobody. C) benefit the other students in class because they engage in conversation. D) only create an externality if they talk about something unrelated to class.

Create an externality because other students cannot follow the lecture as well

What is one reason drunk driving is held in such disrepute? A) Drunk driving imposes high potential costs on non-drunk drivers. B) Drunk driving destroys cars and telephone poles, causing disruption in essential services. C) Only drunk drivers cause automobile fatalities. D) Drunk drivers impose high potential costs on other drunk drivers.

Drunk driving imposes high potential costs on non-drunk drivers

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, one necessary condition to alleviate the externality is that A) Al is fined by the government. B) Al has the right to leave trash and Bert cannot do anything about it. C) Bert has the right to a clean park and Al cannot leave trash. D) Either Al or Bert owns the park.

Either Al or Bert owns the park

If a production process generates pollution, then a competitive market will produce more of the good than is socially optimal because A) firms take all costs into consideration. B) firms incur all costs of production but ignore some of them. C) firms ignore the costs of production that they do not incur. D) firms set price equal to social marginal cost.

Firms ignore the costs of production that they do not incur

The above figure shows the market for steel ingots. If the market is competitive, then to achieve the socially optimal level of pollution, the government can A) outlaw the production of steel. B) institute a specific tax of $25. C) institute a specific tax of $50. D) institute a specific tax equal to area b.

Institute a specific tax of $50

The above figure shows the market for steel ingots. If the market is competitive, then to achieve the socially optimal level of pollution, the government can A) institute a standard and allow firm to produce at most 50 ingots per period. B) institute a standard and allow firm to produce at most 25 ingots per period. C) institute a standard and allow firm to produce at most 100 ingots per period. D) institute a standard and allow firm to produce at most 10 ingots per period.

Institute a standard and allow firm to produce at most 50 ingots per period

The above figure shows the market for steel ingots. If the market is competitive, and the government institutes a $100 specific tax on steel, then A) less than the socially optimal quantity of steel is produced. B) the socially optimal quantity of steel of 50 units is produced. C) the socially optimal quantity of steel of 100 units is produced. D) more than the socially optimal quantity of steel is produced.

Less than the socially optimal quantity of steel is produced

Suppose twenty neighbors share a park. One of the neighbors, Al, leaves trash in the park. This bothers the other neighbors. According to Coase's Theorem, assigning the property rights to the park to Al A) will achieve the socially optimal quantity of trash. B) will result in zero trash being dumped in the park. C) might still not achieve the social optimum since coordinating the other nineteen neighbors can be costly. D) is unfair.

Might still not achieve the social optimum since coordinating the other nineteen neighbors can be costly

The above figure shows the market for steel ingots. If the market is competitive, then A) the socially optimal quantity of steel is zero. B) the socially optimal quantity of steel of 50 units is produced. C) the socially optimal quantity of steel of 100 units is produced. D) more than the socially optimal quantity of 50 units of steel is produced

More than the socially optimal quantity of 50 units of steel is produced

In the case of a good that has no exclusion and no rivalry, private markets fail because A) of free-ridership. B) this is a natural monopoly. C) profit is driven down to zero. D) the quantity produced will exceed the social optimum.

Of free-ridership

In general, an externality is created when A) people are affected (other than by price) by a transaction which they were not part of. B) firms produce a product of low quality and consumers don't like it. C) firms have to pay for polluting the environment. D) the government subsidizes education.

People are affected (other than by price) by a transaction which they were not part of

A student that asks interesting questions during the lecture generates A) positive externalities. B) no externalities. C) negative externalities. D) an excludable good.

Positive externalities

If a production process generates pollution, then a competitive market will A) produce more of the good than is socially optimal. B) produce less of the good than is socially optimal. C) produce the socially optimal quantity of that good. D) produce zero output.

Produce more of the good than is socially optimal

The existence of externalities is due mainly to the fact that A) monopolies tend to produce too little of a good anyway. B) the optimal level of pollution is zero. C) pollution is not a serious problem. D) property rights are poorly defined.

Property rights are poorly defined

A commodity or service whose consumption by one person does not preclude others from also consuming it is called a A) private good. B) public good. C) Giffen Good. D) Coase Good.

Public good

The Commons Problem arises because A) firms don't maximize profits. B) social and private incentives are not aligned and property rights are missing. C) social cost equals private cost and property rights are missing. D) social benefit equals private benefit and property rights are missing.

Social and private incentives are not aligned and property rights are missing

If a production process creates pollution, a competitive market produces excessive pollution because A) private marginal cost of pollution exceeds its social marginal cost. B) social marginal cost of pollution exceeds its private marginal cost. C) the marginal benefit of pollution to the firm is zero. D) zero pollution is optimal.

Social marginal cost of pollution exceeds its private marginal cost

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, the optimal level of trash in the park can be achieved if A) someone is assigned property rights to the park. B) government limits the use of the park. C) nobody catches Al leaving the trash. D) Bert moves.

Someone is assigned property rights to the park

If a production process creates pollution, a competitive market produces excessive pollution because A) the firms do not include the social cost of the pollution in their profit-maximizing decisions. B) the firms place too high a price on society's cost of inflation. C) people are not injured by the pollution. D) zero pollution is optimal.

The firms do not include the social cost of pollution in their profit-maximizing decisions

The above figure shows the market for steel ingots. An externality can be seen because A) the social marginal cost exceeds the private marginal cost. B) the private marginal cost exceeds the social marginal cost. C) the optimal quantity of steel is zero. D) not enough steel gets produced by the competitive market.

The social marginal cost exceeds the private marginal cost

A common resource is best described as a resource where A) there is a positive externality in consumption. B) there is a negative externality in consumption. C) there is a positive externality in production. D) there is a negative externality in production.

There is a negative extrenaility in consumption

Positive externalities are created when A) other consumers reduce their demand for coffee and price thereby declines. B) farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. C) your neighbor plants beautiful trees and flowers in her yard. D) you purchase the "Mona Lisa" and lock it in a vault.

Your neighbor plants beautiful trees and flowers in her yard