Econ 103_Chapters 10, 11, 14,

Suppose an industry emits a negative externality such as pollution, and the possible methods to internalize the externality are command-and-control polices, corrective taxes, and tradable pollution permits. If economists were to rank these methods for internalizing a negative externality based on efficiency, ease of implementation, and the incentive for the industry to further reduce pollution in the future, they would rank them in the following order (from most favored to the least favored) A) Correct taxes command-and-control policies, tradable pollutions permit B) Command-and-control policies, tradable pollution permits, corrective taxes C) Tradable pollution permits, corrective taxes, command-and control policies D) They would all rank equally high because the same result can be obtained from any one of the policies

C) Tradable pollution permits, corrective taxes, command-and control policies

If an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing firms in the market, then the long-run market supply curve for a good could be A) Perfectly elastic B) Downward sloping C) Upward sloping D) Perfectly inelastic

C) Upward sloping

A grocery store should close at night if the A) Total costs of staying open are greater than the total revenue due to staying open B) Total cost of staying open are less than the total revenue due to staying open C) Variable costs of staying open are greater than the total revenue due to staying open D) Variable costs of staying open are less than the total revenue due to staying open

C) Variable costs of staying open are greater than the total revenue due to staying open

In the short run, the competitive firm's supply curve is the A) Entire marginal-cost curve B) Portion of the marginal cost curve that lies above the average-total-cost curve C)Portion of the marginal cost curve that lies above the average-variable curve D) Upward-sloping portion of the average-total-cost curve E) Upward-sloping portion of the average-variable-cost curve

C)Portion of the marginal cost curve that lies above the average-variable curve

When an individual buys a car in a congested urban area, it generates A) An efficient market outcome B) A technology spillover C) A positive externality D) A negative externality

D) A negative externality

Which of the following are potential solutions to the problem of air pollution? A) Auction off pollution permits B) Grant rights of the clean air to citizens so that firms must purchase the right to pollute C) Regulate the amount of pollutants that firms can put in the air D) All of the above

D) All of the above

In long-run equilibrium in a competitive market, firms are operating at A) The minimum of their average-total-cost-curves B) The intersection of marginal cost and marginal revenue C) Zero economic profit D) All the above

D) All the above

The gas-guzzler tax that is placed on new vehicles that get poor mileage is an example of A) A tradable pollution permit B) An application of the Coarse theorem C) An attempt to internalize a positive externality D) An attempt to internalize a negative externality

D) An attempt to internalize a negative externality

In the long run, some firms will exit the market if the price of the good offered for sale is less than A) Marginal revenue B) Margin cost C) Average revenue D) Average total cost

D) Average total cost

Which of the following is true regarding tradable pollution permits and corrective taxes? A) Corrective taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits B) Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can reduce pollution at the lowest cost C) To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights D) Corrective taxes and tradable pollution permits create an efficient market for pollution E) All the above are true

D) Corrective taxes and tradable pollution permits create an efficient market for pollution

If a person can be prevented from using a good, the good is said to be A) A common good B) A public good C) Rival in consumption D) Excludable

D) Excludable

Which of the following is not a characteristic of a competitive market? A) There are many buyers and sellers in the market B) The goods offered for sale are largely the same C) Firms can freely enter or exit the market D) Firms generate small but positive economic profit in the long run E) All the above

D) Firms generate small but positive economic profit in the long run

Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peach and quiet at a value of $150. Which of the following statements is true? A) It is efficient for Bob to continue to play loud music B) It is efficient for Bob to stop playing loud music only if Tom has the property right to peace and quiet C) It it efficient for Bob to stop playing loud music only if Bob has the property right to play loud music. D) It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound

D) It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound

Which of the following is an example of public good? A) Whales in the ocean B) Apples on a tree in a public park C) Hot dogs at a picnic D) National Defense

D) National defense

A club good is: A) Both rival in consumption and excludable B) Neither rival in consumption nor excludable C) Rival in consumption but not excludable D) Not rival in consumption but excludable

D) Not rival in consumption but excludable

To internalize a negative externality, an appropriate public response would be to A) Ban the production of all goods creating negative externalities B) Have the government take over the production of the good causing the externality C) Subsidize the good D) Tax the good

D) Tax the good

Public goods are difficult for a private market to provide due to A) The public goods problem B) The rivalness problem C) The Tragedy of the Commons D) The free-rider problems

D) The free-rider problems

Suppose that requiring motorcycle riders to wear helmets reduces the probability of a motorcycle fatality from 0.3% to 0.2% over the life time of a motorcycle rider and that the cost of a lifetime supply of helmets is $500. It is efficient for the government to require riders to wear helmets if human life is valued at A) $100 or more B) $150 or more C) $500 or more D) $50,000 or more E) $500,000 or more

E) $500,000 or more

T/F: A common resource is neither rival in consumption nor excludable

False

T/F: A competitive firm's long0run supply curve is the portion of tis marginal-cost curve that lies above its average-variable-cost curve

False

T/F: A competitive firm's short-run supply curve is the portion of its marginal-cost curve that lies above its average-total-cost-curve

False

T/F: A market that generates a negative externality that has not been internalized generates an equilibrium quantity that is less than the optimal qunatity

False

T/F: A positive externality is an external benefit that accrues to the buyers in a market while a negative externality is an external cost that accrues to the sellers in a market.

False

T/F: A public good is both rival in consumption and excludable

False

T/F: According to the Coast theorem, an externality always requires government intervention in order to internalize the externality

False

T/F: Club goods are free to the consumer of the good

False

T/F: If Bob values smoking in a restaurant at $10 and Sue values clean air while she eats at $15, according to the Coast theorem, Bob will not smoke in the restaurant only if Sue owns the right to clean air

False

T/F: If marginal cost exceeds marginal revenue at a firm's current level of output, the firm can increase profit if it increases its level of output

False

T/F: If the city government sells apples at a roadside stand, the apples are public goods because they are provided by the governments

False

T/F: In the long run, perfectly competitive firms earn small but positive economic profits

False

T/F: In the short run, if the price of a firm receives for a good is above its average variable costs but below its average total costs of production, the firm will temporarily shut down

False

T/F: National defense is a classic example of a common resource

False

T/F: The government should continue to spend to improve the safety of our highways until there are no deaths from auto accidents

False

T/F: The majority of economists do not like the idea of putting a price on pollution the environment

False

T/F: The only requirement for a market to be perfectly competitive is for the market to have many buyers and sellers

False

T/F: The short-run market supply curve is more elastic than the long-run market supply curve

False

T/F: The socially optimal price for a fishing license is zero

False

T/F: To reduce pollution by some targeted amount, it is most efficient if each firm that pollutes reduces it pollution by an equal amount

False

T/F: When the government uses cost-benefit analysis to decide whether to provide a public good, the potential benefit of the public good can easily be established by surveying consumers of the public good

False

T/F: A corrective tax sets the price of pollution while tradable pollution permits set the quantity of pollution

True

T/F: A fireworks display at a private amusement park is a good provided by a natural monopoly

True

T/F: A firm maximizes profit when it produces output up to the point where marginal cost equals marginal evenue

True

T/F: A tax always makes a market less efficient

True

T/F: An advance of using tradable pollution permits to reduce pollution is that the regulator need not know anything about he demand for pollution rights

True

T/F: An apple sold in a grocery store is a private good

True

T/F: Common resources are overused because common resources are free to the consumer

True

T/F: Common resources are related to negatives externalities because consumers of common resources ignore the negative impact of their consumption on the other consumer of the common resource

True

T/F: For a competitive firm, marginal revenue equals the price of the good it sells

True

T/F: For any given demand curve for pollution, a regulator can achieve the same level of pollution with either a corrective tax or by allocating tradable pollution permits

True

T/F: If a competitive firm sells three times the amount of output; its total revenue also increase by a factor of three

True

T/F: If a market generates a negative externality, a corrective tax will move the market toward a more efficient outcome

True

T/F: If a market generates a negative externality, the social cost curve is above the supply curve (private cost curve)

True

T/F: If a market generates a positive externality, the social value curve is above the demand curve (private value curve)

True

T/F: If someone owned the property rights to clean air, that person could charge for the use of the clean air in a market for clean air, and thus, air pollution could be reduced to the optimal level

True

T/F: If the price of a good rises above the minimum average total cost of production, positive economic profits will cause new firms to enter the market, which drives the price back down to the minimum average total cost of production

True

T/F: If transaction costs exceed the potential gains from an agreement between affected parties to an externality, there will be no private solution to the externality

True

T/F: In a competitive market, both buyers and sellers are price takers

True

T/F: In the long run, if firms are identical and there is free entry and the exit in the market, all firms in the market operate at their efficient scale

True

T/F: In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market

True

T/F: In the short run, the market supply curve for a good is the sum of the quantities supplied by each firm at each price

True

T/F: Private markets have difficulty providing public goods due to the free-rider problem

True

T/F: Public good are related to positive externalities because the potential buyers of public goods ignore the external benefits those goods provide to other consumers when they make their decision about whether to purchase public goods

True

T/F: When Smokey the Bear says, "Only you can prevent forest fires," society is attempting to use moral codes and social sanctions to internalize the externality associated with using fire while camping

True

Questions 7 through 11 refer to exhibit...

...

Which of the following is an example of a common resource? A) A national park B) A fireworks display C) National defense D) Iron ore

A) A national park

A congested toll road is: A) A private good B) A public good C) A common resource D) A club good

A) A private good

A negative externality generates: A) A social cost curve that is above the supply curve (private cost curve) B) A social curve that is below the supply curve (private cost curve) for a good C) A social value that is above the demand curve (private value curve for a good) D) None of the above

A) A social cost curve that is above the supply curve (private cost curve)

When wealthy alumni provide charitable contributions to their alma mater to reduce the tuition payments of current students, it is an example of A) An attempt to internalize a positive externality B) An attempt to internalize a negative externality C) A corrective tax D) A command-and-control policy

A) An attempt to internalize a positive externality

A private good is: A) Both rival in consumption and excludable B) Neither rival in consumption nor excludable C) Rival in consumption but not excludable D) Not rival in consumption but excludable

A) Both rival in consumption and excludable

Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality? A) Costs incurred to reduce the pollution B) Costs incurred due to lawyers fees C) Costs incurred to enforce the agreement D) Costs incurred due to a large number of parties affected by the externality E) All of the above are considered transaction costs

A) Costs incurred to reduce the pollution

For a competitive firm, marginal revenue is A) Equal to the price of the good sold B) Average revenue divided by the quantity sold C) Total revenue divided by the price D) Equal to the quantity of the good sold

A) Equal to the price of the good sold

Which of the following markets would most closely satisfy the requirements for a competitive market A) Gold bullion B) Electricity C) Cable TV D) Soda E) All of the above represent competitive market

A) Gold bullion

The long-run market supply curve A) Is always more elastic than the short-run market supply curve B) Is always less elastic than the short-run market supply curve C) Has the similar elasticity as the short-run market supply curve D) Is always perfectly elastic

A) Is always more elastic than the short-run market supply curve

A positive externality (that has not been internalized) causes the A) Optimal quantity to exceed the equilibrium quantity B) Equilibrium quantity to exceed the optimal quantity C) Equilibrium quantity to equal the optimal quantity D) Equilibrium quantity to be either above or below the optimal quantity

A) Optimal quantity to exceed the equilibrium quantity

If all firms in a market have identical cost structures and if inputs used in the production of the good in that market are readily available, then the long-run market supply curve for that good should be A) Perfectly elastic B) Downward sloping C) Upward sloping D) Perfectly inelastic

A) Perfectly elastic

A free rider is a person who A) Receives the benefits of a good but avoids paying for it B) Produces a good but fails to received payments for the good C) Pays for a good but fails to receive any benefit from the good D) Fails to produce goods but is allowed to consume good

A) Receives the benefits of a good but avoids paying for it

A corrective tax on pollution A) Sets the price of pollution B) Sets the quantity of pollution C) Determines the demand for pollution rights D) Reduces the incentive for technological innovations for further reduce pollution

A) Sets the price of pollution

A positive externality generates A) A social cost curve that is above the supply curve (private cost curve) for a good B) A social value curve that is above the demand curve (private value curve) for a good C) A social value curve that is below the demand curve (private value curve) for a good D) None of the above

B) A social value curve that is above the demand curve (private value curve) for a good

If a competitive firm doubles its output, its total revenue A) More than doubles B) Doubles C) Less than doubles D) Cannot be determined because the price of the good may rise or fall

B) Doubles

A negative externality (that has not been internalized) causes the: A) Optimal quantity to exceed the equilibrium quantity B) Equilibrium quantity to exceed the optimal quantity C) Equilibrium quantity to equal the optimal quantity D) Equilibrium quantity to be either above or below the optimal quantity

B) Equilibrium quantity to exceed the optimal quantity

A public good is: A) Both rival in consumption and excludable B) Neither rival in consumption nor excludable C) Rival in consumption but not excludable D) Not rival in consumption but excludable

B) Neither rival in consumption nor excludable

In the long run, the competitive firm's supply curve is the A) Entire marginal-cost curve B) Portion of the marginal cost curve that lies above the average-total-cost curve C)Portion of the marginal cost curve that lies above the average-variable curve D) Upward-sloping portion of the average-total-cost curve E) Upward-sloping portion of the average-variable-cost curve

B) Portion of the marginal cost curve that lies above the average-total-cost curve

A positive externality affects market efficiency in a manner similar to a: A) Private good B) Public good C) Common resource D) Rival good

B) Public good

When government employ cost-benefit analysis to help them decide whether to provide a public good, measuring benefits its difficult because A) One can never place a value on human life or the environment B) Respondents to questionnaires have little incentive to tell the truth C) There are no benefits to the public because a public good is not excludable D) The benefits are infinite because a public good is not rival in consumption and an infinite amount of people can consume it at the same time

B) Respondents to questionnaires have little incentive to tell the truth

Tradable pollution permits A) Set the price of pollution B) Set the quantity of pollution C) Determine the demand for pollution rights D) Reduce the incentive for technological innovations to further reduce pollution

B) Set the quantity of pollution

The most efficient pollution control system would ensure that A) Each polluter reduce its pollution an equal amount B) The polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount C) No pollution of the environment is tolerated D) The regulation decide how much each polluter should reduce its pollution

B) The polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount

The government engages in an industrial policy A) To internalize the negative externality associated with industrial pollution B) To internalize the positive externality associated with technology-enhancing industries C) To help stimulate private solutions to the technology externality D) By allocating tradable technology permits to high technology indsutry

B) To internalize the positive externality associated with technology-enhancing industries

Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at value of $150. Which of the following statements is true about an efficient solution to this externality problem if Bob has the right to play loud music and if there are no transaction costs? A) Bob will play Tom $100 and Bob will stop playing loud music B) Tom will pay Bob between $100 and $150 and Bob will stop playing loud music C) Bob will pay Tom $150 and Bob will continue to play loud music D) Tom will pay Bob between $100 and $150 and Bob will continue to play loud music

B) Tom will pay Bob between $100 and $150 and Bob will stop playing loud music

A negative externality affects market efficiency in a manner similar to A) A private good B) A public good C) A common resource D) An excludable good

C) A common resource

A person who regularly watches public television but fails to contribute to public televisions fund-raising drives is known as A) A common resource B) A costly rider C) A free rider D) An unwelcome rider E) Excess baggage

C) A free rider

If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in turn, cause A) An increase in the price of the good an an increase in the numbers in the market B) An increase in the price of the good but no increase in the number of firms in the market C) An increase in the number of firms in the market but not increase in the price of the good D) No impact on either the price of the good or the number of firms in the market

C) An increase in the number of firms in the market but not increase in the price of the good

The tragedy of the Commons is a parable that illustrates why A) Public goods are underproduced B) Private goods are underproduced C) Common resources are overconsumed D) Club goods are overconsumed

C) Common resources are overconsumed

Suppose each of 20 neighbors on a street values street repairs at $3,000. The cost of the street repair is $40,000. Which of the following statements is true? A) It is not efficient to have street repaired B) It is efficient for each neighbor to pay $3,000 to repair the section of street in front of his home C) It is efficient for the government to tax the residents $2,000 each and repair the road D) None of the above is true

C) It is efficient for the government to tax the residents $2,000 each and repair the road

The competitive firm maximizes profit when it produces output up to the point where A) Marginal costs equal total revenue B) Marginal revenue equals average revenue C) Marginal cost equals marginal revenue D) Price equals average variable cost

C) Marginal costs equals marginal revenue

If one person's consumption of a good diminishes other people's use of good, the good is said to be: A) A common resource B) A club good C) Rival in consumption D) Excludable

C) Rival in consumption

A common resource is: A) Both rival in consumption and excludable B) Neither rival in consumption nor excludable C) Rival in consumption but not excludable D) Not rival in consumption but excludable

C) Rival in consumption but not excludable

To internalize a positive externality, an appropriate public policy response would be to A) Ban the good creating the externality B) Have the government produce the good until the value of an additional units is zero C) Subsidize the good D) Tax the good

C) Subsidize the good

When markets fail to allocate resources efficiently, the ultimate source of the problem is usually A) That prices are not high enough so people overconsume B) That prices are not low enough so firms overproduce C) That property rights have not been well established D) Government regulations

C) That property rights have not been well established

An externality is: A) the benefit that accrues to the buyer in a market B) The cost that accrues to the seller in a market C) The uncompensated impact of one person's action on the well-being of a bystander D) The compensation paid to a firm's external consultants E) None of the above

C) The uncompensated impact of one person's action on the well-being of a bystander

According to the Coarse theorem, private parties can solve the problem externalities if A) Each affected party has equal power in the negotiation B) The party affected by the externality has the initial property right to be left alone C) There are no transaction costs D) The government requires them to negotiate with each other E) There are a large number of affected parties

C) There are no transaction costs