ECON 2302_Chpt 10 MC Practice Test

Which of the following is an example of a positive externality? a. A college student buys a new car when she graduates. b. The mayor of a small town plants flowers in the city park. c. Local high school teachers have pizza delivered every Friday for lunch. d. An avid fisherman buys new fishing gear for his next fishing trip.

The mayor of a small town plants flowers in the city park

When the social cost curve is above a product's supply curve we know that a. government has intervened in the market. b. a negative externality exists in the market. c. a positive externality exists in the market. d. the market reached equilibrium on its own.

a negative externality exists in the market

A positive externality a. causes the product to be overproduced. b. provides an additional benefit to market participants. c. benefits consumers because it results in a lower equilibrium price. d. is a benefit to a market bystander.

is a benefit to a market bystander

Which of the following statements about internalizing a negative externality is most correct? a. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. b. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. c. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. d. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.

Refer to Figure 10-6. Which price and quantity combination represents the social optimum for this market? a. P1 and Q1. b. P2 and Q2. c. P2 and Q1. d. P3 and Q1.

P1 and Q1

If the government were to impose a fee of $10,000 for each unit of air-pollution released by a steel mill, this policy would be considered a a. subsidy. b. regulation. c. Pigovian tax. d. command-and-control policy.

Pigovian tax

An externality exists when a. the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect

When externalities are present in a market a. the established equilibrium maximizes the total benefit to society as a whole. b. market participants lose some market benefits to bystanders. c. both equity and efficiency are maximized. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect

The term market failure refers to a. a situation in which the market, on its own, fails to allocate resources efficiently. b. an unsuccessful advertising campaign which reduces demand. c. a situation in which competition among firms becomes ruthless. d. a firm which is forced out of business because of losses.

a situation in which the market, on its own, fails to allocate resources efficiently

Two types of private solutions to the problem of externalities are a. charities and the Golden Rule. b. charities and subsidies. c. the Golden Rule and taxes. d. taxes and subsidies.

charities and the Golden Rule

The supply curve for a product reflects the a. value of the product to suppliers. b. quantity buyers will ultimately purchase of the product. c. cost to sellers of producing the product. d. seller's profit of producing the product.

cost to sellers of producing the product

If a paper manufacturer does NOT bear the entire cost of the dioxin it emits it will a. emit lower levels of dioxin than is socially efficient. b. emit higher levels of dioxin than is socially efficient. c. emit an acceptable level of dioxin. d. not emit any dioxin in an attempt to avoid paying the entire cost.

emit higher levels of dioxin than is socially efficient

Refer to Figure 10-6. To internalize the externality in this market the government should a. impose a tax on this product. b. provide a subsidy for this product. c. encourage firms to supply more of this product by offering tax incentives. d. produce the product itself.

impose a tax on this product

A negative externality a. is an adverse impact on a bystander. b. causes the product in a market to be under-produced. c. is an adverse impact on market participants. d. is present in markets in which the good or service is undesirable for society.

is an adverse impact on a bystander

Pigovian taxes are typically advocated to correct for the effects of a. positive externalities. b. negative externalities. c. regulatory burden. d. All of the above are correct.

negative externalities

When externalities exist, buyers and sellers a. neglect the external effects of their actions but the market equilibrium is still efficient. b. do not neglect the external effects of their actions and the market equilibrium is efficient. c. neglect the external effects of their actions and the market equilibrium is not efficient. d. do not neglect the external effects of their actions and the market equilibrium is not efficient.

neglect the external effects of their actions and the market equilibrium is not efficient

Assume that your roommate, Vanessa, is very messy, and according to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to a. stop her messy habits or else move out. b. pay you at least $100 but less than $200 to live with the clutter. c. continue to be messy and force you to make other living arrangements elsewhere. d. demand payment of at least $100 but no more than $200 to clean up after herself.

pay you at least $100 but less than $200 to live with the clutter

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as a. private parties can bargain without cost. b. government assigns property rights to the harmed party. c. the externalities that are present are positive and not negative. d. businesses determine an appropriate level of production.

private parties can bargain without cost

If a sawmill creates too much noise for local residents a. it will be up to the residents to either adapt or move. b. a sense of social responsibility will cause owners of the mill to reduce noise levels. c. the government can raise economic well-being through noise-control regulations. d. the government can raise economic well-being by providing free hearing screening for residents who live closest to the sawmill.

the government can raise economic well-being through noise-control regulations

The "invisible hand" leads a market to maximize a. producer profit from that market. b. total benefit to society from that market. c. both equity and efficiency in that market. d. output of goods or services in that market.

total benefit to society from that market

Tradable pollution permits a. prices are set by the government. b. will be bought by firms which can reduce pollution only at high costs. c. are likely to create a higher level of total pollution. d. are less desirable than Pigovian taxes in reducing pollution.

will be bought by firms which can reduce pollution only at high costs

When a negative externality exists in a market the cost to producers a. is greater than the cost to society. b. will be the same as the cost to society. c. will be less than the cost to society. d. and society will be different regardless of whether an externality is present.

will be less than the cost to society