Chapter 14: Externalities

Ideally, a market should maximize: A) consumer surplus plus producer surplus. B) social surplus. C) producer surplus. D) consumer surplus.

B

Externalities are: A) sometimes good and sometimes bad. B) neither good nor bad. C) always good. D) always bad.

A

If a tin of sardines creates a noxious odor for nonsardine-eaters equivalent to $1 per tin, it follows that the market produces: A) the socially optimal level of sardines. B) too many tins of sardines relative to the social optimum. C) too few tins of sardines relative to the social optimum. D) too many or too few tins of sardines, but it is impossible to say which.

B

In the case of an external benefit, the social value curve lies ______ the demand curve. A) sometimes above and sometimes below B) above C) with D) below

B

The social cost is: A) a cost paid by the consumer or the producer. B) the cost to everyone. C) the cost of reaching an agreement. D) a cost paid by people other than the consumer or the producer trading in the market.

B

An external benefit is a benefit received by: A) the producers trading in the market. B) both the consumers and producers trading in the market. C) people other than the consumers or producers trading in the market. D) the consumers trading in the market.

C

In a market with external costs, the market price is: A) higher than the efficient price. B) equal to the efficient price. C) lower than the efficient price. D) regulated by the government.

C

A transaction cost is: A) the cost to everyone. B) a cost paid by people other than the consumer or the producer trading in the market. C) a cost paid by the consumer or the producer. D) the cost of reaching an agreement.

D

Suppose that the private cost of using antibiotics is less than its social cost we would then expect people to ________ antibiotics, leading to an ________ market outcome. A) overuse; efficient B) underuse; inefficient C) make efficient use of; equilibrium D) overuse; inefficient

D

Which equation is TRUE? A) private cost + social cost = external cost B) external cost = private cost C) private cost + average cost = social cost D) social cost = private cost + external cost

D