Econ Ch. 10 and 13 ECQs

If a road is congested, then use of that road by an additional person would lead to a: a. negative externality. b. positive externality. c. Pigovian externality. d. free-rider problem with rush hour drivers stuck in traffic.

A (Negative externality)

Refer to Figure 1. 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. forbid production. d. produce the product itself.

B (Provide a subsidy for this product)

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where: a. the value of electricity to consumers equals the private cost of producing electricity. b. the value of electricity to consumers equals the social cost of producing electricity. c. the cost of the externality is maximized. d. the transaction costs of private bargaining are minimized.

A (The value of electricity to consumers equals the private cost of producing electricity)

Under which of the following scenarios would a park be considered a club good? a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

A (Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables)

Refer to Figure 2. This graph represents the tobacco industry. The socially optimal price and quantity are: a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively.

B ($1.80 and 35 units, respectively)

Goods that are rival in consumption but NOT excludable would be considered: a. club goods. b. common resources. c. public goods. d. private goods.

B (Common resources)

Refer to Figure 2. This graph represents the tobacco industry. The industry creates: a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market.

B (Negative externalities)

The provision of a public good generates a: a. positive externality, as does the use of a common resource. b. positive externality and the use of a common resource generates a negative externality. c. negative externality, as does the use of a common resource. d. negative externality and the use of a common resource generates a positive externality.

B (Positive externality and the use of a common resource generates a negative externality)

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the: a. supply curve for paper would shift to the right. b. supply curve for paper would shift to the left. c. demand curve for paper would shift to the right. d. demand curve for paper would shift to the left

B (Supply curve for paper would shift to the left)

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then: a. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. c. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. d. There is not enough information to answer the question.

B (The equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked)

Refer to Figure 2. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are: a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively

C ($1.60 and 42 units, respectively)

A city street is: a. always a public good, whether or not it is congested. b. a public good when it is congested, but it is a common resource when it is not congested. c. a common resource when it is congested, but it is a public good when it is not congested. d. always a common resource, whether or not it is congested.

C (A common resource when it is congested, but it is a public good when it is not congested)

Goods that are NOT excludable include both: a. private goods and public goods. b. club goods and common resources. c. common resources and public goods. d. private goods and club goods.

C (Common resources and public goods)

When goods do not have a price, which of the following primarily ensures that the good is produced? a. buyers b. sellers c. government d. the market

C (Government)

Refer to Figure 1. Which quantity represents the social optimum for this market? a. Q1. b. Q2. c. Q3. d. Q4.

C (Q3)

The impact of one person's actions on the well-being of a bystander is called: a. an economic dilemma. b. deadweight loss. c. a multi-party problem. d. an externality.

D (An externality)

Which of the following would not be considered a private good? a. a pair of scissors b. a pair of shoes c. an SUV d. cable TV service

D (Cable TV service)

A cost imposed on someone who is neither the consumer nor the producer is called a: a. corrective tax. b. command and control policy. c. positive externality. d. negative externality.

D (Negative externality)

Goods that are excludable include both: a. club goods and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and club goods.

D (Private goods and club goods)

Goods that are rival in consumption and excludable would be considered: a. club goods. b. common resources. c. public goods. d. private goods

D (Private goods)