econ132 midterm

Demand curves for public goods are found by: A) Adding individuals' demand curves vertically. B) Adding individuals' costs from their demand curves and summing vertically. C) Adding individual's demand curves horizontally. D) Adding individuals' demand curves and subtracting out those individuals who will be free riders.

A) Adding individuals' demand curves vertically.

What kind of externality must exist for social marginal costs to be less than private marginal costs? A) Positive production B) Positive consumption C) Negative production D) Negative consumption

A) Positive production

An optimal corrective tax on the output from an externality-producing activity will: A) Eliminate the externality B) Alter private marginal costs to equal social marginal costs C) Increase the output of the good and reduce the output of the "bad" D) Be negative for negative externalities and positive for positive externalities.

B) Alter private marginal costs to equal social marginal costs

Which is not true of a public good? A) Excluding people from consuming is not generally desirable. B) Public provision will assure an efficient quantity is produced. C) Private provision will lead to too low a level of provision. D) Excluding people from consuming it is not generally feasible.

B) Public provision will assure an efficient quantity is produced.

Which of the following implies that smoking causes a positive externality? A) Employers lower all wages to account for less productive workers B) Smokers die too early to collect social security benefits C) Insurance companies adjust house insurance premiums for smoking status

B) Smokers die too early to collect social security benefits

A decentralized economy has trouble providing an efficient level of public goods because: A) The government must produce all goods that are not private goods. B) The market can add up individuals' marginal rates of substitution but cannot set this sum equal to marginal cost. C) A decentralized market cannot take into account the benefits accruing to other consumers once someone buys a unit of the public good. D) Only a king or dictator cares enough to provide public goods.

C) A decentralized market cannot take into account the benefits accruing to other consumers once someone buys a unit of the public good.

A common property resource is: A) A resource that is scarce because everyone wants to own it but no consume it. B) Underutilized because of the high costs of establishing property rights. C) A resource owned in common in the sense that many people have the right of access. D) A resource regulated by the government through the establishment of a cartel of interested parties.

C) A resource owned in common in the sense that many people have the right of access.

Which of the following is true when there is the socially optimal amount of a private good with no externality? A) Private benefits equal private costs B) Social marginal benefit equals private marginal cost C) Social marginal benefit equals social marginal cost D) All of the above

D) All of the above

Efficient private provision of pure public goods is difficult because: A) Too much will be demanded as each consumer is forced to buy his or her own units of the public good. B) Too little will be demanded because private provision leads to higher marginal costs than public provision. C) Too much will be produced as firms compete with each other for the public's dollars. D) Too little will be demanded as, individually, consumers choose not to pay the full cost of units of the good.

D) Too little will be demanded as, individually, consumers choose not to pay the full cost of units of the good.

Suppose your neighbor enjoys seeing the grass in his yard grow wild and free, a practice with which you disagree. This is an example of a: A) Negative production externality and a negative consumption externality B) Negative production externality C) Positive production externality D) Positive consumption externality E) Negative consumption externality

E) Negative consumption externality

Which of the following is true when there is optimal provision of a public good? A) Marginal costs equals each consumers' willingness to pay for the good. B) Total costs equals total benefits for all consumers. C) Each consumer's surplus equals marginal cost. D) Total consumer surplus equals marginal cost. E) The sum of all consumers' willingness to pay for the good equals marginal cost.

E) The sum of all consumers' willingness to pay for the good equals marginal cost.