CH5 Micro Econ OSU

A negative externality exists if a) there are price controls in a market. b) there are quantity controls in a market. c) the marginal social cost of producing a good or service exceeds the private cost. d) the marginal private cost of producing a good or service exceeds the social cost.

A negative externality exists if c) the marginal social cost of producing a good or service exceeds the private cost.

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure illustrates the situation in the toilet paper market. An efficient way to get the firm to produce the socially optimal output level is: a) for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. b) to impose a tax to make the industry bear the external costs it creates. c) to grant a subsidy to enable the industry to internalize the external costs of production. d) to assign property rights to the firms in the industry. *see study guide

An efficient way to get the firm to produce the socially optimal output level is: b) to impose a tax to make the industry bear the external costs it creates.

Because producers do not bear the external cost of pollution a) the economically efficient level of production is achieved. b) private production exceeds the economically efficient level. c) private production is below the economically efficient level. d) the market price is too high.

Because producers do not bear the external cost of pollution b) private production exceeds the economically efficient level.

Common resources differ from public goods in that a) common resources are non-excludable while public goods are excludable to those who do not pay for the good. b) unlike public goods, common resources are rivalrous in consumption. c) common resources are collectively owned by a group of people while public goods are government owned. d) common resources are resources that cannot be renewed but the production of public goods can be increased any time.

Common resources differ from public goods in that b) unlike public goods, common resources are rivalrous in consumption.

Economists argue that the level of pollution should be a) reduced completely to zero because by definition, it is a negative external effect. b) ignored because it has always been present since the beginning of history. c) reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. d) best determined by elected officials who can speak on behalf of the public.

Economists argue that the level of pollution should be c) reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society.

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set a) equal to the marginal external cost at the economically efficient level of pollution. b) equal to the marginal private cost of production at the economically efficient level of pollution. c) equal to the amount of the deadweight loss created in the absence of a pollution tax. d) at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set a) equal to the marginal external cost at the economically efficient level of pollution.

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered a) external costs. b) transaction costs. c) marginal benefits. d) social costs of the pollution.

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered: b) transaction costs.

The Coase theorem states that: a) government intervention is always needed if externalities are present. b) assigning property rights is the only thing the government should do in a market economy. c) if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. d) a free market equilibrium is the best solution to address externalities.

The Coase theorem states that: c) if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure illustrates the situation in the toilet paper market. Refer to Figure. The efficient output is Q1. Q2. Q3. Q4. *see study guide

The efficient output is Q2 see study guide

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure illustrates the situation in the toilet paper market. Refer to Figure. The private profit-maximizing output level is: Q1. Q2. Q3. Q4. *see study guide

The private profit-maximizing output level is: Q3 see study guide

What are property rights? a) the title to ownership of any physical asset b) a legal document verifying ownership of intangible assets c) the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it d) the right of the government to appropriate private assets for the good of society

What are property rights? c) the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using: a) command-and-control policies. b) strong-arm tactics. c) global initiatives. d) market-based policies.

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using: a) command-and-control policies.

Which of the following displays these two characteristics: rivalry and nonexcludability? a) a public good b) a private good c) a quasi-public good d) a common resource

Which of the following displays these two characteristics: rivalry and nonexcludability? d) a common resource

Which of the following is a source of market failure? a) unforeseen circumstances which leads to the bankruptcy of many firms b) a lack of government intervention in a market c) incomplete property rights or inability to enforce property rights d) an inequitable income distribution

Which of the following is a source of market failure? c) incomplete property rights or inability to enforce property rights

Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities? a) Ronald Coase b) A. C. Pigou c) Adam Smith d) David Hume

Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities? b) A. C. Pigou