Econ 202 Ch. 8 Quizzes

Which of the following statements about rent seeking is false?

Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

Economics shows that it is inefficient to recycle plastic bottles because they have little value.

False

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

False

Recycling is an economic problem because the land is substantially damaged by the creation of garbage dumps.

False

Recycling is not an economic problem because there is only so much land on Earth.

False

The best solution to water pollution is to make the responsible people clean the water and return it to its natural state.

False

The government can be relied on to efficiently solve problems associated with pollution through (Pigovian) taxes.

False

The point of the video is that the government can seldom enhance economic efficiency.

False

The social problem of smoking in restaurants is caused because smokers want to pollute the air, causing harm to people around them.

False

The use of landfills means the land will lose all its value for subsequent use.

False

The possibility of "government failures" should be evaluated before getting the government involved in addressing "market failures."

True

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

True

The social problem of smoking in restaurants because smokers and nonsmokers want to use the air in different ways

True

The video indicated that there is a significant difference between recycling fluorescent lights and plastic bottles.

True

A public good is

a good that is nonrivalrous and nonexcludable.

A private good is

a good that is rivalrous and excludable

If the social cost of producing a good or service exceeds the private cost

a negative externality exists.

If the social benefit of consuming a good or a service exceeds the private benefit

a positive externality exists.

The public choice model

applies economic analysis to government decision making.

According to public choice theory, policymakers

are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest.

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

equal to the marginal external cost at the economically efficient level of pollution.

Which of the following is not an example of rent-seeking behavior?

engaging in aggressive advertising that slams a competitor's product

Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as

free riding.

When there is a negative externality, the private cost of production ________ the social cost of production.

is less than

A product is considered to be rivalrous if

your consumption of the product reduces the quantity available for others to consume.

Which of the following statements refers to rent seeking?

"Laws passed by the federal government often provide benefits for a small number of individuals. These individuals, in turn, have an incentive to contribute to the campaigns of politicians who pass these laws."

The marginal social benefit from the production of the last unit of a good is $4,800. If the willingness to pay for that unit is $3,900, what is the external benefit from its production?

$900

Which of the following is an example of a public good?

A radio broadcast

Sewage treatment is an example of

An externality,

The key to solving problems associated with smoking in restaurants is to

Assign property rights to restaurant owners.

Which of the following gives rise to a positive externality?

Consumption of a drug to cure a communicable disease

The central question In trying to determine whether to involve the government in an economic issue is

Determining whether or not the government can be relied on to make things better.

According to the video, the government should ban smoking in restaurants because of the diseases caused by passive smoking.

False

Banning smoking in restaurants is clearly economically efficient because passive smoke is harmful.

False

When there is a positive externality in a free market, too much of the good is produced and consumed.

False

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product. Which of the following is the best example of regulatory capture?

Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.

Restaurant owners have an incentive to

Fully account for the value impact of restaurant smoking on nonsmokers. Fully account for the value of restaurant smoking to smokers. Take into account how smoking shifts the overall demand curve for restaurant meals.

Which of the following is an example of an ordinary private good?

Furniture

Which of the following is an implication of the Coase Theorem?

Government intervention is not always necessary to solve externality problems.

Key limitations on the government correcting "market failures" include:

Information Misaligned incentives between the government and citizens The incentive of the government to tax and spend to help politicians get elected or re-elected.

The net effect of smoking in a restaurant is to

It depends - there is no general answer.

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

It evaluates the costs and benefits of producing the good.

Beginning in the 1950s economists began to investigate incentives within government. They found that:

One should be cautious in calling on the government to improve economic performance.

According to the video, the key to Viscusi's findings about the net impact of smoking on healthcare costs is that

People who smoke need more medical care, but they also (unfortunately) tend to die younger, and that creates an offsetting reduction in health care costs.

The key problem(s) with externalities is that

Private costs do not equal social costs. Private benefits do not equal social benefits.

The economically efficient amount of recycling will occur if

Recyclers pay the full cost of picking up recycled products,

A key advantage of assigning property rights to owners of restaurants is that

Smokers and nonsmokers are likely to be able to eat meals the way they like.

The U.S. government has imposed quotas on the importation of sugar that makes sugar prices higher because

Sugar farmers lobbied for regulation that would increase their profits by limiting competition.

Which of the following exemplifies the tragedy of the commons?

The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

To evaluate recycling, you must consider

The demand for recycled products, The incremental costs to society for recycling products, The value of the land used for landfills,

Which of the following describes how a positive externality affects a competitive market?

The externality causes a difference between the private benefit from consumption and the social benefit.

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach?

The government imposes quantitative limits on the amount of pollution firms are allowed to generate.

Which of the following happens when a Pigouvian subsidy is provided?

The marginal private benefit curve shifts upward

Which of the following is true if the production of a good gives rise to a positive externality?

The marginal social benefit from each level of output exceeds the consumers' willingness to pay.

The appropriate charge for trash disposal should be set by

The opportunity cost of using the landfill, The cost of the trucks and labor needed to haul trash away,

The production of an industrial good in a plant emits harmful gases that cause breathing difficulty. Which of the following will happen if the government imposes a Pigouvian tax on the plant?

The quantity supplied of the good will decrease.

Which of the following must be present to reach a private solution to an externality problem?

The transactions costs to negotiate a solution must be relatively low

The opportunity cost of using land for a landfill is determined by:

The value of the land before the landfill was developed, minus the cost of the land after the landfill is full.

For the Coase theorem to work there must be clear assignment of property rights.

True

One problem with using taxes to solve economic externalities is that politicians may spend the money on things they like, rather than things their constituents want.

True

Recycling is an economic issue because the goods that are recycled, the land for landfills, and the trucks and labor needed for both recycling and trash disposal are all examples of scarce resources.

True

Which of the following is an example of rent seeking behavior?

U.S. sugar firms convinced Congress to impose a quota on imports of sugar.

Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of

a Coasian solution to an externality situation.

Consider the following characteristics: a. low transactions costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights Which of the above are assumptions behind the Coase Theorem?

a and d

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

a command-and-control approach to pollution reduction.

A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ to solve an externality.

command and control approach

Which of the following is an example of a common resource?

elephants in the wild

Financial contributions to the campaigns of members of Congress, state legislators, and other elected officials by firms that seek special interest legislation that make the firms better off are

examples of rent seeking

What does the phrase "internalizing an external cost" mean?

forcing producers to factor into their production costs the cost of the externalities created in the production of their output

A positive externality ________.

gives rise to external benefits

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

internalize the externality.

The marginal social cost curve ________ when production involves negative externalities.

lies above the supply curve

A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity.

negative externality

The Coase theorem relies on internalizing externalities through ________

negotiations between the parties involved

Space on a popular, public beach is ________ in consumption.

non-excludable but rival

Private producers have no incentive to provide public goods because

once produced, it will not be possible to exclude those who do not pay for the good.

The free rider problem refers to a situation in which

people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.

The "tragedy of the commons" refers to the phenomenon where

people overuse a common resource

A Pigouvian subsidy leads to a socially efficient outcome by ________.

raising individuals' marginal benefit from consumption

A positive externality results when

people who are not directly involved in producing or paying for a good or service benefit from it.

The cost borne by a producer in the production of a good or service is called

private cost

A market supply curve reflects the

private costs of producing a good or service.

A street light is a ________.

public good

Economists often analyze the interaction of individuals and firms in markets. Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others, a process that is referred to as

rent seeking.

Which of the following is an example of a common resource?

sea otters in the coastal waters of the Pacific Ocean

When production generates a negative externality, the true cost of production is the

social cost of production.

Governments can increase the consumption of a product that creates positive externalities by

subsidizing the production of the product so that the supply is increased and market price is reduced.

A fireworks show has been arranged in a park. The ticket for the show is $5 but only 40% of the tickets get sold as spectators can watch the show without entering the park. This is an example of ________.

the free-rider problem

Conceptually, the efficient level of carbon emissions is the level for which

the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.

If the production of a good involves positive externalities, ________.

the market price of the good is lower than its optimal price

If the production of a good involves negative externalities, ________.

the optimal price of the good is higher than the price charged in the market

When there is a positive externality

the social benefit received by consumers is greater than the private benefit.

What is a "social cost" of production?

the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product

Overfishing leading to a rapid depletion of the stock of fish is an example of ________.

the tragedy of the commons

A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the ________.

tragedy of the commons

Private solutions to externalities are most effective if ________.

transaction costs associated with bargaining are low

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

transactions costs

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

transactions costs.

One difference between the demand for a private good and that for a public good is that

with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.