econ final hw 10

1. The difference between the marginal social benefit curve and the market demand curve is the: A) additional cost of producing an additional good. B) marginal external cost. C) marginal benefit to the consumers of the good. D) marginal external benefit.

1. D

10. Which of the following is an example of a government solution to externalities? A) The city government imposes rent control. The externality is that the quantity demanded for housing exceeds quantity supplied at the current price. B) The federal government imposes a minimum wage. The externality is that firms pay too little to their workers. C) The government offers free childhood immunizations. The externality is that an immunized child cannot transmit disease to others. D) The federal government provides national defense. The externality is that people can't be excluded from national defense even if they don't pay for it.

10. c

11. An industry with production that generates external costs produces a quantity of output that is: A) socially optimal. B) smaller than the socially optimal quantity. C) larger than the socially optimal quantity. D) socially optimal if a specific subsidy is given to buyers.

11. C

12. (Figure: Model of a Competitive Market) Given the figure Model of a Competitive Market, if there are external costs: A) resources will be underallocated to the production of the good. B) resources will be overallocated to the production of the good. C) resources will be allocated efficiently to the production of the good. D) the price at P will be higher than if there were no external costs.

12. b

13. (Figure: Negative Externalities and Raising Pigs for Pork) Refer to the figure Negative Externalities and Raising Pigs for Pork. If the marginal external cost of raising a pig for pork is $200, then the socially optimal quantity of pigs to raise is ________ and the socially optimal price is ________. A) 150; $900 B) 200; $800 C) 250; $700 D) 300; $800

13. c

14. (Figure: Negative Externalities and Raising Pigs for Pork) Refer to the figure Negative Externalities and Raising Pigs for Pork. If the socially optimal production of pigs is 200, the government could achieve the socially optimal production by imposing a Pigouvian tax of: A) $400. B) $300. C) $250. D) $200.

14. a

15. If the number of available tradable emissions permits is decreased, the equilibrium price of the permits ________ and the equilibrium quantity of emissions ________. A) decreases; decreases B) increases; increases C) increases; decreases D) decreases; increases

15. c

16. Television programs are nonrival because: A) the supplier cannot prevent consumption by people who do not pay for it. B) more than one person can consume the same unit of the good at the same time. C) individuals ignore the effect their use has on the amount of the resource remaining for others. D) the market suffers from inefficiently low consumption.

16. b

17. A public good is a good or service for which exclusion is: A) possible and which is rival in consumption. B) possible and which is nonrival in consumption. C) not possible and which is rival in consumption. D) not possible and which is nonrival in consumption.

17. d

18. (Figure: Traffic Lights in Plymouth) Plymouth has 1,000 residents. The figure Traffic Lights in Plymouth shows the marginal social benefit and marginal cost of traffic lights in town. We know that each of the residents has the same individual marginal benefit per traffic light. Without government intervention, the town will have ________ traffic lights. A) 0 B) 4 C) 8 D) 12

18. a

19. (Figure: Traffic Lights in Plymouth) Plymouth has 1,000 residents. The figure Traffic Lights in Plymouth shows the marginal social benefit and marginal cost of traffic lights in town. We know that each of the residents has the same individual marginal benefit per traffic light. If the government provides traffic lights, the socially efficient quantity is: A) 0. B) 4. C) 8. D) 12.

19. c

2. The marginal external cost of a good or activity equals the amount: A) by which the marginal social benefit curve is higher than the demand curve. B) by which the marginal social cost curve is lower than the supply curve. C) by which the marginal social cost curve is higher than the supply curve. D) at which the marginal social benefit curve intersects the demand curve.

2. c

20. A characteristic of public goods is that: A) people pay for them in proportion to the benefits received. B) the costs of producing them are less than if they were private goods. C) their benefits cannot be withheld from anyone, regardless of whether a person pays for them. D) they are produced only by the public sector, not by the private sector.

20. c

3. Oscar owns a meat processing plant whose unpleasant odors waft across the city. Because the production of processed meat provides a negative externality to the community, at the market equilibrium quantity, the marginal social: A) cost of processed meat exceeds the market price. B) benefit of processed meat exceeds the market price. C) cost of processed meat is lower than the market price. D) benefit of processed meat is lower than the market price.

3. a

4. Oscar owns a meat processing plant whose unpleasant odors waft across the city. Because the production of processed meat provides a negative externality to the community, the government should: A) impose a tax on Oscar's production of processed meat, since the market quantity is less than the socially optimal quantity. B) subsidize Oscar's production of processed meat, since the market quantity is greater than the socially optimal quantity. C) subsidize Oscar's production of processed meat, since the market quantity is less than the socially optimal quantity. D) impose a tax on Oscar's production of processed meat, since the market quantity is greater than the socially optimal quantity.

4. d

5. If a good that involves external costs is priced to take these costs into account, then its price will: A) fall, and output will go up. B) rise, and output will fall. C) not change, but output will fall. D) rise, but output will stay the same.

5. b

6. The Coase theorem states that in the presence of externalities, a market economy will: A) always reach an efficient solution. B) never reach an efficient solution. C) reach an efficient solution if transaction costs are sufficiently low. D) reach an efficient solution only in the case of government regulation.

6. c

7. Which of the following is an example of an activity generating a negative externality? A) You buy a new car, then discover it needs a new transmission. B) Your next-door neighbor mows the lawn at 6 A.M. C) The only two coffee shops in town conspire to raise prices. D) After Jane bought health insurance, she began racing motorcycles on the weekends.

7. b

8. Which of the following is an example of an activity generating a positive externality? A) You buy a new car and then find $5,000 in the door panel. B) Your next-door neighbor mows the lawn at 6 A.M. C) Your next-door neighbor installs a bat house and the bats eat mosquitoes. D) Joe buys health insurance but decides not to take the time to get a flu shot.

8. c

9. When an activity like education generates a positive externality, the: A) market demand curve is below the marginal social benefit curve. B) market demand curve is above the marginal social benefit curve. C) marginal cost of production is below the market demand curve. D) market will produce more than the efficient level of output.

9. a