Exam 4

The national defense of the United States is not rival because a. my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States. b. my enjoyment of the national defense does diminish your enjoyment of the national defense of the United States. c. once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this defense. d. once the nation is defended, it is possible to prevent any single person from enjoying the benefit of this defense.

a. my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States.

The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10;• a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct? a. One point on the social-cost curve is (Q = 1,000, P = $0.45). b. One point on the supply curve is (Q = 1,000, P = $3.10). c. One point on the demand curve is (Q = 1,000, P = $3.55). d. The socially optimal quantity of gasoline is less than 1,000 gallons.

b. One point on the supply curve is (Q = 1,000, P = $3.10).

Pay-per-view broadcasts are a. private goods. b. club goods. c. common resources. d. public goods.

b. club goods.

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced? a. tax university researchers b. offer grants to university researchers c. eliminate subsidized student loans d. nothing

b. offer grants to university researchers

Technology spillover is one type of a. negative externality. b. positive externality. c. subsidy. d. producer surplus

b. positive externality.

Refer to Figure 10-7. 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.

One of the least regulated common resources today is a. state parks. b. the ocean. c. forest preserves. d. the Great Lakes.

b. the ocean.

Refer to Figure 10-11. The graph represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d. The answer cannot be determined from inspection of the graph.

b. there is a positive externality.

Which of the following is an example of general knowledge, as opposed to specific knowledge that can be patented? a. the invention of a longer-lasting battery b. a mathematical theorem c. a method for constructing a high-performance microchip d. the chemical formula for an adhesive

b. a mathematical theorem

Goods that are not rival in consumption include both a. private goods and common resources. b. club goods and public goods. c. common resources and public goods. d. private goods and club goods.

b. club goods and public goods.

National defense is a classic example of a public good because a. there is no market for private security services. b. it is difficult to exclude people from receiving the benefits from national defense once it is provided. c. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. d. there are no private firms willing to supply defense goods such as tanks and weapons.

b. it is difficult to exclude people from receiving the benefits from national defense once it is provided.

Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good that is not excludable and not rival in consumption? a. tablet computer, gym membership at a gym that always has plenty of open equipment and classes b. tablet computer, national defense c. congested nontoll road, national defense d. online music subscription, streetlight

b. tablet computer, national defense

Private contracts between parties with mutual interests a. will reduce the well-being of society. b. will lead to market outcomes in which the public interest is sacrificed for personal gain. c. can solve some inefficiencies associated with positive externalities. d. will create negative externalities

c. can solve some inefficiencies associated with positive externalities.

Consider a public road that anyone is allowed to drive on. If the road is often congested, the road would be considered a a. private good. b. club good. c. common resource. d. public good

c. common resource.

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the a. private benefit equals the social benefit at the private market solution. b. private cost exceeds the private benefit at the private market solution. c. social value exceeds the private value at the private market solution. d. private cost exceeds the social benefit at the private market solution.

c. social value exceeds the private value at the private market solution.

Which city currently charges drivers a "congestion toll" to drive into the heart of the city's financial, legal, and entertainment district? a. Washington, D.C. b. Sydney c. Tokyo d. London

d. London

Scenario 10-1The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10;• a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct? a. 1,000 < QOPTIMUM < QMARKET b. QOPTIMUM < 1,000 < QMARKET c. QMARKET < 1,000 < QOPTIMUM d. QOPTIMUM < QMARKET < 1,000

a. 1,000 < QOPTIMUM < QMARKET

The Tragedy of the Commons results when a good is a. rival in consumption and not excludable. b. excludable and not rival in consumption. c. both rival in consumption and excludable. d. neither rival in consumption nor excludable.

a. rival in consumption and not excludable.

Refer to Figure 10-8. What is the equilibrium price in this market? a. $8 b. Between $8 and $10 c. $10 d. More than $10

a. $8

Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium number of permits is a. 50 b. 100 c. 1,000 d. 2,000

a. 50

In which of the following examples are property rights not well established? a. Carmen smokes a cigarette outside the door to her office building. b. Carlita stocks shelves in a grocery store. c. Cameron watches a movie in his home theater room. d. Cathy docks her boat at her lake house.

a. Carmen smokes a cigarette outside the door to her office building.

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution? a. Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15). b. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. c. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section. d. Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.

a. Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15).

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement? a. an amount less than $100 b. an amount between $100 and $250 c. an amount between $250 and $350 d. Any amount could result in both parties benefiting from the agreement.

a. an amount less than $100

One drawback to industrial policy is that a. technology spillovers are too expensive to control. b. measuring the size of spillovers from different markets is difficult. c. spillovers often occur in industries that produce undesirable products for society. d. positive side effects are often outweighed by negative side effects.

b. measuring the size of spillovers from different markets is difficult.

A toll on a congested road is in essence a. an interstate highway tax. b. a Department of Motor Vehicles tax. c. a gasoline tax. d. a corrective tax.

d. a corrective tax.

Table 11-1Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. Acres Sophia Amber Cedric 1 $10 $24 $6 2 8 18 5 3 6 14 4 4 3 8 3 5 1 6 2 6 0 4 1 7 0 2 0 Refer to Table 11-1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents decide to build a park with size equal to the number of acres that maximizes total surplus from the park, how much total surplus will Amber receive? a. $0 b. $26 c. $32 d. $56

c. $32

Refer to Figure 11-1. Which of the following statements is correct? a. A congested toll road is an example of the type of good represented by Box B. b. An uncongested toll road is an example of the type of good represented by Box D. c. A congested nontoll road is an example of the type of good represented by Box C. d. An uncongested nontoll road is an example of the type of good represented by Box A.

c. A congested nontoll road is an example of the type of good represented by Box C.

Which of the following quotations illustrates the Tragedy of the Commons? a. "A bird in the hand is worth two in the bush." b. "The only difference between the rich and other people is that the rich have more money." c. "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others." d. "Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after he is 30 has no head."

c. "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others."

The following table shows the private value, private cost, and external cost for various quantities of output in a market. Quantity Private Value Private Cost External Cost 1 $14 $10 $2 2 13 11 2 3 12 12 2 4 11 13 2 5 10 14 2 6 9 15 2 7 8 16 2 Refer to Table 10-1. Which of the following statements is correct? a. If the external cost per unit of output were $0 instead of $2, then the socially efficient quantity of output would be 4 units. b. A tax of $4 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output. c. Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed. d. The market for flu shots is a market to which the concepts in this table apply very well.

c. Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed.

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

c. The after-tax equilibrium quantity is less than the socially optimal quantity.

An externality arises when a person engages in an activity that influences the well-being of a. buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. b. sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. c. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. d. Both (a) and (b) are correct.

c. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.

The externality associated with technology spillovers a. cannot be internalized by government. b. is a negative externality. c. can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. d. can be internalized, potentially, through patent protection.

d. can be internalized, potentially, through patent protection.

Suppose that everyone prefers to live in a society without poverty. Further suppose that some private charities are successful in reducing poverty. People who do not contribute to the charities a. receive no external benefit from private antipoverty programs. b. decrease the reliance of individuals on antipoverty programs. c. can free ride on the generosity of others. d. are most likely to be in favor of government-sponsored programs.

c. can free ride on the generosity of others.

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively a. alleviating the negative externalities that are associated with charitable giving. b. imposing a negative externality on those who do not pay income taxes. c. encouraging a private solution to a positive-externality problem. d. encouraging a private solution to a negative-externality problem

c. encouraging a private solution to a positive-externality problem.

A view of a spectacular sunset along a private beach is an example of a a. private good. b. public good. c. nonrival but excludable good. d. rival but nonexcludable good.

c. nonrival but excludable good

An externality is the impact of a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. one person's actions on the well-being of a bystander. d. society's decisions on the poorest person in the society.

c. one person's actions on the well-being of a bystander.

Producers have little incentive to produce a public good because a. the social benefit is less than the private benefit. b. the social benefit is less than the social cost. c. there is a free-rider problem. d. there is a Tragedy of the Commons.

c. there is a free-rider problem

Refer to Figure 10-10. The graph represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d. The answer cannot be determined from inspection of the graph.

c. there is a negative externality.

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then a. ​the after-subsidy equilibrium quantity of rain barrels will be less than the socially optimal quantity of rain barrels. b. ​the after-subsidy equilibrium quantity of rain barrels will be more than the socially optimal quantity of rain barrels. c. ​the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels. d. ​market incentives will be distorted and move the allocation of resources away from the social optimum.

c. ​the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels.

Refer to Figure 10-12. The graph, as drawn, could apply to the market for a. fire extinguishers. b. immunizations such as flu shots. c. education. d. All of the above are correct.

d. All of the above are correct.

Variable tolls on roads a. are politically unpopular because people do not like the idea of paying for a good that they used to consume without paying for it directly. b. rise when traffic volume increases to ensure the speed on the road is kept high. c. are an effective way of correcting the common resource problem on roads. d. All of the above are correct

d. All of the above are correct.

Which of the following statements is true of both pollution permits and corrective taxes? a. Both policies internalize the externality of pollution. b. Both policies require firms to pay for their pollution. c. Both policies lead to the establishment of an equilibrium price of pollution. d. All of the above are correct.

d. All of the above are correct.

Why do elephants face the threat of extinction while cows do not? a. Cattle are a valuable source of income for many people, while elephants have no market value. b. There is a high demand for products that come from cows, whereas there is no demand for products that come from elephants. c. There are still lots of cattle that roam free, while all elephants live in zoos. d. Cattle are owned by ranchers, while elephants are owned by no one.

d. Cattle are owned by ranchers, while elephants are owned by no one

At the local park there is a playground that anyone may use. There is rarely anyone using the playground, so children who use the playground receive full enjoyment from its use. The playground is a. rival in consumption and is excludable. b. not rival in consumption, but is excludable. c. rival in consumption, but is not excludable. d. not rival in consumption nor is it excludable

d. not rival in consumption nor is it excludable.

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called a. the Pigovian theorem. b. a corrective tax. c. the externality theorem. d. the Coase theorem.

d. the Coase theorem.

A sidewalk runs across Jermichael's front yard near the street. By law, anyone has the right to use the sidewalk. When Jermichael shovels the sidewalk after a heavy snowstorm, a. he is providing a good that is excludable. b. he is a free rider. c. those who walk on the sidewalk are using a club good. d. he is providing a good that is not rival and not excludable.

d. he is providing a good that is not rival and not excludable.

A good is excludable if a. one person's use of the good diminishes another person's enjoyment of it. b. the government can regulate its availability. c. it is not a normal good. d. people can be prevented from using it.

d. people can be prevented from using it.

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the a. external cost of good x exceeds the private value of good x. b. external cost of good x equals the private value of good x. c. social cost of good x exceeds the private value of good x. d. social cost of good x equals the private value of good x.

d. social cost of good x equals the private value of good x

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by? a. adherence to the notion of the invisible hand b. command-and-control policies c. the development and enforcement of regulations d. the requirement that decision makers bear the full costs of their actions

d. the requirement that decision makers bear the full costs of their actions

Which of the following is most likely to face extinction? a. dogs living as pets in households b. dairy cows living on farms and producing milk c. bald eagles living in zoos d. tigers living in the wild

d. tigers living in the wild