Practice Quiz ch8

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Which of the following policies would be most appropriate for dealing with this problem? -Levy a tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources. -Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products. -Levy a tax on the producers of electricity and use the tax revenues to clean up the river. -Levy a tax on the producers of paper products and use the tax revenues to clean up the river.

Levy a tax on the producers of paper products and use the tax revenues to clean up the river.

Which of the following is an example of a public good? -a weather warning system -a television set -a sofa -a bottle of soda

a weather warning system

Which of the following is an example of a positive externality (additional social benefit)? -an increase in the value of land you own when a nearby development is completed -the costs paid by a company to build an automated factory -falling property values in a neighborhood where a disreputable nightclub is operating -the higher price you pay when you buy a heavily advertised product

an increase in the value of land you own when a nearby development is completed

In a situation where an externality occurs, the "third party" refers to those who -buy the product from others. -produce the product for others. -trade the product with others outside the nation or community. -are not directly involved in the transaction or activity.

are not directly involved in the transaction or activity.

A public good -generally results in substantial negative externalities. -can never be provided by a nongovernmental organization. -costs essentially nothing to produce and is thus provided by the government at a zero price. -cannot be provided to one person without making it available to others as well.

cannot be provided to one person without making it available to others as well.

Which of the following is an example of a negative externality (additional social cost)? -an increase in the value of land you own when a nearby development is completed -the costs paid by a company to build an automated factory -falling property values in a neighborhood where a disreputable nightclub is operating -the higher price you pay when you buy a heavily advertised product

falling property values in a neighborhood where a disreputable nightclub is operating

Unlike a private good, a public good -has no opportunity costs. -has benefits available to all, including nonpayers. -produces no positive or negative externalities. -is characterized by rivalry and excludability.

has benefits available to all, including nonpayers.

External benefits in consumption refer to benefits accruing to those -who are selling the product to the consumers. -who bought and consumed the product. -other than the ones who consumed the product. -who are consuming the product abroad.

other than the ones who consumed the product.

When producers do not have to pay the full cost of producing a product, they tend to -overproduce the product because of a positive externality. -underproduce the product because of a positive externality. -underproduce the product because of a negative externality. -overproduce the product because of a negative externality.

overproduce the product because of a negative externality.

The market system does not produce public goods because -there is no need or demand for such goods. -private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them. -public enterprises can produce such goods at lower cost than can private enterprises. -their production seriously distorts the distribution of income.

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.

If the consumption of a product or service involves external benefits, then the government can improve efficiency in the market by -providing a subsidy to correct for an overallocation of resources. -providing a subsidy to correct for an underallocation of resources. -imposing a corrective tax to correct for an overallocation of resources. -imposing a corrective tax to correct for an underallocation of resources.

providing a subsidy to correct for an underallocation of resources.

What are the two characteristics that differentiate private goods from public goods? -rivalry and excludability -negative externality and positive externality -marginal cost and marginal benefit -ownership and usage

rivalry and excludability

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be -taxed. -prohibited. -subsidized. -left alone.

subsidized.

Where there are positive externalities from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following except -subsidizing the buyers of the product. -taxing the sellers of the product. -subsidizing the sellers of the product. -providing the product itself.

taxing the sellers of the product.

A positive externality or additional social benefit occurs when -product differentiation increases the variety of products available to consumers. -the total benefit associated with the consumption of a product exceeds the benefit received by consumers. -a firm does not bear all of the costs of producing a good or service. -firms earn positive economic profits.

the total benefit associated with the consumption of a product exceeds the benefit received by consumers.

In a free-market economy, a product that entails a positive externality (additional social benefit) will be -overproduced. -underproduced. -produced at the optimal level. -provided solely by the government.

underproduced.