ECON 211- EXAM 3
What is an external benefit?
A benefit from a good experienced by someone other than the producer or consumer of the good
What types of goods provide external benefits?
Both public goods and private goods
Two countries have identical resources. Each produces good X (on the x-axis) and good Y (on the y-axis) in autarky. Country A's PPF has vertices at points (8,0) and (0,8), and Country B's PPF has vertices at points (0,3) and (6,0). Which of the following is true?
Country A has the comparative advantage in good Y
The association formed to lower trade barriers and encourage trade between Canada, the United States and Mexico is known as:
NAFTA
You respond to the business leaders' request by giving Ms. Daisy money to buy more flowers. Giving Ms. Daisy money to buy more flowers is an example of:
a pigouvian subsidy
The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources is known as:
absolute advantage
According to the theory of comparative advantage, specialization and free trade will benefit:
all trading partners who specialize in goods where they have comparative advantage
When economies open up to free trade, trading partners ____ benefit
always
Ms. Boulware is the best lawyer and the best secretary in town. She has:
an absolute advantage in both jobs
A product produced in a foreign country and purchased by residents of the home country is called:
an import
Social benefit is the total benefit from the consumption of a good or service that includes:
both private an external benefits
A library's collection of e-books is a ___________
club good
You decide to respond to the neighbor's complaints by limiting the number of hogs that Dwight can have on his farm. This is an example of using a:
command-and-control approach
Radio spectrum is a _____
common pool resource
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a:
common pool resource
Countries gain from specializing in goods for export in which they have a(n) __________ advantage and importing goods in which other countries have a(n) __________ advantage
comparative, comparative
A linear PPC would show _______, and a PPC that is curved away from the origin would show _______.
constant opportunity costs, increasing opportunity costs
If you were to recommend a command-and-control approach, a disadvantage would be that it ___________.
creates few incentives for innovation
The idea of a pollution tax is to internalize the externality, which happens when the tax:
equals the external cost
Goods and services produced domestically but sold to other countries are called __________.
exports
When a private cost is different than the social cost there is an:
external cost being borne by someone else
Some goods induce costs or benefits to someone other than the parties involved in transaction. These costs or benefits are known as:
external costs or benefits
The opponents of globalization contend that:
globalization destroys cultures
A negative externality causes the social cost of production to be:
greater than the private cost
If a country has a comparative advantage in the production of a good, then that country:
has a lower opportunity cost in the production of that good
Common pool resources are _______ in rivalry and _______ in excludability.
high, low
By introducing Pigouvian subsidies, the government can ______ the equilibrium quantity towards the socially optimal level.
increase
Which statement is precisely correct? A market with external benefits is _______________.
inefficient, so there is an opportunity for government to promote efficiency via establishment of appropriate property rights
Suppose the production of a particular good causes a negative externality. Based on market forces only, how will this impact the production levels for a factory if negative externalities are present?
it will produce the good above the socially efficient level
The marginal cost of eliminating the first 20% of pollution is much __________ than the marginal cost of eliminating the last 20% of pollution.
less expensive
If polluters are charged to pollute, then:
less pollution is a likely result
Which of these is the preferred method to reduce the external cost (pollution) of traffic congestion according to an economist?
levy a tax that varies with the level of congestion
What approach would be the least effective way to deal with the overfishing problem?
limit who is allowed to fish in the lake
Jeb mentions that the hog farm down the road from his house is creating a very nasty smell. This is an example of:
negative externality
When no one owns a specific resource, there is:
no incentive to consider negative externalities that impact that resource
Lauren mentions that it is extremely windy today. This is an example of:
not an externality
What is the name given to the highest-valued alternative that must be given up to engage in any activity?
opportunity cost
When nations specialize in their comparative advantage and engage in trade:
overall standards of living increase
Ludwig mentions that Frank, the local rancher, is inflating land prices by buying too much land. This is an example of:
pecuniary externality
Government taxes and subsidies designed to create an efficient equilibrium in markets with externalities are known as:
pigovian taxes and subsidies
George mentions that Ms. Daisy has planted some lovely new roses in front of her store. This is an example of:
positive externality
You are the County Commissioner of Hazard County. Local business leaders are thrilled that Ms. Daisy has planted a panorama of flowers around her store front designed to look like cute kittens. Tourists have been coming from neighboring towns to see the flowers, and this tourism has been increasing business activity for many businesses. The local business leaders would like you to convince Ms. Daisy to plant more flowers so that tourism continues to increase. The business generated for other stores by Ms. Daisy's flower display is an example of a:
positive externality
You are the County Commissioner of Hazard County. Dwight's neighbors bring a complaint before you that Dwight's hog farm is creating a terrible odor, and they are demanding government action. Which of the following is not a course of action that you could take to satisfy the neighbor's demands?
private bargaining
Health insurance is a _____
private good
Absolute advantage is the ability of an individual, firm, or country to:
produce more of a good or service than competitors using the same amount of resources
The use of trade barriers to shield domestic companies from foreign competition is called __________
protectionism
A mosquito control program in a city is a ____
public good
A video on YouTube is a _____
public good
Which of the following is a technique used to encourage people to contribute and resolve the free-rider problem?
rewarding private contributors with private goods
Private goods are _______.
rival and excludable
Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government:
seeks to cap nationwide emissions and then distributes emission allowance permits across firms
Europe's populating fell by 30 to 60 percent following an outbreak of bubonic plague in the fourteenth century. As a result, Europe's production possibilities curve would ______.
shift inward
A production possibilities curve __________.
shows the relationship between the maximum production of one good for a given level of production for another good
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the _ the payoff to devoting additional resources to that activity.
smaller
Why is free trade controversial?
some individuals may lose
When you want to encourage an activity, you should ________ it, and when you want to discourage an activity, you should ______ it.
subsidize, tax
A tax on imported goods is known as a(n):
tariff
Which of the following arguments is used to justify protectionism?
tariffs and quotas protect infant industries
A bakery generates a pleasant odor for its neighborhood. Which is the following is true?
the MSC curve lies below the supply curve
Which of the following is a drawback to the infant industry justification for protectionism?
the industries under protection may never become efficient enough to compete with foreign firms
It is given that the marginal social benefit (MSB) of a particular positive externality equals $500. Which of the following statements is true if this externality is to be internalized?
the pigouvian subsidy equals $500 and the difference between the demand curve and the MSB curve equals $500
Which of the following is a source of comparative advantage?
the relative abundance of capital and labor
The overfishing by the Reed brothers is an example of:
tragedy of the commons
The costs associated with engaging in a process to solve a particular pollution problem are referred to as:
transaction costs
When is the market equilibrium said to be efficient?
when there are neither external benefits nor external costs
In which of the following situations can an externality be internalized by using the Pigouvian subsidy? (Check all that apply.)
Sophia's flower garden provides a pleasant view for her neighbors and an orchard is placed next to a beehive. So, both the farmer and the beekeeper benefit from each other