ECON QUIZ 4

Marginal damage cost is the difference between marginal social cost and marginal private cost.

False

Refer to the figure above: If price is P1, producer surplus is equal to area _______

G

When a positive externality exists in the production of a good, social benefits exceed private benefits.

True

You will still be able to listen to NPR (National Public Radio) whether or not you contribute to their fund-raising campaign, so you decide not to contribute. This is an example of the

free-rider problem

Refer to the Table above: The marginal damage costs imposed on society from processing the fourth ton of salt is _______. [Note: MC is the same as MPC]

$10.00

The above diagram depicts the marginal costs and marginal benefits associated with air travel. if government wishes to correct the externality problem using a Pigouvian tax (a tax per unit of air travel), the tax per unit should be ________. [Note: MC is the same as MPC]

$100

Refer to the above graph: If government set a price floor at $4, the deadweight loss created would be equal to _____.

$40

The above diagram depicts the marginal costs and marginal benefits associated with air travel. The socially efficient level of air travel is _______. [Note: MC is the same as MPC]

100 units

The above diagram depicts the marginal costs and marginal benefits associated with air travel. The externality here is the noise to those living near airports. Without government intervention, the quantity of air travel will be ________. [Note: MC is the same as MPC]

120 units

Refer to the Table above: If the market price of a ton of salt is $40, the socially efficient production of salt is _______ tons. [Note: MC is the same as MPC]

3

Refer to the Table above: If the market price of a ton of salt is $40, how many tons of salt will a private firm produce? [Note: MC is the same as MPC]

4 tons

Refer to the figure above: At equilibrium, consumer surplus is equal to area ________.

A+B+C.

Refer to the figure above: If price is P1, consumer surplus is equal to area ________.

A+B+E

Refer to the Figure above: If price is P1, the deadweight loss due to under production is equal to area _________.

C+F

In all cases where there is a negative externality, it is better to form a government agency to solve the problem.

False

Refer to the above figure: At equilibrium, producer surplus is equal to area _______.

E+F+G

According to the Coase theorem, bargaining will bring the contending parties to the correct solution only if the rights are initially assigned to the party causing the externality.

False

The total of consumer plus producer surplus is greatest

at the market equilibrium.

Music that is downloadable from the internet is ________ in consumption, and is ________.

nonrival; excludable

When an external cost exists in the production of a good, firms tend to

over-produce the good.