Microeconomics Chapter 10 Review

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Producers take account only of 1.__________ and produce more than the efficient quantity when there is a 2.__________

1. marginal private cost 2. marginal external cost

A steelmaking plant pollutes the air and water so _____________. A) the marginal social cost of producing steel exceeds the marginal private cost by the amount of the marginal external cost B) the marginal social cost of producing steel is less than the marginal private cost by the amount of the marginal external cost C) the marginal private cost of producing steel equals the marginal external cost plus the marginal social cost D) the marginal private cost of producing steel minus the marginal social cost equals the marginal external cost

A) the marginal social cost of producing steel exceeds the marginal private cost by the amount of the marginal external cost

Steel production creates pollution. If a tax is imposed on steel production equal to the marginal external cost of the pollution it creates, ___________. A) steel producers will cut pollution to zero B) the deadweight loss created by steel producers will be cut to zero C) the market price of steel will rise by the amount of the tax D) steel producers will continue to produce the inefficient quantity of steel

B) the deadweight loss created by steel producers will be cut to zero

A good or service with a positive externality is one which ____________. A) everyone wants to have access to B) is produced in the social interest C) the marginal social benefit exceeds the marginal private benefit D) the marginal external benefit exceeds the marginal private benefit

C) the marginal social benefit exceeds the marginal private benefit

Electricity has a negative production externality because ____________. A) its marginal benefit decreases as more of it is consumed B) the marginal private cost of producing it increases as more of it is produced C) the marginal social cost of producing it exceeds the marginal private cost of producing it D) a marginal external cost lowers the marginal benefit from consuming it

C) the marginal social cost of producing it exceeds the marginal private cost of producing it

An unregulated paint factory that pollutes a river results in ___________ and ___________. A) overproduction; a price that exceeds the marginal benefit from the good B) underproduction; a price that equals the marginal benefit from the good C) the efficient quantity produced; a marginal benefit equal to the marginal social cost D) an inefficient quantity produced; a marginal benefit below the marginal social cost

D) an inefficient quantity produced; a marginal benefit below the marginal social cost

Because education generates a positive externality, ___________. A) everyone who wants a college education should get one B) graduates' marginal benefit exceeds the society's value of the education C) the quantity of education undertaken will achieve the social interest if it is free D) subsidies to colleges or vouchers to students are means of achieving the efficient number of graduates

D) subsidies to colleges or vouchers to students are means of achieving the efficient number of graduates

Vouchers or subsidies to private colleges or the provision of public education below cost can achieve:

a more efficient provision of education

External benefits are:

benefits that are received by people other than the consumer of a good or service

External benefits from education arise because better-educated people are:

better citizens, commit fewer crimes, and support social activities

External costs are:

costs of production that fall on people other than the producer of a good or service

When property rights cannot be assigned, governments might overcome a negative externality by:

mandating clean technologies (command-and-control), imposing pollution taxes, or using a cap-and-trade program

Marginal social benefit equals:

marginal private benefit plus marginal external benefit

Marginal social cost equals:

marginal private cost plus marginal external cost

Sometimes it is possible to overcome a negative externality by assigning a:

property right


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