Question 1

If society is experiencing a net social cost from the production of a good, this implies that

Accepted Answer

A)  the socially optimal level of output is being produced and society is willing to accept the costs that result.
B)  producers would rather produce the output at which marginal social cost equals the demand for the good.
C)  negative externalities are involved in the production of this good.
D)  positive externalities must be involved in the production of this good.

Question 2

Which of the following statements is false ?

Accepted Answer

A)  A positive externality is internalized if the person that generated the externality incorporates into his or her own private cost-benefit calculations the external benefits that third parties receive.
B)  Internalizing externalities is not the same as adjusting for externalities.
C)  An externality has been completely internalized if the socially optimal output emerges.
D)  Assigning property rights is one way to internalize externalities.

Question 3

The free-rider problem arises if goods are

Accepted Answer

A)  nonrivalrous in consumption.
B)  rivalrous in consumption.
C)  nonexcludable.
D)  excludable.

Question 4

The free rider problem is the main source of market failure in the provision of nonexcludable public goods.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 30-3  Refer to Exhibit 30-3. Suppose that Firms A, B, and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere. To cut the level of pollution in half, the government mandates system whereby each firm must reduce its pollution level by one-half. The total cost of complying with the mandate is

Accepted Answer

A)  $433.
B)  $1,540.
C)  $2,750.
D)  $8,570.
E)  $11,650.

Question 6

The open lands in the early West were overgrazed largely because no one owned the land being used for grazing.

Accepted Answer

A) True 
 B)False

Question 7

If a positive externality exists, __________ in order for the socially optimal output to be reached.

Accepted Answer

A)  supply needs to decrease
B)  demand needs to increase
C)  demand needs to decrease
D)  supply and demand both need to increase

Question 8

Which of the following statements is true?

Accepted Answer

A)  A tax applied to an activity that generates a negative externality always brings about the socially optimal level of output.
B)  A subsidy applied to an activity that generates a positive externality always brings about the socially optimal level of output.
C)  A tax applied to an activity that generates a positive externality may bring about the socially optimal level of output.
D)  A tax applied to an activity that generates a negative externality may bring about the socially optimal level of output.

Question 9

Exhibit 30-3  Refer to Exhibit 30-3. What is the cost to Firm C of eliminating 2 tons of pollution?

Accepted Answer

A)  $1,300
B)  $300
C)  $1,500
D)  $2,200
E)  $3,500

Question 10

Exhibit 30-2 ​

Refer to Exhibit 30-2. This graph represents a positive externality situation. Given this, which of the two curves, X or Y, represents marginal social benefits and why?

Accepted Answer

A)  Curve X, because if there is a positive externality, negative external benefits are associated with it: social costs external benefits - private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve.
B)  Curve X, because if there is a positive externality, external benefits are associated with it: social benefits = external benefits + private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve.
C)  Curve Y, because if there is a positive externality, external costs are associated with it: social benefits = external costs + private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit cost curve.
D)  Curve Y, because if there is a positive externality, external benefits are associated with it: social benefits = external benefits + private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit curve.

Question 11

Exhibit 30-2 ​
1 to Q2 is the area of A) Q1ABQ2. B) Q1AEQ2. C) Q1CBQ2. D) ABE." class="answers-bank-image d-inline" rel="preload" >
Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the private benefit of expanding output from Q1 to Q2 is the area of

Accepted Answer

A)  Q1ABQ2.
B)  Q1AEQ2.
C)  Q1CBQ2.
D)  ABE.

Question 12

A good is a nonexcludable if

Accepted Answer

A)  its consumption by one person does not reduce its consumption by others.
B)  it is impossible to prevent people from obtaining the benefits of the good once it has been produced.
C)  no negative externalities are associated with its production and consumption.
D)  it is free in the first place; that is, it is so abundant that people can get all they want at zero price.

Question 13

If private property rights were established in the air, there would probably be

Accepted Answer

A)  more air pollution.
B)  less air pollution.
C)  the same amount of air pollution that exists without private property rights in the air.
D)  better weather.

Question 14

It seems quite possible that cigarette companies concealed information about the effects of smoking on health, causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

Accepted Answer

A)  higher; higher
B)  higher; lower
C)  lower; higher
D)  lower; lower

Question 15

From an economist's point of view, zero pollution is always preferable to some pollution.

Accepted Answer

A) True 
 B)False

Question 16

If a negative externality exists, __________ in order for the socially optimal output to be reached.

Accepted Answer

A)  supply needs to increase
B)  supply needs to decrease
C)  demand needs to increase
D)  supply and demand both need to increase

Question 17

When a positive externality exists,

Accepted Answer

A)  external benefits are necessarily greater than private benefits.
B)  social benefits are greater than private benefits.
C)  social benefits are less than private benefits.
D)  social benefits equal private benefits.

Question 18

Ronald Coase stressed the necessity of using taxes to internalize negative externalities.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 30-5 ​
1. B) D and B; Q1. C) D and B; Q2. D) A and B; Q2." class="answers-bank-image d-inline" rel="preload" >
Refer to Exhibit 30-5.  If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

Accepted Answer

A)  C and A; Q1.
B)  D and B; Q1.
C)  D and B; Q2.
D)  A and B; Q2.

Question 20

Externalities can be internalized through voluntary agreements as long as

Accepted Answer

A)  transaction costs are low relative to expected benefits.
B)  transaction costs are high relative to expected benefits.
C)  the agreement is a short-run agreement.
D)  the agreement is a long-run agreement.

Exam 17: Market Failure: Externalities, Public Goods, and Asymmetric Information

The free-rider problem arises if goods are

Correct Answer
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When a positive externality exists,

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A good is a nonexcludable if

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Which of the following statements is false ?

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If a negative externality exists, __________ in order for the socially optimal output to be reached.

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Exhibit 30-3 Refer to Exhibit 30-3. What is the cost to Firm C of eliminating 2 tons of pollution?

Correct Answer
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Externalities can be internalized through voluntary agreements as long as

Correct Answer
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If private property rights were established in the air, there would probably be

Correct Answer
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From an economist's point of view, zero pollution is always preferable to some pollution.

Correct Answer
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Ronald Coase stressed the necessity of using taxes to internalize negative externalities.

Correct Answer
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Exhibit 30-5 Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

Correct Answer
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The free rider problem is the main source of market failure in the provision of nonexcludable public goods.

Correct Answer
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Exhibit 30-2 Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the private benefit of expanding output from Q₁ to Q₂ is the area of

Correct Answer
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It seems quite possible that cigarette companies concealed information about the effects of smoking on health, causing cigarette prices to be and cigarette sales to be than would have been the case under symmetric information.

Correct Answer
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If a positive externality exists, __________ in order for the socially optimal output to be reached.

Correct Answer
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The open lands in the early West were overgrazed largely because no one owned the land being used for grazing.

Correct Answer
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Exhibit 30-2 Refer to Exhibit 30-2. This graph represents a positive externality situation. Given this, which of the two curves, X or Y, represents marginal social benefits and why?

Correct Answer
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If society is experiencing a net social cost from the production of a good, this implies that

Correct Answer
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Which of the following statements is true?

Correct Answer
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Exam 17: Market Failure: Externalities, Public Goods, and Asymmetric Information

The free-rider problem arises if goods are

Correct AnswerverifiedShow Answer

When a positive externality exists,

Correct AnswerverifiedShow Answer

A good is a nonexcludable if

Correct AnswerverifiedShow Answer

Which of the following statements is false ?

Correct AnswerverifiedShow Answer

If a negative externality exists, __________ in order for the socially optimal output to be reached.

Correct AnswerverifiedShow Answer

Exhibit 30-3 Refer to Exhibit 30-3. What is the cost to Firm C of eliminating 2 tons of pollution?

Correct AnswerverifiedShow Answer

Externalities can be internalized through voluntary agreements as long as

Correct AnswerverifiedShow Answer

If private property rights were established in the air, there would probably be

Correct AnswerverifiedShow Answer

From an economist's point of view, zero pollution is always preferable to some pollution.

Correct AnswerverifiedShow Answer

Ronald Coase stressed the necessity of using taxes to internalize negative externalities.

Correct AnswerverifiedShow Answer

Exhibit 30-5 ​ Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

Correct AnswerverifiedShow Answer

The free rider problem is the main source of market failure in the provision of nonexcludable public goods.

Correct AnswerverifiedShow Answer

Exhibit 30-2 ​ Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the private benefit of expanding output from Q1 to Q2 is the area of

Correct AnswerverifiedShow Answer

It seems quite possible that cigarette companies concealed information about the effects of smoking on health, causing cigarette prices to be __________ and cigarette sales to be __________ than would have been the case under symmetric information.

Correct AnswerverifiedShow Answer

If a positive externality exists, __________ in order for the socially optimal output to be reached.

Correct AnswerverifiedShow Answer

The open lands in the early West were overgrazed largely because no one owned the land being used for grazing.

Correct AnswerverifiedShow Answer

Exhibit 30-2 ​ Refer to Exhibit 30-2. This graph represents a positive externality situation. Given this, which of the two curves, X or Y, represents marginal social benefits and why?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If society is experiencing a net social cost from the production of a good, this implies that

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

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Exhibit 30-5 Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

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Exhibit 30-2 Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the private benefit of expanding output from Q₁ to Q₂ is the area of

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It seems quite possible that cigarette companies concealed information about the effects of smoking on health, causing cigarette prices to be and cigarette sales to be than would have been the case under symmetric information.

Correct Answer
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Exhibit 30-2 Refer to Exhibit 30-2. This graph represents a positive externality situation. Given this, which of the two curves, X or Y, represents marginal social benefits and why?

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