Question 1

The marginal social cost is:

Accepted Answer

A)  the extra cost imposed on bystanders when an extra unit is produced and consumed.
B)  the extra cost faced by a producer when an extra unit is produced and sold to a member of society.
C)  the difference between the marginal external cost and the marginal private cost.
D)  the sum of marginal private costs and marginal external costs.

Question 2

Which of the following is NOT an example of a corrective tax or subsidy used to address an externality problem?

Accepted Answer

A)  A country charges a set fee to companies that manufacture in the country for every 100 gallons of a particular chemical that they release into the country's lakes and waterways.
B)  The government sets a limit on the quantity of pollution companies can emit by issuing a set number of pollution permits that companies can trade.
C)  An environmental protection organization publishes and publicizes an annual list of companies that have taken actions to protect the environment as well as a list of companies that it finds are damaging the environment.
D)  A community distributes "I voted" stickers to everyone who votes in an election, hoping that seeing them on voters will encourage others to vote.

Question 3

Which of the following is the term for a quantity regulation that is implemented by allocating a fixed number of permits to producers, which can then be traded?

Accepted Answer

A)  quota market
B)  cap and trade
C)  private bargaining
D)  public goods

Question 4

The Rational Rule for Society is that society should produce another unit of a good if:

Accepted Answer

A)  the total social benefit exceeds the total social cost.
B)  the marginal social benefit exceeds the marginal social cost.
C)  the marginal private benefit exceeds the marginal private cost.
D)  gains to the producer exceed losses to the producer.

Question 5

(Figure: Market 3)  Use the graph to answer the question.
The graph shows the marginal social cost, demand, and supply curves in the toothpaste market. If market forces prevail, this market will produce and sell _____ tubes of toothpaste at a price of _____.

Accepted Answer

A)  eight; $5
B)  eight; $4
C)  12; $3
D)  12; $4

Question 6

A negative externality is:

Accepted Answer

A)  a side effect of an activity when the side effect harms bystanders.
B)  a reduction in demand that occurs when agents outside a market influence market participants.
C)  a change from a positive relationship between two variables to an inverse relationship.
D)  an unintended consequence of an action that harms the decision maker.

Question 7

During the production of a good, pollution is emitted that affects people who are neither producers nor buyers of the good. The term for the impact of the pollution on these people is:

Accepted Answer

A)  externality.
B)  exploitation.
C)  intrusion.
D)  outside impact.

Question 8

The cost paid by the seller in producing one additional unit of output is known as the _____ cost.

Accepted Answer

A)  marginal external
B)  marginal private
C)  external
D)  marginal social

Question 9

An advantage of cap and trade is that:

Accepted Answer

A)  pollution costs are more easily identifiable, making emission control easier.
B)  some pollution controls are less costly than others.
C)  the value that future generations place on pollution damages can be determined.
D)  technological change is incentivized, making cleaning up easier and less costly.

Question 10

What type of good is rival and excludable?

Accepted Answer

A)  private goods
B)  club goods
C)  common resources
D)  public goods

Question 11

Sellers must cover _____ costs, but a market does not require them to cover _____ costs.

Accepted Answer

A)  variable; fixed
B)  average; fixed
C)  marginal private; marginal external
D)  marginal total; marginal private

Question 12

Which of the following is the amount of a corrective tax that would resolve a negative externality problem?

Accepted Answer

A)  The marginal social cost.
B)  The total social cost.
C)  The total external cost.
D)  The marginal external cost.

Question 13

The marginal private benefit plus the marginal external benefit equals the ____ benefit.

Accepted Answer

A)  total public
B)  total externality
C)  marginal social
D)  marginal public

Question 14

(Figure: Market 3)  Use the graph to answer the question.
The graph shows the marginal social cost, demand, and supply curves in the toothpaste market. What is the socially optimal quantity and price in this market?

Accepted Answer

A)  eight; $4
B)  12; $3
C)  four; $6
D)  three; $12

Question 15

What determines whether a corrective tax or quantity regulation is a better choice for controlling an externality?

Accepted Answer

A)  It depends on whether the externality is positive or negative.
B)  It depends on whether more is known about marginal external costs or about the socially optimal quantity.
C)  It depends on how much damage is being done by the externality.
D)  It depends on whether or not the rational rule can be applied.

Question 16

Costs that arise from a market transaction but that are borne by people not involved in the transaction are called _____ costs.

Accepted Answer

A)  outside
B)  public
C)  reversal
D)  external

Question 17

(Market 6)  Use the graph to answer the question.
The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. The socially optimal quantity is _____, and the price is ______.

Accepted Answer

A)  four; $12
B)  nine; $6
C)  four; $6
D)  six; $9

Question 18

Pedro attends a university that provides antivirus software to all students, faculty, and staff for their personal computers as well as all university-owned computers. Why would the university pay for the protection of the personal computers of students, faculty, and staff?

Accepted Answer

A)  Having this extra perk from being associated with the university makes it easier to attract high-quality students, faculty, and staff.
B)  It reduces the cost of operations for the university because it can thereby buy software in bulk.
C)  It reduces the number of viruses on university-owned computers by reducing the probability that viruses will spread through files transferred from personal computers to university-owned computers and systems.
D)  Reducing the spread of viruses across campus promotes health among students and decreases absenteeism, which improve educational outcomes on campus.

Question 19

A good that is excludable but nonrival in consumption is known as a _____ good.

Accepted Answer

A)  public
B)  club
C)  private
D)  proprietary

Question 20

The outcome that is most efficient for society as a whole - including the interests of buyers, sellers, and bystanders - is the _____ outcome.

Accepted Answer

A)  externally optimal
B)  social benefit maximizing
C)  public optimal
D)  socially optimal

Exam 10: Externalities and Public Goods

(Figure: Market 3) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the toothpaste market. What is the socially optimal quantity and price in this market?

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A good that is excludable but nonrival in consumption is known as a _____ good.

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Which of the following is the amount of a corrective tax that would resolve a negative externality problem?

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(Figure: Market 3) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the toothpaste market. If market forces prevail, this market will produce and sell _____ tubes of toothpaste at a price of _____.

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Which of the following is NOT an example of a corrective tax or subsidy used to address an externality problem?

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A negative externality is:

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What determines whether a corrective tax or quantity regulation is a better choice for controlling an externality?

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An advantage of cap and trade is that:

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The marginal private benefit plus the marginal external benefit equals the ____ benefit.

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(Market 6) Use the graph to answer the question. The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. The socially optimal quantity is _____, and the price is ______.

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The outcome that is most efficient for society as a whole - including the interests of buyers, sellers, and bystanders - is the _____ outcome.

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During the production of a good, pollution is emitted that affects people who are neither producers nor buyers of the good. The term for the impact of the pollution on these people is:

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The cost paid by the seller in producing one additional unit of output is known as the _____ cost.

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The Rational Rule for Society is that society should produce another unit of a good if:

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Which of the following is the term for a quantity regulation that is implemented by allocating a fixed number of permits to producers, which can then be traded?

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Costs that arise from a market transaction but that are borne by people not involved in the transaction are called _____ costs.

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Pedro attends a university that provides antivirus software to all students, faculty, and staff for their personal computers as well as all university-owned computers. Why would the university pay for the protection of the personal computers of students, faculty, and staff?

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The marginal social cost is:

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What type of good is rival and excludable?

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Sellers must cover _____ costs, but a market does not require them to cover _____ costs.

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(Figure: Market 3) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the toothpaste market. If market forces prevail, this market will produce and sell _ tubes of toothpaste at a price of _.

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(Market 6) Use the graph to answer the question. The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. The socially optimal quantity is _, and the price is __.

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Sellers must cover _ costs, but a market does not require them to cover _ costs.

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