Chapter 10 Externalities – Test Bank | With Answers 9e - Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade by Robin Bade. DOCX document preview.
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Foundations of Microeconomics, 9e (Bade)
Chapter 10 Externalities
10.1 Negative Externalities: Pollution
1) Externalities
A) can be either benefits or costs.
B) always create extra social costs.
C) always make society better off.
D) cannot be expressed in dollar amounts.
E) are always part of private costs or private benefits.
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
2) A cost that arises from the production or consumption that falls on someone other than the producer or consumer is called
A) a negative benefit.
B) a public choice impact.
C) a positive externality.
D) a negative externality.
E) a private good.
Topic: Externalities
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
3) Evidence of external costs in the production of a product is present if
A) the price of the product is higher than it should be.
B) the production cost increases because of an increase in the minimum wage.
C) non-buyers and/or non-producers of the product experience a loss for which they are not compensated.
D) buyers refuse to purchase the product.
E) producers pay all of the costs of producing the good or service.
Topic: Externalities
Skill: Level 4: Applying models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
4) An example of someone bearing the burden of a negative production externality would be
A) Taylor living downwind from a smelly feedlot where pigs are raised.
B) Jess's roommate smokes and she doesn't.
C) Lynna's neighbors play loud music late at night.
D) All of these are examples of someone bearing the burden of a negative production externality.
E) None of these is an example of someone bearing the burden of a negative production externality.
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
5) An example of someone bearing the burden of a negative consumption externality would be
A) Taylor living downwind from a feedlot.
B) LaShawn grows beautiful roses in her garden.
C) Jess's roommate smokes and she doesn't.
D) All of these are examples of someone bearing the burden of a negative consumption externality.
E) None of these is an example of someone bearing the burden of a negative consumption externality.
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
6) To ensure all students are protected from getting the flu this year, your school offers free flu shots. What type of externality exists in this example?
A) negative consumption externality
B) positive consumption externality
C) positive production externality
D) negative production externality
E) neutral externality
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
7) A example of a good with external benefits is
A) a pizza.
B) a dose of flu vaccine.
C) a sewing machine.
D) an imported good.
E) a pair of running shoes.
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Status: Old
AACSB: Reflective thinking
8) Which of the following is NOT an example of a good with an external cost?
A) electricity generation producing carbon dioxide emissions that contribute toward climate change
B) logging that pollutes a nearby river
C) Jess smoking near her non-smoking roommate
D) Ahmed getting a flu shot each fall
E) noise pollution from aircraft
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Revised
AACSB: Reflective thinking
9) Pollution is an example of a ________ externality.
A) negative production
B) positive production
C) negative consumption
D) positive consumption
E) Coasian
Topic: Externalities
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
10) When studying pollution and the environment, economists
A) have no role to play.
B) concentrate on the physical aspects of the environment.
C) emphasize costs and benefits.
D) attempt to reduce pollution at all costs.
E) think pollution is good if it occurs when production takes place.
Topic: Economics and pollution
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
11) The production of electricity creates pollution. When deciding how much electricity to buy, customers ________ the cost of pollution. When deciding how much electricity to sell, producers ________ the cost of pollution.
A) take into account; take into account
B) do not take into account; do not take into account
C) take into account; do not take into account
D) do not take into account; take into account
E) None of the above answers is correct.
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Revised
AACSB: Reflective thinking
12) Marginal private cost
A) is always zero if there is an external cost.
B) equals the marginal social cost only if the marginal external cost is positive.
C) is the cost of producing an additional unit of a good or service that is paid by the producer of that good or service.
D) the cost of producing an additional unit of a good or service that falls on people other than the producer of that good or service.
E) the cost of producing an additional unit of a good or service that is paid by the entire society.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
13) A private cost is a cost of production that is
A) borne by the producer of a good.
B) equal to zero if there is an external cost.
C) borne by someone other than the producer of a good.
D) always the same as the social cost of production.
E) the same as an external cost.
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Revised
AACSB: Reflective thinking
14) The cost of producing an additional unit of a good or service that is borne by the producer of that good or service is the marginal
A) external cost.
B) private cost.
C) social cost.
D) public cost.
E) None of the above answers is correct.
Topic: Private cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
15) The difference between private cost and social cost is that
A) social cost only considers the external cost borne by society.
B) social cost only considers the cost borne by people other than the producer.
C) private cost only considers the cost borne by producers of the good.
D) social cost also includes any external benefit whereas private cost excludes all external benefits.
E) there is no difference; the terms refer to the same cost.
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
16) Harry, the owner of a beauty salon, hires a new hair stylist. The wages paid to the new stylist are
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) only a private benefit because people want their hair styled.
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
17) Joanne rents a TV production studio to produce an extra hour of a TV show. The rent is
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because viewers will benefit from watching the extra hour of the show.
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
18) For a product with an external cost, the supply curve
A) represents the various quantities people can buy.
B) is the same as the marginal private cost curve.
C) is the same as the marginal social cost curve.
D) is the same as the marginal external cost curve.
E) is undefined.
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
19) For a firm, its labor costs are
A) a marginal benefit.
B) a private cost.
C) an external cost.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
20) The cost of producing an additional unit of a good or service that falls on people other than the producer is the marginal
A) external cost.
B) private cost.
C) social cost.
D) social benefit.
E) None of the above answers is correct.
Topic: External cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
21) A marginal external cost of a product is equal to
A) what the producer has to pay to hire resources to produce another unit.
B) the cost someone other than the producer incurs when another unit is produced.
C) the cost the producer incurs to produce another unit.
D) what the consumer must pay when he or she buys the good or service.
E) None of these answers describes a marginal external cost.
Topic: External cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
22) A loud band plays a concert late at night in a neighborhood park. The noise produced by the band that keeps the neighbors not attending the concert awake is
A) only a private cost.
B) only an external cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because the neighbors get to hear the band.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
23) Which of the following is an example of an external cost?
A) taxes
B) the price of a car wash
C) pollution
D) an electricity bill
E) paying a wage that exceeds the minimum wage
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
24) A firm dumps dioxin in a river, thereby severely polluting the river. The cost of the water pollution is
i. zero for the firm.
ii. an external cost.
iii. part of the marginal social cost
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
25) When logging in the Pacific Northwest destroys forests that hikers would have used for eco-tourism, the destruction of the trails is an example of
A) an external cost.
B) a private cost.
C) a government cost.
D) an external benefit.
E) None of the above answers is correct.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
26) Which of the following is an example of an external cost?
A) a grove of trees planted in a park in Seattle
B) a library built in Philadelphia
C) a new, faster computer chip
D) an oil spill off the coast of South America
E) a student graduating from college
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
27) Jacob pays $5,000 to paint his house because pollution from a nearby factory damaged the paint. To the factory, the $5,000 cost is
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because viewers will benefit from watching the extra hour of the show.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
28) A landfill site produces an obnoxious odor. Homes downwind of the site rent for $1,000 per month while homes upwind of the site rent for $1,500 per month. If the odor is the only detectable difference between two neighborhoods, the difference in the rent is the ________ of the odor.
A) social cost
B) external cost
C) private cost
D) marginal cost-benefit
E) private benefit
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
29) Suppose two neighborhoods (A and B) have identical housing, but neighborhood A has a strictly enforced deed restriction that prohibits homeowners from parking junk cars in the front yard. If houses in neighborhood A sell for $105,000 and houses in neighborhood B sell for $100,000, how would an economist value the external cost of visible junk cars, per house?
A) $205,000
B) $105,000
C) $100,000
D) $5,000
E) None of the above answers is correct.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
30) Suppose two neighborhoods with 10 homes each in Buffalo, New York are identical except one of them is near a toxic waste dump. If homes near the dump sell for an average of $40,000 and the other homes sell for $90,000, the external cost of the dump is
A) $400,000.
B) $1,300,000.
C) $900,000.
D) $500,000.
E) $90,000.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
31) The marginal cost incurred by the entire society to produce a good or service is the
A) marginal external cost.
B) marginal private cost.
C) marginal social cost.
D) marginal social benefit.
E) marginal private benefit.
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
32) Marginal social cost is equal to
A) the amount people who buy a product pay for another unit.
B) whatever producers have to pay to produce output.
C) the sum of marginal private cost and the marginal external cost.
D) the average of marginal private cost and the marginal external cost.
E) None of the above answers is correct.
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
33) Marginal social cost is the
A) price a consumer pays for one more unit of a good.
B) cost a producer incurs producing one more unit of a good.
C) cost of producing one more unit of a good that falls on someone other than the producer.
D) sum of the cost a producer incurs from producing one more unit of a good plus the cost of producing one more unit of a good that falls on someone other than the producer.
E) same as marginal cost only if there is an external cost when the good is produced.
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
34) Which of the following equations is correct?
A) MC = MSC + marginal external cost
B) MSC = MC ÷ marginal external cost
C) MSC = MC + marginal external cost
D) MSC = MC × marginal external cost
E) MC = marginal external cost - MSC
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
35) The marginal social cost of producing a good or service is the
A) cost of producing an additional unit borne by the producer.
B) cost of producing an additional unit borne by people other than the producer.
C) sum of the marginal private cost and the marginal external cost.
D) same as marginal external cost.
E) sum of the marginal private cost and the marginal external cost minus the marginal social benefit.
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
36) Which of the following is TRUE?
A) MSC = MC + Marginal external cost
B) MC = Marginal external cost - MSC
C) MC = Marginal external benefit + MSC
D) MSC = Marginal external cost + marginal external benefit
E) MSC = Marginal external cost - marginal external benefit
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
37) If there is no external cost, then marginal social cost
A) increases as output increases.
B) decreases as output increases.
C) is constant regardless of the level of output.
D) is unrelated to output levels.
E) first increases and then decreases as output increases.
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
38) If a product has zero external costs, then
A) marginal social cost equals marginal private cost.
B) marginal social cost is greater than marginal private cost.
C) marginal social cost is less than marginal private cost.
D) marginal social cost equals zero.
E) We need more information to determine the relationship between marginal private cost and marginal social cost.
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
39) If the marginal external cost of building a children's playground equals zero, then the
i. marginal private cost equals the marginal social cost.
ii. marginal social cost equals zero.
iii. marginal private cost equals zero.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i and ii
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
40) If the marginal private cost of running a car is $0.30 a mile and the marginal external cost is $0.10, what is the marginal social cost?
A) $0.20
B) $3.00
C) $0.03
D) $0.40
E) None of the above answers is correct.
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
41) If the marginal social cost of generating a kilowatt of electricity is $0.10 and the marginal private cost is $0.08, what is the marginal external cost?
A) $0.18
B) $0.10
C) $0.08
D) $0.02
E) $0.80
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
42) If the marginal social cost of producing a ton of cement is $4,000 and the marginal private cost is $3,500, then the
A) marginal benefit of a ton of cement will equal $4,000.
B) total cost of producing a ton of cement is $7,500.
C) marginal external cost of producing a ton of cement is $500.
D) marginal external cost of producing a ton of cement is $7,500.
E) marginal external cost of producing a ton of cement is $4,000.
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
43) If a good has an external cost, then the marginal private cost curve
A) lies below then the marginal social cost curve.
B) lies above the marginal social cost curve.
C) lies below the horizontal axis.
D) is the same as the marginal external cost curve.
E) is undefined because the firms' costs are not equal to the social costs.
Topic: Marginal social cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
44) If the production of a good causes an external cost, then the efficient quantity is
A) equal to the quantity at which the marginal benefit equals marginal cost.
B) less than the quantity at which the marginal benefit equals the marginal cost.
C) more than the quantity at which the marginal benefit equals the marginal cost.
D) the quantity at which the marginal private benefit is greater than the marginal social benefit.
E) None of the above answers is correct.
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
45) If a good has an external cost, the
A) unregulated competitive market outcome is efficient.
B) marginal private cost reflects the external cost.
C) unregulated competitive market outcome is inefficient.
D) marginal social benefit is equal to the marginal social cost when the market is in equilibrium.
E) external benefit must equal the external cost.
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
46) The basic reason that a competitive unregulated market produces an inefficient amount of a good with an external cost is because
A) producers cannot measure marginal social cost.
B) producers do not pay the external cost.
C) the general public does not care about external costs.
D) external costs are not a political issue.
E) the external cost is paid by consumers rather than producers.
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
47) When production of a good results in an external cost, the unregulated competitive market equilibrium quantity is
A) the efficient level of output.
B) greater than the efficient level of output.
C) not zero but is less than the efficient level of output.
D) unattainable.
E) zero.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
48) If producing a good or a service creates pollution, then
A) an unregulated competitive market produces an efficient output.
B) the industry's supply curve includes the extra cost of pollution.
C) at the unregulated, competitive market equilibrium quantity, marginal social cost is greater than the equilibrium price.
D) at the unregulated, competitive market equilibrium quantity, marginal social benefit and marginal social cost are equal.
E) at the unregulated, competitive market equilibrium quantity, marginal social benefit is less than the equilibrium price.
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
49) An external cost in the production of a good creates a difference between the
i. costs borne by the producer and the costs borne by society in general.
ii. efficient quantity of output and the equilibrium quantity of output.
iii. marginal social cost and the marginal private cost.
A) i only
B) iii only
C) ii and iii
D) i, ii, and iii
E) i and iii
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
50) The deadweight loss associated with producing a product that has an external cost occurs because
A) too much output is produced.
B) too little output is produced.
C) the price that firms charge for the good is too high.
D) not enough resources are allocated to producing the good.
E) the marginal social cost does not equal zero.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
51) When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because
A) MSC = MC.
B) MSC = MB.
C) MSC > MB.
D) MSC < MB.
E) MSC is undefined.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
52) For a good whose production creates an external cost, the efficient quantity of output is
A) where the market demand curve and the market supply curve intersect.
B) where the marginal social cost curve and marginal benefit curve intersect.
C) as low as possible.
D) zero.
E) the amount of production so that the marginal social benefit exceeds the marginal social cost by as much as possible.
Topic: Efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
53) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered. If 5 concerts are put on, then the
A) marginal external cost will be greater than the marginal social cost.
B) marginal external cost will be greater than the marginal private cost.
C) marginal external cost will equal the marginal private cost.
D) marginal social cost will equal the marginal external cost.
E) marginal external cost will equal zero.
Topic: External cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
54) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered. Suppose the marginal private cost of the 5th concert is $10,000. Then, for the 5th concert, the
A) marginal external cost equals $30,000.
B) marginal social cost equals $30,000.
C) marginal external cost equals the marginal private cost.
D) marginal external cost equals $40,000.
E) marginal external cost equals $10,000.
Topic: External cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
55) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered. At 10 concerts, the
A) marginal private cost equals the marginal external cost.
B) marginal social cost equals $60,000.
C) marginal private cost is more than $40,000.
D) marginal external cost equals $60,000.
E) marginal external cost equals $80,000.
Topic: External cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
56) The figure above shows the marginal social cost of generating electricity and the marginal private cost. For 4 billion kilowatts, what is the marginal external cost?
A) $0.12
B) $0.08
C) $0.04
D) $0.00
E) $0.20
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
57) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve. The difference between the marginal cost curve and the marginal social cost curve equals
A) marginal private cost.
B) private cost.
C) external cost.
D) marginal external cost.
E) Coasian cost.
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
58) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve. The marginal cost borne by producers when 100 billion kilowatt hours are produced is
A) 5¢ per kilowatt.
B) 10¢ per kilowatt.
C) 15¢ per kilowatt.
D) 20¢ per kilowatt.
E) 0¢ per kilowatt.
Topic: Private cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
59) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve. The marginal cost borne by producers when 200 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 10¢ per kilowatt.
C) 20¢ per kilowatt.
D) 15¢ per kilowatt.
E) 5¢ per kilowatt.
Topic: Private cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
60) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve. The marginal external cost when 100 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 5¢ per kilowatt.
C) 10¢ per kilowatt.
D) 15¢ per kilowatt.
E) 20¢ per kilowatt.
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
61) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve. The marginal external cost when 200 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 10¢ per kilowatt.
C) 20¢ per kilowatt.
D) 15¢ per kilowatt.
E) 5¢ per kilowatt.
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
62) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve. The marginal cost paid by the producers and everyone else in society when 100 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 5¢ per kilowatt.
C) 10¢ per kilowatt.
D) 20¢ per kilowatt.
E) 15¢ per kilowatt.
Topic: Marginal social cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
63) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve. The marginal cost paid by the producers and everyone else in society when 200 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 10¢ per kilowatt.
C) 20¢ per kilowatt.
D) 15¢ per kilowatt.
E) 5¢ per kilowatt.
Topic: Marginal social cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
Quantity of steel (millions of tons per week) | Marginal benefit (dollars per ton) | Marginal social cost (dollars per ton) |
5 | 40 | 20 |
10 | 35 | 25 |
15 | 30 | 30 |
20 | 25 | 35 |
25 | 20 | 40 |
64) The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. The market is efficient when the quantity of steel produced is ________ tons per week.
A) 5
B) 10
C) 15
D) 20
E) 25
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
65) The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. If the marginal external cost is $10 per ton at every quantity of steel produced, the equilibrium quantity when the steel industry is unregulated is ________ tons per week.
A) 5
B) 15
C) 20
D) 25
E) 10
Topic: An unregulated market
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
66) Homeowners living under the flight path of a large airport complain their home values suffer due to the roar of airplane traffic overhead. They claim the value of their homes is $2,000 less compared to similar homes not in the flight path. The ________ of the noise pollution equals the ________.
A) total external cost; number of affected homes multiplied by $2,000 per home
B) marginal external cost; number of affected homes multiplied by $2,000 per home
C) total external cost; $2,000
D) marginal external cost; $2,000 divided by the number of homes
E) total cost; number of homes multiplied by $2,000
Topic: Total external cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
67) The figure above shows the costs and benefits associated with wood pulp production. As the amount of wood pulp produced increases, the cost paid by the producer for each additional ton ________ and the external cost of pollution of each additional ton ________.
A) increases; decreases
B) increases; increases
C) stays the same; increases
D) increases; stays the same
E) decreases; increases
Topic: Externalities
Skill: Level 4: Applying models
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
68) The figure above shows the costs and benefits associated with wood pulp production. The fact that the marginal external cost increases is seen in________ as production increases.
A) the upward sloping MC curve
B) the upward sloping MSC curve
C) the downward sloping MB curve
D) the increasingly large difference between the MSC and MC curves
E) the fact that MB = MC
Topic: Externalities
Skill: Level 4: Applying models
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
69) The graph shows the benefits and costs associated with wood pulp production. When the firm produces 5 tons of wood pulp, marginal private cost equals ________ per ton.
A) $700
B) $600
C) $900
D) $1,000
E) $200
Topic: Externalities
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
70) The figure above shows the costs and benefits associated with wood pulp production. Without regulation the market will produce ________ tons of wood pulp at a price of ________ per ton.
A) 5; $1,100
B) 3; $900.
C) 5; $700
D) 3; $600
E) 4; $900
Topic: Externalities
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
71) The figure above shows the costs and benefits associated with the production of wood pulp. With regulation that achieves an efficient outcome, the market produces ________ tons of wood pulp at a price of ________ per ton.
A) 3; $800
B) 3; $700
C) 5; $700
D) 5; $1,100
E) 4; $800
Topic: Externalities
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
72) The figure above shows the costs and benefits associated with wood pulp production. Government regulation can produce the efficient outcome by ensuring that production is such that
A) MC = MB.
B) MB > MSC.
C) MB > marginal external cost.
D) MSB > MSC.
E) MSC = MB.
Topic: Externalities
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
73) The figure shows the costs and benefits associated with wood pulp production. A tax of ________ can be imposed to achieve the efficient level of production of ________ tons.
A) $200; 3
B) $200; 2
C) $300; 5
D) $1,000; 5
E) $900; 3
Topic: Externalities
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Application of knowledge
74) The figure above shows the costs and benefits associated with producing paper. What is the marginal external cost when output is 6 tons?
A) $1,600
B) $1,200
C) $1,000
D) $600
E) $400
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
75) The figure above shows the costs and benefits associated with producing paper. What is the unregulated competitive market level of output?
A) 0
B) 4 tons
C) 6 tons
D) more than 6 tons
E) None of the above answers is correct.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
76) The figure above shows the costs and benefits associated with producing paper. What is the efficient level of output?
A) 0
B) 4 tons
C) 6 tons
D) more than 6 tons
E) None of the above answers is correct.
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
77) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered. It also illustrates the marginal benefit. There is no external benefit. If the city of Seattle puts on 5 concerts per year, then the marginal benefit will
A) exceed the marginal social cost.
B) equal the marginal private cost.
C) be less than the marginal social cost.
D) will equal the marginal social cost.
E) None of the above answers is correct.
Topic: Marginal benefit, marginal social cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
78) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered. It also illustrates the marginal private benefit. There is no external benefit. The efficient number of concerts in Seattle is
A) 0.
B) 5.
C) 10.
D) 20.
E) 15.
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
79) Legally established titles to ownership, use, and disposal of factors of production and goods and services, are called ________ rights.
A) government
B) pollution
C) property
D) inefficient
E) private
Topic: Property rights
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
80) Legally established titles to the ownership, use, and disposal of factors of production are referred to as
A) property rights.
B) Coase rights.
C) pollution rights.
D) emission rights.
E) price-setting rights.
Topic: Property rights
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
81) One reason why property rights help achieve an efficient level of pollution is because property rights
A) force the marginal private cost to equal the marginal social cost.
B) force the marginal social cost to zero.
C) force the marginal external cost to a lower level than marginal private cost.
D) eliminate marginal private costs.
E) change the marginal external cost so that they are equal to the marginal social benefit.
Topic: Property rights
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
82) If a producer must pay the cost of his or her pollution because property rights have been assigned, then
A) pollution will be completely eliminated.
B) the supply curve will shift rightward as the new costs are added.
C) the supply curve will shift leftward as the new costs are added.
D) consumers will now consume more of the good because the external costs are reduced.
E) there is no longer any marginal benefit from the good or service being produced.
Topic: Property rights
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
83) The Coase theorem states that
A) the level of pollution should be equal to zero to maximize social net benefit.
B) profit making producers pollute because they are forced to.
C) the efficient level of output is where marginal external cost equals marginal external benefit.
D) if property rights exist and transactions costs are low, private transactions are efficient.
E) the best way to limit pollution is by taxing producers who pollute.
Topic: Coase theorem
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
84) The proposition that if property rights exist and are enforced, then private transactions are efficient is referred to as the
A) Coase theorem.
B) property rights theorem.
C) pollution rights theorem.
D) emission rights theorem.
E) private-market efficiency theorem.
Topic: Coase theorem
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
85) The Coase theorem deals with the problem of pollution by
A) giving the government regulatory power over polluters.
B) making all polluters stop polluting.
C) establishing and enforcing private property rights.
D) having the government take over ownership of all polluting processes.
E) allowing the government to set the proper emission charge.
Topic: Coase theorem
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
86) If transactions costs are low, then assigning property rights in a market with external costs
i. increases the deadweight loss.
ii. means private transactions are efficient.
iii. means that only consumers must pay the external costs.
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i and ii
Topic: Coase theorem
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
87) Transactions costs are the
A) costs of using the Coase theorem.
B) opportunity costs of conducting a transaction.
C) external marginal costs of the externality.
D) reason why taxes cannot affect the inefficiency resulting from an external cost.
E) external costs when a firm pollutes.
Topic: Coase theorem
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
88) Which of the following is the best example of a transactions cost?
A) the value of the time spent negotiating a contract
B) the price of a new set of tires
C) the cost associated with producing a golf club
D) the price of labor and materials used to produce a house
E) the price of food
Topic: Coase theorem
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
89) Methods the government can use to cope with the external cost from pollution are
A) pollution taxes, subsidies, and command and control regulations.
B) pollution taxes, regulations, and pollution vouchers.
C) marketable permits, pollution subsidies, and pollution taxes.
D) pollution taxes and cap-and-trade pollution limits.
E) pollution vouchers, pollution subsidies, and pollution taxes.
Topic: Government actions in the face of external costs
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Revised
AACSB: Reflective thinking
90) Methods the government can use to cope with the external cost from pollution are
A) pollution taxes and pollution subsidies.
B) pollution taxes and remove property rights.
C) remove property rights, command and control regulations, and pollution taxes.
D) command and control regulations, pollution taxes, and cap-and-trade pollution limits.
E) grant polluters vouchers or pollution subsidies, and cap-and-trade pollution limits.
Topic: Government actions in the face of external costs
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: New
AACSB: Reflective thinking
91) Regulations issued under the Clean Air Act and the Clean Water Act are examples of
A) pollution taxes.
B) the Coase theorem.
C) cap-and-trade permits.
D) command and control regulations.
E) pollution subsidies.
Topic: Government actions in the face of external costs
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: New
AACSB: Reflective thinking
92) The "Green New Deal" is an example of
A) government imposed pollution taxes.
B) the Coase theorem.
C) government granted pollution subsidies.
D) government command and control regulations.
E) vouchers used to combat pollution.
Topic: Government actions in the face of external costs
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: New
AACSB: Reflective thinking
93) Which of the following is a common method used by government to cope with the situation in which production of a good creates an external cost?
A) removing property rights
B) subsidizing production
C) cap-and-trade
D) lottery
E) vouchers
Topic: Government actions in the face of external costs
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
94) Producing leather creates external costs in the form of water pollution. The figure above illustrates the market for leather. In the absence of any government regulation, how many tons of leather will be produced?
A) 0 tons
B) 200 tons
C) 300 tons
D) more than 300 tons
E) None of the above answers is correct.
Topic: Government actions in the face of external costs
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
95) Producing leather creates external costs in the form of water pollution. The figure above illustrates the market for leather. If the government sets a pollution limit that achieves efficiency, how many tons of leather are produced?
A) 0 tons
B) 200 tons
C) 300 tons
D) more than 300 tons
E) more than 0 tons and less than 200 tons
Topic: Pollution limits
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
96) Which of the following is TRUE regarding pollution charges?
i. They force a polluter to pay a price for its pollution.
ii. They are based on the marginal external cost of pollution.
iii. The fee that produces the efficient amount of pollution is easily determined.
A) i only
B) i and ii
C) ii and iii
D) i, ii, and iii
E) i and iii
Topic: Pollution charges
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
97) When using pollution charges to improve efficiency in a market with an external cost, regulators attempt to set the pollution charge equal to the
A) marginal social cost of production.
B) marginal external cost of production.
C) marginal private cost of production.
D) marginal private benefit of consumption.
E) marginal external benefit minus the marginal external cost.
Topic: Pollution charges
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
98) Suppose a firm pollutes a river when it produces a product. To achieve the efficient amount of output, a government could impose a ________ that equals the ________ of the pollution.
A) pollution charge; marginal social cost
B) pollution charge; marginal external cost
C) pollution tax; marginal social cost
D) pollution tax; marginal external cost
E) pollution subsidy; marginal social cost
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
99) In order for pollution taxes to be effective in eliminating the deadweight loss resulting from pollution, the pollution tax must be set equal to the
A) marginal private cost.
B) marginal external cost.
C) marginal social cost.
D) marginal benefit of polluting.
E) price of the good.
Topic: Taxes
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
100) To eliminate the inefficiency resulting from pollution that creates an external cost, the government can impose a pollution tax on producers that is equal to the
A) MSB.
B) MC.
C) marginal external cost.
D) MSC.
E) price.
Topic: Taxes
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
101) If the government taxes producers that create pollution, the government's policy
A) allows the producers to pollute more by increasing their costs.
B) results in less production because the producers' costs have risen.
C) eliminates pollution entirely by shifting the supply curve leftward.
D) allows the firms to pass along higher costs but doesn't cut pollution.
E) forbids the firms from passing along higher costs.
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
102) A tax on a polluting industry
A) is not desirable because it reduces efficiency.
B) leads to less output in this industry.
C) causes more resources to be used in the polluting industry.
D) shifts the marginal social benefit curve leftward.
E) shifts the marginal social benefit curve rightward.
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
103) If the government taxes an industry that creates pollution, the tax
i. decreases the pollution.
ii. increases the price of the product produced by the firms.
iii. decreases the quantity of the good produced.
A) i only.
B) ii only.
C) ii and iii.
D) i and iii.
E) i, ii, and iii.
Topic: Taxes
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
104) If a pollution tax in a market with an external cost changes the market so that it produces the efficient level of output, which of the following occurs?
i. The supply curve shifts leftward.
ii. The price increases.
iii. The quantity produced decreases.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Topic: Taxes
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
105) When government levies pollution taxes on sellers to eliminate the inefficiency from the cost of pollution, the result is
A) a lower price.
B) a smaller quantity produced.
C) a smaller cost of production.
D) a rightward shift of the supply curve.
E) leftward shifts of the supply and demand curves.
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
106) The figure above illustrates the gasoline market. There is no external benefit from gasoline. If this market is left unregulated and no pollution tax is imposed, the equilibrium quantity of gasoline is
A) 0 gallons.
B) 5 million gallons.
C) 10 million gallons.
D) 20 million gallons.
E) 15 million gallons.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
107) The figure above illustrates the gasoline market. There is no external benefit from gasoline. If a pollution tax equal to the marginal external cost is imposed on gasoline, then the quantity of gasoline produced and consumed equals
A) 0 gallons.
B) 5 million gallons.
C) 10 million gallons.
D) 20 million gallons.
E) None of the above answers is correct.
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
108) The figure above illustrates the gasoline market. There is no external benefit from gasoline. If a tax on gasoline is imposed as shown in the figure, then the total tax revenue earned by the government equals
A) $24 million.
B) $16 million.
C) $8 million.
D) more than $24 million.
E) less than $8 million.
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
109) The figure above shows the market for the chemical hydrogen sulfide, the production of which creates an external cost. If the government assesses the marginal external cost correctly, what is the amount of the pollution tax that eliminates the inefficiency?
A) $2 per pound
B) $3 per pound
C) $4 per pound
D) $1 per pound
E) None of the above answers is correct.
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
110) The figure above shows the market for the chemical hydrogen sulfide, the production of which creates an external cost. The government imposes the pollution tax shown in the above figure. What quantity is produced after the pollution tax is imposed?
A) zero pounds
B) 80 million pounds
C) 160 million pounds
D) more than 160 million pounds
E) more than 80 million pounds and less than 160 million pounds
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
111) The figure above shows the market for the chemical hydrogen sulfide, the production of which creates an external cost. The government imposes the pollution tax shown in the figure. How much tax revenue does the government collect?
A) $640 million
B) $320 million
C) $240 million
D) more than $640 million
E) zero, because the government has taxed the firms out of business
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
112) The figure above shows a tax imposed on a good with an external cost. The area of the rectangle abcd equals
A) the MSB.
B) the total tax revenue collected by the government.
C) the amount of pollution tax per ton.
D) the MC.
E) the deadweight loss.
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
113) The figure above shows the marginal social cost curve of generating electricity, the marginal private cost curve, and the demand curve. The marginal external cost of producing 200 billion kilowatt hours per day is ________ per kilowatt.
A) 0¢
B) 10¢
C) 20¢
D) 15¢
E) 5¢
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
114) The figure above shows the marginal social cost curve of generating electricity, the marginal private cost curve, and the demand curve. If the market is competitive and unregulated, the equilibrium price is ________ per kilowatt hour and the equilibrium quantity is ________ billion kilowatt hours per day.
A) 10¢; 200
B) 15¢; 150
C) 20¢; 200
D) 20¢; 100
E) 7.5¢; 150
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
115) The figure above shows the marginal social cost curve of generating electricity, the marginal private cost curve, and the demand curve. If the market is competitive and unregulated, the equilibrium quantity is ________ billion kilowatt hours per day and the efficient quantity is ________ billion kilowatt hours per day
A) 150; 200
B) 200; 150
C) 0; 150
D) 250; 0
E) 150; 150
Topic: Efficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
116) The figure above shows the marginal social cost curve of generating electricity, the marginal private cost curve, and the demand curve. If the Coase theorem can be used in this market, output equals ________ kilowatt hours per day.
A) 0
B) 150 billion
C) 200 billion
D) 100 billion
E) more than 200 billion
Topic: Coase theorem
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
117) The figure above shows the marginal social cost curve of generating electricity, the marginal private cost curve, and the demand curve. If the government imposes a pollution tax to achieve the efficient level of production, the tax equals ________ per kilowatt hour.
A) 0¢
B) 7.5¢
C) 10¢
D) 15¢
E) 2.5¢
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
118) What is the biggest problem of using government actions such as taxes and pollution charges to control external costs?
A) insufficient legal power to enforce the controls
B) obtaining enough data to determine how much the tax or pollution charge will be
C) In some situations, there is no known way to control the external costs.
D) political lobbying and voter disagreement
E) The Coase theorem points out that taxes and pollution charges work only in the short run and not in the long run.
Topic: Pollution charges
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
119) A problem with pollution charges or taxes as a solution to pollution is that
A) people don't want the government to regulate industry.
B) the necessary information about the polluting industry is costly and usually unavailable.
C) taxes are already too high.
D) pollution would still continue.
E) the producers do not want the property right to their pollution.
Topic: Pollution charges
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
120) Cap-and-trade refers to
A) capping emissions and issuing tradeable emissions permits.
B) capping revenue from selling emissions permits.
C) countries trading fishing rights in international waters.
D) capping taxes on firms that engage in international trade.
E) capping the benefits gained from pollution controls.
Topic: Marketable permits
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
121) Using a cap-and-trade policy and issuing marketable permits to firms that produce a product with external costs will give the firms the incentive to
A) declare bankruptcy.
B) buy and sell the permits amongst themselves.
C) escape the problem completely.
D) quit producing the output.
E) increase the external cost because they no longer need to deal with the externality.
Topic: Marketable permits
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
122) Firm A and Firm B emit 300 tons of pollution each and each have marketable permits that allow each to emit 100 tons of pollution. If it costs $5,000 for Firm A to eliminate 100 tons of pollution and it costs Firm B $6,000 to eliminate 100 tons of pollution, then
A) Firm B sells its permits to Firm A for a price above $6,000.
B) Firm A sells its permits to Firm B for a price below $6,000.
C) Firm A sells its permits to Firm B for a price above $6,000.
D) Firm B sells its permits to Firm A for a price below $6,000.
E) neither Firm A nor Firm B sells permits because neither has extra permits.
Topic: Marketable permits
Skill: Level 4: Applying models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
123) Cost effective technologies to reduce pollution are most likely to result from
A) marketable pollution permits.
B) pollution charges.
C) taxes.
D) pollution limits.
E) quotas.
Topic: Marketable permits
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
124) Which of the following best describes an externality?
A) something that is external to the economy
B) a sales tax on a good in addition to the market price
C) an effect of a transaction felt by someone other than the buyer or seller
D) anything produced in other countries
E) a change from what is normal
Topic: Externalities
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
125) The cost of producing an additional unit of a good or service that is borne by the producer of that good or service
A) always equals the benefit the consumer derives from that good or service.
B) equals the cost borne by people other than the producer.
C) is the marginal private cost.
D) is the external cost.
E) is the marginal social cost.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
126) The cost of producing an additional unit of a good or service that falls on people other than the producer is
A) the marginal cost.
B) represented by the demand curve.
C) represented by the supply curve.
D) the marginal external cost.
E) the marginal social cost.
Topic: External cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
127) Which of the following is an example of an activity that creates an external cost?
i. a smoker emitting second-hand smoke
ii. sulfur emitting from a smoke stack
iii. throwing garbage on the roadside
A) i only
B) i and ii
C) iii only
D) ii and iii
E) i, ii, and iii
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
128) The marginal cost of production that is borne by the entire society is called the marginal
A) private cost.
B) social cost.
C) external cost.
D) public cost.
E) user cost.
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
129) If the marginal private cost of producing one kilowatt of power in California is ten cents and the marginal social cost of each kilowatt is fourteen cents, then the marginal external cost equals ________ per kilowatt.
A) ten cents
B) nineteen cents
C) four cents
D) zero cents
E) fourteen cents
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
130) When the production of a good has a marginal external cost, which of the following occurs in an unregulated market?
i. Overproduction relative to the efficient level will occur.
ii. The market price is less than the marginal social cost at the equilibrium quantity.
iii. A deadweight loss occurs.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
131) The Coase theorem is the proposition that if property rights exist and are enforced, private transactions are
A) inefficient.
B) efficient.
C) inequitable.
D) illegal.
E) unnecessary.
Topic: Coase theorem
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
132) A marketable permit
A) allows firms to pollute all they want without any cost.
B) allows firms to buy and sell the right to pollute at government controlled prices.
C) eliminates pollution by setting the price of pollution permits above the marginal cost of polluting.
D) allows firms to buy and sell the right to pollute.
E) is the Coase theorem solution to pollution.
Topic: Marketable permits
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
133) If a polluting producer is forced to pay a pollution charge, what is the effect on the supply and demand curves for the product?
A) The quantity supplied along the firm's supply curve increases.
B) The firm's demand curve shifts leftward.
C) The firm's supply curve shifts rightward.
D) The firm's supply curve shifts leftward.
E) Both the supply curve and the demand curve shift leftward.
Topic: Government actions in the face of external costs
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
134) Which of the following best describes an externality?
A) something that is external to the economy
B) a sales tax on a good in addition to the market price
C) an effect of a transaction felt by someone other than the buyer or seller
D) anything produced in other countries
E) a change from what is normal
Topic: Externalities
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
135) The cost of producing an additional unit of a good or service that is borne by the producer of that good or service
A) always equals the benefit the consumer derives from that good or service.
B) equals the cost borne by people other than the producer.
C) is the marginal private cost.
D) is the external cost.
E) is the marginal social cost.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
136) The cost of producing an additional unit of a good or service that falls on people other than the producer is
A) the marginal cost.
B) represented by the demand curve.
C) represented by the supply curve.
D) the marginal external cost.
E) the marginal social cost.
Topic: External cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
137) Which of the following is an example of an activity that creates an external cost?
i. a smoker emitting second-hand smoke
ii. sulfur emitting from a smoke stack
iii. throwing garbage on the roadside
A) i only
B) i and ii
C) iii only
D) ii and iii
E) i, ii, and iii
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
138) The marginal cost of production that is borne by the entire society is called the marginal
A) private cost.
B) social cost.
C) external cost.
D) public cost.
E) user cost.
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
139) If the marginal private cost of producing one kilowatt of power in California is ten cents and the marginal social cost of each kilowatt is fourteen cents, then the marginal external cost equals ________ per kilowatt.
A) ten cents
B) nineteen cents
C) four cents
D) zero cents
E) fourteen cents
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
140) When the production of a good has a marginal external cost, which of the following occurs in an unregulated market?
i. Overproduction relative to the efficient level will occur.
ii. The market price is less than the marginal social cost at the equilibrium quantity.
iii. A deadweight loss occurs.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
141) The Coase theorem is the proposition that if property rights exist and are enforced, private transactions are
A) inefficient.
B) efficient.
C) inequitable.
D) illegal.
E) unnecessary.
Topic: Coase theorem
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
142) A marketable permit
A) allows firms to pollute all they want without any cost.
B) allows firms to buy and sell the right to pollute at government controlled prices.
C) eliminates pollution by setting the price of pollution permits above the marginal cost of polluting.
D) allows firms to buy and sell the right to pollute.
E) is the Coase theorem solution to pollution.
Topic: Marketable permits
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
143) If a polluting producer is forced to pay a pollution charge, what is the effect on the supply and demand curves for the product?
A) The quantity supplied along the firm's supply curve increases.
B) The firm's demand curve shifts leftward.
C) The firm's supply curve shifts rightward.
D) The firm's supply curve shifts leftward.
E) Both the supply curve and the demand curve shift leftward.
Topic: Government actions in the face of external costs
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
144) A mill in Florida emits pollution into a river as it produces wood pulp. Which of the following is TRUE regarding regulation of the industry?
A) The Environmental Protection Agency (EPA) can regulate the mill using command-and-control policies.
B) The Senate regulates the mill using the Coase theorem.
C) The United States Supreme Court regulates the industry using cap-and-trade policies.
D) The Department of Homeland Security regulates the industry using Pigouvian taxes.
E) The Department of Agriculture ensures clean water by using cap-and-trade policies.
Topic: Regulation
Skill: Level 5: Critical thinking
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
10.2 Positive Externalities: Education
1) When the benefits of producing a good or service spill over to other people, rather than just the buyer, the spillover is referred to as
A) an external benefit.
B) an external cost.
C) a marginal cost.
D) an equilibrium social output.
E) a Coasian good.
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
2) The additional benefit that Marvin gets from being vaccinated against the flu is known as the
A) external benefit.
B) marginal private benefit.
C) private cost.
D) social cost.
E) marginal social benefit.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
3) The benefit that Joan gets from eating cherries is an example of
A) when the external benefit equals the private benefit.
B) a private benefit.
C) an external benefit.
D) an external cost.
E) the marginal social cost of eating cherries.
Topic: Private benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
4) When a person receives a flu vaccination, the ________ is the additional benefit the person receives from getting the shot.
A) marginal private benefit
B) marginal external benefit
C) marginal social benefit
D) marginal social cost
E) marginal external cost
Topic: Private benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
5) External benefits are the extra
A) benefits a consumer gets from consuming a good.
B) costs a producer creates in producing a good.
C) benefits that accrue to people other than the consumers of a good.
D) costs a producer bears for producing a polluting good.
E) benefits a producer obtains for reducing production of a polluting good.
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
6) If the marginal private benefit of attending college for Shelly is $40,000 and the marginal external benefit is $15,000, she will attend college if the cost of attendance is no more than
A) $55,000.
B) $45,000.
C) $40,000.
D) $25,000.
E) $15,000.
Topic: Private benefit
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
7) Individuals making decisions about how much to purchase of a product with an external benefit base their decisions on which of the following?
A) the price and marginal private benefit
B) the economically efficient output
C) the price and the marginal social benefit
D) the size of the deadweight loss
E) the size of the external benefit and the price
Topic: Private benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
8) When Keisha receives a flu vaccination, the benefit from her flu shot enjoyed by her friends is the
A) marginal private benefit.
B) marginal external benefit.
C) marginal social benefit.
D) private benefit.
E) marginal private cost.
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
9) Education leads to external benefits because
A) the people who become better educated get better jobs.
B) better educated people commit fewer crimes.
C) better educated people are less lazy.
D) little pollution is created when educating people.
E) better educated people are more productive.
Topic: Education
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
10) Which of the following is the best example of a good or service with an external benefit?
A) gasoline
B) education
C) garbage disposal
D) fertilizers
E) bread
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
11) Which of the following actions would most likely have an external benefit?
A) eating a peanut butter sandwich
B) throwing trash out your car window as you drive to class
C) sleeping
D) attending college
E) developing a better marketing strategy for Honda
Topic: External benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
12) Which of the following is an example of an external benefit?
A) a ton of coal burned in a power plant to produce electricity
B) a car accident that crowds a major Los Angeles freeway
C) the production of a slice of pizza
D) the cleanup of a large lake
E) the consumption of a can of Mountain Dew
Topic: External benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
13) Which of the following is TRUE?
A) MSB = MB + Marginal external benefit
B) MB = Marginal external benefit - MSB
C) MB = Marginal external benefit + MSC
D) MSB = Marginal external cost - marginal external benefit
E) MSB = MB + Marginal external benefit - Marginal external cost
Topic: Marginal social benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
14) MSB equals
A) MC + the marginal external cost.
B) MC + the marginal external benefit.
C) MB + the marginal external cost.
D) MB + the marginal external benefit.
E) MB + MC.
Topic: Marginal social benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
15) If an external benefit is present in the consumption of a good or service, then
A) there can be no external cost.
B) the marginal social benefit is greater than the marginal private benefit.
C) the marginal social benefit is equal to the marginal private benefit.
D) the marginal private benefit is equal to the marginal social benefit plus the marginal external benefit.
E) the marginal external benefit is equal to the marginal private benefit minus the marginal social benefit.
Topic: Marginal social benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
16) If a product has an external benefit, how does its marginal private benefit compare to its marginal social benefit?
A) Marginal private benefit is less than marginal social benefit.
B) Marginal private benefit is greater than marginal social benefit.
C) At low quantities, marginal private benefit is less than marginal social benefit but at high quantities, marginal private benefit is greater than marginal social benefit.
D) At low quantities, marginal private benefit is greater than marginal social benefit but at high quantities, marginal private benefit is less than marginal social benefit.
E) Marginal private benefit cannot be compared to marginal social benefit.
Topic: Marginal social benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
17) The sum of the marginal private benefit and the marginal external benefit derived from eco-tourism in British Columbia is called the
A) total private benefit.
B) net gain.
C) total external benefit.
D) marginal social benefit.
E) total Coase benefit.
Topic: Marginal social benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
18) Suppose Julie plants a beautiful garden in her front yard. The benefits of the garden to Julie and to her neighbors equals the
A) external benefit.
B) marginal private benefit.
C) marginal external benefit.
D) marginal social benefit.
E) marginal social cost.
Topic: Marginal social benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
19) Suppose scientific research generates external benefits. Without government intervention, the market for scientific research would
A) produce the efficient amount.
B) produce more than the efficient amount.
C) produce some research, but less than the efficient amount.
D) produce zero research.
E) either produce more than or less than the efficient amount depending on whether the external benefit is on the production or consumption of the research.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
20) The existence of marginal external benefits for a product like higher education creates a deadweight loss for society because, without government intervention, ________ would be consumed and ________ would be produced.
A) more than the efficient amount; more than the efficient amount
B) more than the efficient amount; less than the efficient amount
C) less than the efficient amount; more than the efficient amount
D) less than the efficient amount; less than the efficient amount
E) the efficient amount; the efficient amount
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
21) For a product with external benefits that is produced in a competitive, unregulated market, how can the resulting market output be described?
A) underproduction compared to the efficient level
B) overproduction compared to the efficient level
C) Production equals the efficient level.
D) Underproduction and overproduction are both possible depending on whether the external benefit is to consumption or production.
E) None of the above is correct.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
22) If all education in the United States were provided by private, tuition-charging schools
A) too much education would be consumed.
B) too little education would be consumed.
C) the efficient level of education would be provided.
D) the government would provide both students and schools with vouchers.
E) education would no longer have an external benefit.
Topic: Inefficient equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
23) The figure above shows the market for college education. The efficient quantity of education is
A) 0 students.
B) 4 million students.
C) 6 million students.
D) more than 6 million students.
E) more than 4 million students and less than 6 million students.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
24) The figure above shows the market for college education. Left to itself without any government intervention, a competitive market would create a deadweight loss equal to
A) zero.
B) the area d.
C) the area a + c.
D) the area b + c.
E) the area b + d.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
25) The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the government does not intervene in this market, the equilibrium price of private education is
A) $12,000.
B) $16,000.
C) $20,000.
D) $4,000.
E) $6,000.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
26) The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the government does not intervene in this market, the equilibrium number of students being privately educated is
A) 0 students.
B) 200 students.
C) 400 students.
D) 600 students.
E) None of the above answers is correct.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
27) The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the government does not intervene in this market, the equilibrium number of students being privately educated is ________ and the efficient quantity is ________.
A) 0 students; 400 students
B) 400 students; 400 students
C) 400 students; 600 students
D) 600 students; 400 students
E) 600 students; 600 students
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
28) The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the government does not intervene in this market, the deadweight loss equals
A) 0.
B) $800,000.
C) $1,600,000.
D) more than $1,600,000.
E) more than $800,000 and less than $1,600,000.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
29) The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the marginal social benefit of private elementary education equaled the marginal social cost, the deadweight loss in Chicago's private education market would equal
A) 0.
B) $800,000.
C) $1,600,000.
D) more than $1,600,000.
E) more than $800,000 and less than $1,600,000.
Topic: Deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
30) If a government action is designed to achieve efficiency, then the action must have the market produce the amount of output so that the
A) marginal private cost equals the marginal private benefit.
B) marginal social cost equals the marginal social benefit.
C) marginal external cost equals the marginal external benefit.
D) marginal private cost equals the tax.
E) marginal social benefit exceeds the marginal social cost by as much as possible.
Topic: Government actions in the face of external benefits
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
31) Which of the following are devices that the government uses to achieve a more efficient allocation of resources in the presence of external benefits?
A) taxes, private subsidies, and regulation
B) public provision, taxes, and private subsidies
C) regulations, public provision, and vouchers
D) vouchers, public provision, and private subsidies
E) public provision, taxes, and vouchers
Topic: Government actions in the face of external benefits
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
32) The government can overcome the inefficiency created by a good with an external benefit by using
A) public provision.
B) marketable permits.
C) taxes.
D) emission charges.
E) None of the above answers is correct.
Topic: Public provision
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
33) Public provision
A) is the production of a good by the government by giving funds to private producers.
B) lowers the marginal cost of producing the good.
C) means the good is produced by a public authority that receives the most of its revenue from the government.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Topic: Public provision
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
34) The production of a good or service by an authority that receives the most of its revenue from the government is referred to as
A) public provision.
B) private subsidies.
C) vouchers.
D) copyrights.
E) Coasian production.
Topic: Public provision
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
35) Which of the following is an example of a product that is made available through public provision?
i. local police protection
ii. public schools
iii. local fire department
A) i only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii
Topic: Public provision
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
36) When government provides a good with an external benefit, to attain efficiency the price paid by consumers is set equal to the
A) marginal private benefit at the efficient level of output.
B) marginal private cost at the efficient level of output.
C) amount paid by taxpayers.
D) market-determined price.
E) marginal external benefit at the efficient level of output.
Topic: Public provision
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
37) A subsidy is
A) the revenue received from the government to produce a good or service by a public authority.
B) a voucher received by the government from producers of goods and services.
C) a payment that the government makes to private producers of goods and services.
D) a tax imposed on the producers of certain goods or services.
E) a tax imposed on the consumers of certain goods or services.
Topic: Subsidies
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
38) A payment made by the government to private producers of roads and libraries would be an example of
A) a subsidy.
B) a copyright.
C) a voucher.
D) public provision.
E) a Coase payment.
Topic: Subsidies
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
39) Which of the following is a method used by government to cope with the situation in which production of a good creates an external benefit?
A) removing property rights
B) subsidizing production
C) marketable permits
D) running a lottery
E) imposing Coasian taxes
Topic: Subsidies
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
40) A government subsidy
A) is a policy that can be used to help eliminate the deadweight loss from an external cost.
B) can help achieve an efficient amount of output when the good has an external benefit.
C) increases consumers' marginal benefit from the good.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
Topic: Subsidies
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
41) Private subsidies granted to producers affect
A) the supply side of the market by shifting the supply curve.
B) the demand side of the market by shifting the demand curve.
C) property rights.
D) transaction costs.
E) both the supply side of the market and the demand side because they shift both the supply curve and the demand curve.
Topic: Subsidies
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
42) When the government uses a private subsidy in a market with an external benefit, to reach the efficient quantity of production, the subsidy must be equal to the marginal
A) social benefit.
B) cost of production.
C) private benefit.
D) external benefit.
E) external cost.
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
43) For a government subsidy on a good with an external benefit to result in the efficient amount of output being produced, what must be done?
A) The size of marginal external benefit must be accurately determined.
B) The government must produce the product.
C) Private production and private consumption must both be directly subsidized.
D) The quantity demanded must be decreased to the efficient amount.
E) Private production without the subsidy must be prohibited.
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
44) If the government provides a subsidy to producers, what is the effect of this policy in a supply and demand diagram?
A) The demand curve shifts leftward and the price rises.
B) The supply curve shifts rightward and the price falls.
C) The supply curve shifts leftward and the price falls.
D) The supply curve shifts leftward and the price rises.
E) The demand curve shifts rightward and the price rises.
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
45) A government subsidy paid to a firm
i. increases the demand for the good.
ii. has no effect on the supply of the good.
iii. leads to an increase in the equilibrium quantity.
A) i only
B) i and ii
C) ii only
D) iii only
E) i and iii
Topic: Subsidies
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
46) The figure above shows the market for a good with an external benefit. If the market is competitive and the government takes no action, the equilibrium quantity is ________ units and the equilibrium price is ________ per unit.
A) 8; $150
B) 8; $300
C) 10; $250
D) 10; $100
E) 10; $150
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
47) The figure above shows the market for a good with an external benefit. If the market is competitive and the government takes no action, the equilibrium quantity of ________ units is inefficient because ________.
A) 8; marginal benefit exceeds marginal cost
B) 8; marginal cost exceeds marginal benefit
C) 10; marginal cost exceeds marginal benefit
D) 10; marginal social benefit exceeds marginal benefit
E) 10; marginal external benefit exceeds marginal social benefit
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
48) The figure above shows the market for a good with an external benefit. When 6 units are produced, marginal social benefit equals ________ and marginal external benefit equals ________.
A) $200; $150
B) $350; $200
C) $200; $50
D) $350; $150
E) $150; $250
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
49) The figure above shows the market for a good with an external benefit. The efficient level of production is ________ units because ________.
A) 8; marginal benefit equals marginal cost
B) 8; marginal cost is less than marginal social benefit
C) 10; marginal cost equals marginal social benefit
D) 10; marginal social benefit exceeds marginal benefit
E) 8; marginal benefit equals the marginal external benefit
Topic: Efficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
50) The figure above shows the market for a good with an external benefit. If the government wants to grant a subsidy so that the efficient quantity is produced, the subsidy must equal ________ per unit.
A) $100
B) $150
C) $250
D) $300
E) $50
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
51) The above figure shows the market for college education in the United States. With no government intervention, the market equilibrium is at a tuition of ________ and ________ million students per year.
A) 16,000; 14
B) $20,000; 10
C) $13,000; 10
D) $13,000; 17
E) $16,000; 10
Topic: Education
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
52) The above figure shows the market for college education in the United States. With no government intervention, the unregulated market equilibrium is ________ because education generates ________.
A) efficient; positive external benefits
B) inefficient; positive external benefits
C) inefficient; positive external costs
D) efficient; positive external costs
E) inefficient; public goods
Topic: Education
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
53) The figure above shows the market for college education in the United States. If there is no external benefit from a college education and the government does not intervene in the market, then the equilibrium tuition of college education is
A) $13,000.
B) $16,000.
C) $20,000.
D) $7,000.
E) None of the above answers are correct.
Topic: Education
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
54) The figure above shows the market for college education in the United States. The efficient quantity of college education is ________ students per year.
A) 10 million
B) 12 million
C) 17 million
D) 18 million
E) 14 million
Topic: Education
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
55) The figure above shows the market for college education in the United States. The marginal external benefit associated with educating 14 million students is ________ per student per year.
A) $16,000
B) $13,000
C) $11,000
D) $5,000
E) $7,000
Topic: Education
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
56) The figure above shows the market for college education in the United States. If the government does not intervene in this market, the number of students going to college is ________ and the efficient number of students is ________.
A) 13 million students per year; 16 million students per year
B) 14 million students per year; 16 million students per year
C) 10 million students per year; 14 million students per year
D) 10 million students per year; 13 million students per year
E) 14 million students per year; 10 million students per year
Topic: Education
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
57) The figure above shows the market for college education in the United States. If the government does not intervene in this market, the deadweight loss equals ________ per year.
A) $28 billion
B) $14 billion
C) $280 billion
D) $224 billion
E) $7 billion
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
58) The figure above shows the market for college education in the United States. If the government intervenes in the market and provides a subsidy to colleges to enroll the efficient number of students, the amount of the subsidy equals ________ per student.
A) $5,000
B) $16,000
C) $13,000
D) $11,000
E) $7,000
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
59) The figure above shows the market for college education in the United States. If the government provides a subsidy to colleges to enroll the efficient number of students, the amount of the subsidy per student equals ________ and each student pays ________ per year.
A) $16,000; $13,000
B) $7,000; $13,000
C) $5,000; $13,000
D) $11,000; $16,000
E) $5,000; $11,000
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
60) The figure above shows the market for college education in the United States. If the government has a goal of enrolling the efficient number of students each year, the government should provide a voucher to students equaling
A) $16,000.
B) $13,000.
C) $11,000.
D) $5,000.
E) $7,000.
Topic: Vouchers
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
61) The figure above shows the market for education, a good possessing an external benefit. In order to attain the efficient number of students, a government subsidy must equal ________ per student.
A) $2,000
B) $8,000
C) $6,000
D) $10,000
E) $16,000
Topic: Subsidies
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
62) A voucher is
A) the production of a good by some public institution.
B) a payment that government makes to private producers.
C) a token that government provides to households to use in purchasing a specific good.
D) a permit to pollute.
E) a tax that is imposed on consumers rather than producers.
Topic: Vouchers
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
63) Which of the following government actions is appropriate in a market with an external benefit?
A) taxes
B) vouchers
C) marketable permits
D) setting a tax equal to the transactions costs
E) price ceiling
Topic: Vouchers
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
64) Some policymakers have proposed giving parents of children in poorly performing schools tax dollars to help send their children to private schools. This proposal is an example of
A) vouchers.
B) public provision.
C) external costs.
D) taxes.
E) correcting an externality using a government good.
Topic: Vouchers
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
65) Pell grants are money given to students attending college. Pell grants are most closely similar to
A) public provision of a good.
B) private subsidies given to producers of a good.
C) vouchers given to consumers of a good.
D) property rights assigned to consumers of a good.
E) a subsidy given to the producer of a good.
Topic: Vouchers
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
66) Food stamps provided by the government to households are an example of
A) vouchers.
B) marginal benefits from producing a good or service.
C) marginal cost from producing a good or service.
D) marginal external cost.
E) a government good.
Topic: Vouchers
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
67) Vouchers given to consumers
A) increase the demand for a good.
B) decrease the demand for a good.
C) increase the supply of a good.
D) decrease the supply of a good.
E) increase both the demand for the good and the supply of the good.
Topic: Vouchers
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
68) The use of vouchers for education
A) decreases the demand for education and increases the equilibrium quantity.
B) increases the demand for education and increases the equilibrium quantity.
C) increases the deadweight loss for those who can't afford schooling.
D) decreases the quantity provided to the efficient level.
E) decreases the demand for education and decreases the equilibrium quantity.
Topic: Vouchers
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
69) Education has an external benefit. So to achieve the efficient level of education, an education voucher must equal the difference between the
A) marginal (private) cost and the marginal social benefit.
B) marginal (private) benefit and the marginal social benefit.
C) marginal social benefit and the marginal (private) cost.
D) dollar price and marginal (private) cost.
E) marginal (private) cost and the marginal social cost.
Topic: Vouchers
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
70) If vouchers for a good or service given to consumers, then the supply curve ________ and the demand curve ________.
A) shifts leftward; shifts leftward
B) shifts leftward; shifts rightward
C) shifts rightward; shifts rightward
D) does not shift; shifts rightward
E) shifts rightward; does not shift
Topic: Vouchers
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
71) The figure above shows an education market in which the government is providing households with vouchers. What is the efficient quantity of students?
A) 2 million
B) 4 million
C) 6 million
D) more than 6 million
E) more than 4 million and less than 6 million
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
72) The figure above shows an education market in which the government is providing households with vouchers. What is the dollar value of a voucher in this market?
A) $4,000
B) $8,000
C) $12,000
D) $16,000
E) None of the above answers is correct.
Topic: Vouchers
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
73) The figure above shows an education market in which the government is providing households with vouchers. In total, how much do the schools receive for a student?
A) $4,000
B) $8,000
C) $12,000
D) $16,000
E) $20,000
Topic: Vouchers
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
74) The figure above shows an education market in which the government is providing households with vouchers. Excluding the voucher, what do the students pay the schools?
A) $4,000
B) $8,000
C) $12,000
D) $16,000
E) $0
Topic: Vouchers
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
75) The figure shows the market for college education. If the market for education is competitive and with no government intervention, the equilibrium quantity of college students is ________ million and the efficient quantity of college students is ________ million.
A) 2; 4
B) 8; 2
C) 8; 4
D) 4; 8
E) 0; 10
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
76) The figure shows the market for college education. The efficient number of students is
A) less than 4 million.
B) more than 4 million and less than 8 million.
C) 4 million.
D) 8 million.
E) more than 8 million.
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
77) The figure shows the market for college education. In order for the efficient amount of education to occur, the government could provide a subsidy of ________ per student.
A) $4,000
B) $8,000
C) $12,000
D) $20,000
E) $16,000
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
78) The figure shows the market for college education. In order for the efficient amount of education to occur, the government could provide a voucher of ________ per student.
A) $4,000
B) $8,000
C) $12,000
D) $20,000
E) $16,000
Topic: Vouchers
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
79) The figure above shows the market for annual influenza immunizations the United States. With no government intervention, the market equilibrium is at a price of ________ and ________ million immunizations per year.
A) $60; 14
B) $40; 14
C) $30; 14
D) $40; 22
E) None of the above answers are correct.
Topic: Health-care markets
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
80) The figure above shows the market for annual influenza immunizations the United States. The market equilibrium with no government intervention is ________ because health care generates ________.
A) efficient; positive external benefits
B) inefficient; positive external benefits
C) inefficient; positive external costs
D) efficient; positive external costs
E) inefficient; public goods
Topic: Inefficient equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
81) The figure above shows the market for annual influenza immunizations the United States. If there is NO external benefit from health care and the government does not intervene in the market, then the equilibrium price of immunizations is
A) $30.
B) $20.
C) $40.
D) $60.
E) $70.
Topic: Health-care markets
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
82) The figure above shows the market for annual influenza immunizations the United States. The efficient quantity of immunizations is
A) 14 million per year.
B) 10 million per year.
C) between 14 and 21 million per year.
D) less than 10 million per year.
E) 22 million per year.
Topic: Efficient equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
83) The figure above shows the market for annual influenza immunizations the United States. The marginal external benefit associated with immunizing 14 million people is ________ per person per year.
A) $40
B) $20
C) $90
D) $30
E) $60
Topic: External benefit
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
84) The figure above shows the market for annual influenza immunizations the United States. If the government does not intervene in this market, the number of immunizations per year is ________ and the efficient number of immunizations per year is ________.
A) 14 million; 20 million
B) 20 million; 22 million
C) 14 million; 22 million
D) 14 million; 10 million
E) 10 million; 14 million
Topic: Inefficient equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
85) The figure above shows the market for annual influenza immunizations the United States. If the government does not intervene in this market, deadweight loss equals
A) $350 million.
B) $250 million.
C) $500 million.
D) $600 million.
E) $37.5 million.
Topic: Deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
86) The figure above shows the market for annual influenza immunizations the United States. If the government intervenes in the market and provides a subsidy to providers of immunizations to immunize the efficient number of people, the amount of the subsidy is ________ per person.
A) $25
B) $50
C) $35
D) $15
E) $40
Topic: Subsidies
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
87) The figure above shows the market for annual influenza immunizations the United States. If the government intervenes in the market and provides a $10 subsidy to providers of immunizations, the number of people immunized is
A) 20 million per year.
B) exactly 10 million per year.
C) between 15 and 20 million per year.
D) less than 10 million per year.
E) more than 10 million and less than 15 million.
Topic: Efficient equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
88) The figure above shows the market for annual influenza immunizations the United States. Area A is the
A) total deadweight loss when there is not the illustrated subsidy.
B) remaining deadweight loss when there is the illustrated subsidy.
C) gain in efficiency from the illustrated subsidy.
D) loss in efficiency from the illustrated subsidy.
E) consumer surplus with the illustrated subsidy.
Topic: Subsidies
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
89) The figure above shows the market for annual influenza immunizations the United States. Area B is the
A) gain in efficiency from the illustrated subsidy.
B) remaining deadweight loss when there is the illustrated subsidy.
C) deadweight loss when there is not the illustrated subsidy.
D) equilibrium with the illustrated subsidy.
E) loss in efficiency from the illustrated subsidy.
Topic: Subsidies
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
90) The figure above shows the market for annual influenza immunizations the United States. Area A + Area B is the
A) deadweight loss when there is not the illustrated subsidy.
B) loss in efficiency from the illustrated subsidy.
C) gain in efficiency from the illustrated subsidy.
D) remaining deadweight loss when there is the illustrated subsidy.
E) equilibrium with the illustrated subsidy.
Topic: Deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
91) The benefit the consumer of a good or service receives is the
A) social benefit.
B) external benefit.
C) private benefit.
D) public benefit.
E) consumption benefit.
Topic: Private benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
92) An external benefit is a benefit from a good or service that someone other than the ________ receives.
A) seller of the good or service
B) government
C) foreign sector
D) consumer
E) market maker
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
93) When Ronald takes another economics class, other people in society benefit. The benefit to these other people is called the marginal ________ benefit of the class.
A) social
B) private
C) external
D) Coasian
E) extra
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
94) Marginal social benefit equals
A) marginal external benefit.
B) marginal private benefit.
C) marginal private benefit minus marginal external benefit.
D) marginal private benefit plus marginal external benefit.
E) marginal external benefit minus marginal private benefit.
Topic: Marginal social benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
95) If an external benefit is present, then the
A) marginal private benefit curve lies above the marginal private cost curve.
B) marginal social benefit curve lies above the marginal private benefit curve.
C) marginal social cost curve lies above the marginal private benefit curve.
D) marginal social benefit is equal to the marginal social cost.
E) marginal social benefit curve is the same as the marginal private benefit curve.
Topic: Marginal social benefit
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
96) In an unregulated market with an external benefit, the
A) quantity produced is greater than the efficient quantity.
B) price charged is too high for efficiency.
C) quantity produced is less than the efficient quantity.
D) producer is causing pollution but not paying for it.
E) government might impose a tax to help move the market toward the efficient amount of production.
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
97) If tuition at a college is $30,000 and the external benefit of graduating from this college is $10,000, then
i. in the absence of any government intervention, the number of students graduating is less than the efficient number.
ii. the government could increase the number of graduates by giving the college a $10,000 subsidy per student.
iii. the government could increase the number of graduates by giving the students $10,000 vouchers.
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) i, ii, and iii
Topic: Government actions in the face of external benefits
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
98) Which of the following is an example of a voucher?
A) the postal service
B) police services
C) Social Security
D) food stamps
E) a patent on a pharmaceutical drug
Topic: Vouchers
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
99) Only a few countries in the world do not provide free public education. These countries are likely to have ________ than the efficient number of students educated and as a result, the ________ of education are not captured by their societies.
A) less; marginal external benefits
B) less; marginal private benefits
C) more; marginal external costs
D) more; marginal private benefits
E) less; private social costs
Topic: Marginal external benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
100) Several politicians support providing free college tuition in the United States. These politicians recognize that the ________ of a college education and that providing free college tuition will ________ in the market.
A) MB = MC; decrease the deadweight loss.
B) MB > MC; decrease the deadweight loss.
C) MSB > MB; decrease the deadweight loss
D) MSB > MB; eliminate the marginal external benefit
E) MC > MEC; decrease the deadweight loss
Topic: Marginal social benefit
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
101) Several countries provide free college educations. These countries recognize that college educations produce a ________ and that subsidizing college educations produce an efficient outcome where ________.
A) marginal external benefit; MSB = MC
B) marginal private benefit; MC = MB
C) marginal external cost; MC = MB
D) marginal external benefit; MSB > MC
E) marginal benefit; MSB > MC
Topic: Marginal external benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Application of knowledge
102) Florida offers free pre-kindergarten for 4-year-olds by collecting taxes to subsidize this education. The state chooses to subsidize pre-kindergarten because ________ of education.
A) marginal benefit > marginal social cost
B) marginal benefit < marginal social benefit
C) marginal private benefit = marginal social benefit
D) marginal private benefit < marginal social benefit
E) marginal external cost = marginal external benefit
Topic: Marginal social benefit
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Application of knowledge
103) Florida offers free pre-kindergarten for 4-year-olds by collecting taxes to subsidize this education. By providing free education, the state ________ that would otherwise occur because the ________ of education without any subsidies.
A) reduces the deadweight loss; MB < MSB
B) reduces the deadweight loss; MC < MSC
C) increases the deadweight loss; MB > MSB
D) increases the marginal external benefit; MB < MSB
E) increases the marginal external benefit; MC < MSC
Topic: Marginal social benefit
Skill: Level 5: Critical thinking
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
10.3 Chapter Figures
A chemical factory dumps waste into a river. The figure above shows the demand curve for the chemical (D) and the marginal private cost (MC) and marginal social cost (MSC) of producing it.
1) In the figure above, the unregulated market equilibrium occurs at a price of ________ a ton and quantity of ________ tons.
A) $100; 4,000
B) $150; 2,000
C) $150; 4,000
D) $225; 4,000
E) $100; 2,000
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
2) In the figure above, when the market is unregulated and in equilibrium, marginal social cost ________ marginal benefit, and the quantity of chemical produced is ________.
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
3) In the figure above, when the market is unregulated and in equilibrium, the deadweight loss is ________ per month.
A) $250 thousand
B) $125 thousand
C) $150 thousand
D) $50 thousand
E) zero
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
4) Based on the figure above, if the factory owned the river then at the equilibrium, marginal social cost would ________ marginal benefit, and the quantity of chemical produced would be ________.
A) exceed; above the efficient quantity
B) exceed; below the efficient quantity
C) be below; above the efficient quantity
D) be below; below the efficient quantity
E) equal; efficient
Topic: Coase theorem
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
5) In the figure above, if a pollution tax is imposed that is equal to the marginal external cost of pollution, then at the equilibrium, marginal social cost would ________ marginal benefit, and the quantity of chemical produced would be ________.
A) exceed; above the efficient quantity
B) exceed; below the efficient quantity
C) be below; above the efficient quantity
D) be below; below the efficient quantity
E) equal; efficient
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
6) In the figure above, if a pollution tax is imposed that is equal to the marginal external cost of pollution, then when the market is in equilibrium, the deadweight loss is ________ per month.
A) $250 thousand
B) $125 thousand
C) $150 thousand
D) $50 thousand
E) zero
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
The figure above shows the demand for college education (D), the marginal social benefit of college education (MSB), and the marginal cost of the private schools (MC).
7) The figure above shows that the unregulated market equilibrium occurs at a tuition of ________ a year and ________ million students.
A) $15,000; 7.5
B) $25,000; 15
C) $15,000; 15
D) $25,000; 7.5
E) $38,000; 7.5
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
8) The figure above shows that at the unregulated market equilibrium, marginal social benefit ________ marginal cost, and the number of students enrolled is ________.
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
9) Based on the figure above, when the market is unregulated and is in equilibrium, the deadweight loss is
A) $86.25 million per year.
B) $56.25 million per year.
C) $48.75 million per year.
D) $37.50 million per year.
E) zero.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
10) Using the figure above, suppose education is provided by public colleges, where tuition is set at $10,000 a year. Then, ________ million students are enrolled, and the taxpayers cover ________ of the marginal cost per student.
A) 15; $15,000
B) 7.5; $5,000
C) 3.5; none
D) 15; $25,000
E) 7.5; $15,000
Topic: Public provision
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
11) Using the figure above, suppose education is provided by public colleges, where tuition is set at $10,000 a year. When the market is in equilibrium, the marginal social benefit is ________, the marginal cost is ________, and the number of students enrolled is ________.
A) $25,000; $25,000; efficient
B) $25,000; $10,000; inefficient
C) $15,000; $25,000; inefficient
D) $15,000; $15,000; efficient
E) $25,000; $15,000; inefficient
Topic: Public provision
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
12) Using the figure above, suppose education is provided by public colleges. At what level should tuition be set to ensure the efficient number of students?
A) $10,000
B) $5,000
C) $20,000
D) $25,000
E) $15,000
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
13) Using the figure above, suppose a subsidy of $15,000 per student is provided to private colleges. Then, the market equilibrium occurs at a tuition of ________ a year and ________ million students.
A) $10,000; 15
B) $25,000; 15
C) $15,000; 15
D) $15,000; 7.5
E) $20,000; 20
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
14) Using the figure above, suppose a subsidy of $15,000 per student is provided to private colleges. When the market is in equilibrium, marginal social benefit ________ marginal cost, and the number of students enrolled is ________.
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
15) In the figure above, suppose a subsidy is provided to private colleges. What amount of subsidy will ensure the efficient number of students?
A) $10,000
B) $25,000
C) $15,000
D) $5,000
E) $20,000
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
16) In the figure above, suppose the government provides vouchers worth $15,000 per student per year. Then the market equilibrium occurs at a tuition of ________ a year and ________ million students.
A) $10,000; 15
B) $25,000; 15
C) $15,000; 15
D) $15,000; 7.5
E) $20,000; 20
Topic: Vouchers
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
17) In the figure above, suppose the government provides vouchers worth $15,000 per student per year. When the market is in equilibrium, marginal social benefit ________ marginal cost, and the number of students enrolled is ________.
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Topic: Vouchers
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
10.4 Integrative Questions
1) A noisy party that keeps neighbors awake is an example of a
A) negative production externality.
B) positive production externality.
C) negative consumption externality.
D) positive consumption externality.
E) Both answers B and C are correct.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
2) An externality can be a cost or benefit arising from the production of a good that falls upon
A) consumers but not producers.
B) producers but not consumers.
C) both the consumer and the producer.
D) someone other than the consumer or producer.
E) no one, so it goes unpaid.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
3) Externalities
A) are important in the areas of environment and education.
B) only have a negative impact on people.
C) deal with issues that are not our internal issues.
D) affect the people who are responsible for production.
E) are nonexistent in unregulated, competitive markets.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
4) In a market with an external cost, government action
A) cannot decrease the amount of the deadweight loss from the external cost.
B) can sometimes help to achieve an efficient outcome.
C) cannot alter firms' cost curves.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
5) A competitive, unregulated market would
A) produce too much pollution because pollution is an external cost.
B) produce too little education because education has an external benefit.
C) fail to achieve equilibrium if there are externalities present.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
6) When property rights are assigned and transactions costs are low
A) all costs and benefits are taken into account by the transacting parties so the transaction is efficient.
B) externalities will result in market failure.
C) the marginal social benefit curve shifts leftward and the marginal social cost curve does not shift.
D) the marginal social cost curve shifts rightward and the marginal social benefit curve does not shift.
E) the marginal social cost curve shifts rightward and the marginal social benefit curve also shifts rightward.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
7) Which of the following is TRUE?
i. In an unregulated market with an external benefit, consumers don't take it into account and consume less than the efficient quantity.
ii. Marginal social cost equals marginal private cost minus marginal external cost.
iii. An unregulated market produces more than the efficient quantity of a good with an external cost.
A) only i
B) only ii
C) only iii
D) i and ii
E) i and iii
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
8) When people decide whether or not to get a flu vaccination, they ignore the ________ and as a result ________.
A) marginal private benefit; too few vaccinations are given
B) external benefit; too few vaccinations are given
C) private cost; too many vaccinations are given
D) marginal external cost; vouchers must be provided
E) social cost; too many vaccinations are given
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
9) A carbon tax would ________ the cost of producing goods and services that create large carbon emissions, and would lead Americans to use ________ carbon-intensive goods and services, which could ________ climate change.
A) raise; more; slow
B) raise; fewer; speed up
C) lower; fewer; slow
D) raise; fewer; slow
E) raise; more; speed up
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Application of knowledge
10) When there is a marginal external ________ producers take account only of marginal private cost and produce ________ than the efficient quantity.
A) cost; more
B) cost; less
C) benefit; more
D) benefit; less
E) increase; more
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Application of knowledge
11) The Coase theorem says that if property rights exist and the costs of enforcing them are ________, then the market outcome is ________ and it doesn't matter who has the property rights.
A) low; inefficient
B) high; inefficient
C) low; efficient
D) high; efficient
E) stable; efficient
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Application of knowledge
10.5 Essay: Negative Externalities: Pollution
1) What is marginal external cost? Give an example.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
2) Explain the difference between a negative production externality and a negative consumption externality.
Topic: Negative production and negative consumption externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
3) Discuss the difference between a private cost and a social cost.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
4) When a forest is logged, it is possible for the logging to create "soil runoff," a situation in which the soil, no longer protected by trees, erodes and silts a river miles downstream from the logging area. Is soil runoff created by logging in Montana that ruins a river an example of a private cost to the lumbering company or an external cost?
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
5) Explain why a producer who is causing external costs does not have the incentive to reduce these costs.
Topic: External cost
Skill: Level 5: Critical thinking
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
6) If the production of a good creates an external cost, is the supply curve the same as the marginal social cost or the same as the marginal private cost curve or both?
Topic: Social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
7) The marginal social cost of burning garbage in Houston is the sum of the marginal private cost and the marginal external cost." Is this assertion correct or incorrect?
Topic: Social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
8) Why does an external cost lead to inefficient overproduction?
Topic: Inefficient equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
9) Why is it not efficient to eliminate all pollution?
Topic: Production and pollution: how much?
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
10) What is the Coase theorem? What conditions need to be present for this theorem to work?
The conditions that need to be present for the Coase theorem to work are:
∙ property rights exist;
∙ only a small number of people are involved;
∙ the transactions costs are low.
If these conditions are met, then the Coase theorem applies and there are no externalities.
Topic: Coase theorem
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
11) "According to the Coase theorem, if Gabriel wants the local television station to cease having helicopters fly over his house at night, he will be more likely to be able to reach an agreement with the station if the property right to the airspace is clearly defined and the transaction costs of negotiating are high." Is this statement true or false? Explain your answer.
Topic: Coase theorem
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
12) What do we mean by "property rights" and why are they important?
Topic: Property rights
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
13) If the production of a good causes pollution (an external cost), is the unregulated competitive market equilibrium of that product efficient?
Topic: Inefficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
14) Burning coal to generate electricity can create pollution. If the market for generating electricity is competitive and is allowed to operate without any government intervention, is the equilibrium quantity of coal burned equal to, more than, or less than the efficient quantity?
Topic: Inefficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
15) "If production of a good creates an external cost, then, when production is such that the marginal private costs are equal to the marginal private benefits, the market outcome will be inefficient." Explain whether this assertion is correct or incorrect.
Topic: Inefficiency
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
16) Use the idea of external costs to explain why some cities have laws against late-night rock concerts.
Topic: Government actions in the face of external costs
Skill: Level 4: Applying models
Section: Checkpoint 10.1
Status: Old
AACSB: Written and oral communication
17) The production of paper creates pollution, an external cost. What happens to the production of paper if the government imposes a tax on paper producers equal to the marginal external cost of the pollution?
Topic: Taxes
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
18) How has air quality changed in the United States since 1980?
Topic: Eye on the U.S. economy, pollution trends
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Reflective thinking
19) If the marginal social cost of a good is $70 and the marginal external cost is $20, what does the marginal private cost equal?
Topic: Social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
20) The table above gives the private costs and external costs of producing paper.
a. Complete the table by finding the marginal social cost at each level of production.
b. If the market is competitive and is left unregulated and 400 tons of paper are produced, what is the price of a ton of paper?
c. If the government imposes a tax equal to the external cost at each level of production, what price would be charged if 400 tons are produced?
a. The table above completes the marginal social cost column. At any level of output, the marginal social cost equals the sum of the marginal private cost plus the marginal external cost.
b. The price will equal the marginal private cost of $40 a ton.
c. If a tax is imposed equal to the marginal external cost, when 400 tons of paper are produced this tax will be $20 a ton. Hence the price will rise by $20, to $60 a ton, which is the same as the marginal social cost.
Topic: Social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
21) Suppose unregulated production of pesticides results in an equilibrium price and quantity of $400 and 1,000 tons per day, respectively, and a marginal external cost of $10 a ton.
a. If the government were to eliminate the external cost by using pollution charges, what should the pollution charge be set at?
b. If the government were to eliminate the external cost by using taxes, what should the tax equal?
c. Would the government actions described above affect the quantity of pesticides produced? If yes, how? If no, why not?
a. $10 a ton
b. $10 a ton
c. Yes, for both the pollution charge and the tax, the output of pesticides would be decreased to the efficient level.
Topic: Government actions in the face of external costs
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
22) Use the figure above to answer this question. Explain what the marginal social cost curve and the marginal external cost mean. In the figure, if the market is competitive and unregulated, what is the equilibrium price and quantity? What is the efficient amount of output? Illustrate the deadweight loss.
The marginal social cost curve shows the sum of marginal private cost and marginal external cost. Marginal external cost is the cost of producing an extra unit of a good that falls on people other than the firm. The (inefficient) market equilibrium is 8 units with a price of $150 per unit. The efficient quantity is 6 units. The deadweight loss is illustrated in the figure.
Topic: Marketable permits
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
23) The above figure shows the market for fertilizer. When fertilizer is applied to lawns, it runs off into neighboring streams and ponds, killing fish and creating an external cost.
a. What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market?
b. What is the efficient quantity of fertilizer?
c. Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax?
d. At the output level in part (c), how much is the tax?
e. How much tax revenue does government collect?
f. What is the deadweight loss borne by society if the externality is left uncorrected?
a. The equilibrium price is $1,000 a ton and the equilibrium quantity is 6 tons per day.
b. The efficient quantity is 4 tons per day.
c. The price paid by consumers after the tax is $1,200 a ton and the equilibrium quantity is the efficient quantity, 4 tons per day.
d. The tax is $400 a ton.
e. The government collects $1,600 a day in taxes.
f. The deadweight loss with no government action is $600 a day.
Topic: Government actions in the face of external costs
Skill: Level 4: Applying models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
24) The figure above shows the market for steel, the production of which creates pollution.
a. What point represents the equilibrium price and what point represents the equilibrium quantity in an unregulated, competitive market?
b. What area represents the deadweight loss of the unregulated, competitive market outcome?
c. What point represents the efficient quantity?
d. If the output level in part (c) was achieved through the use of a government imposed tax, what price would consumers pay? What price would the producers receive? What distance represents the amount of the tax?
a. The price is given by point c and the quantity is given by point f.
b. The deadweight loss is area gij.
c. The efficient quantity is given by point e.
d. Consumers pay a price equal to point b. Producers receive a price equal to point d. The amount of the tax is the distance bd (which is the same as gh).
Topic: Taxes, inefficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
10.6 Essay: Positive Externalities: Education
1) Explain the difference between a positive production externality and a positive consumption externality.
Topic: Positive production and positive consumption externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
2) Does the existence of the University of Oklahoma affect citizens who do NOT attend the University?
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
3) Explain the difference between marginal social benefit and marginal external benefit.
Topic: External benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Reflective thinking
4) "Education in elementary and high schools has external benefits because families who have a lot of children do not pay any more than families without children." Is this statement correct or incorrect? Explain your answer.
Topic: External benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Written and oral communication
5) Describe some of the external benefits associated with education. What can government do to encourage production of the efficient amount of education?
∙ communicate more effectively with others,
∙ tend to be better citizens,
∙ have lower crime rates,
∙ are more tolerant of others' views.
To insure that the efficient amount of education is produced, the government could:
∙ provide education, as it does with public schools,
∙ subsidize education, as it does with state universities, or
∙ give consumers vouchers to reduce the cost of private schooling, as is happening in some states or with various college grant programs.
Topic: External benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Written and oral communication
6) Does inoculation against chicken pox have both private and external benefits?
Topic: External benefit
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Written and oral communication
7) "External benefits lead to overproduction so that more than the efficient quantity is produced." Is the previous statement true or false?
Topic: Inefficiency
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
8) Why does the existence of an external benefit lead to the production of less than the efficient quantity?
Topic: Inefficiency
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Written and oral communication
9) Why does government provide educational opportunities in the form of vouchers, private subsidies, and public provision?
Topic: Government actions in the face of externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Written and oral communication
10) A private subsidy has what effect on the amount of a good or service produced? Is a subsidy an appropriate policy to offset the inefficiency from an external cost or an external benefit?
Topic: Private subsidy
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Status: Old
AACSB: Written and oral communication
11) Explain the process by which a private subsidy corrects an external benefit.
Topic: Private subsidy
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
12) The table above gives the marginal social cost (which equals the price), marginal private benefit, and marginal social benefit of students attending Diablo Valley College (DVC) in Concord, California.
a. When 4,500 students attend DVC, what does the marginal external benefit equal?
b. If the market is competitive and left without government intervention, what is the quantity of students that will attend DVC and what will be the price of a course?
c. What is the efficient quantity of students attending DVC?
d. If the government can set the price per course, in order to have the efficient quantity of students attending DVC, what should the government set as the price?
a. The marginal external benefit equals $40, the difference between the marginal social benefit ($60) and the marginal private benefit ($20).
b. 3,500 students will attend and the price of a course will be $60.
c. The efficient quantity is 4,000 students because at this quantity the marginal social benefit equals the marginal social cost.
d. In order to have 4,000 students attend DVC, the government must set the price at $40 per course.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
13) The figure above shows the market for polio vaccination in Pakistan. Polio vaccination confers an external benefit because one person's vaccination makes it less likely that other people will catch polio.
a. If the market is competitive and left unregulated, how many doses of vaccine will be administered?
b. If the Melinda and Bill Gates Foundation underwrites the cost of the vaccine by paying for a large fraction of the preparation and delivery cost, what will happen to the number of doses administered? Why?
a. If the market is competitive and left unregulated, 4 million doses will be administered.
b. If the Foundation underwrites the cost of the vaccine, the marginal cost of the vaccine will drop. The result will be similar to a government subsidy: the marginal cost curve will shift rightward, thereby increasing the number of doses administered. The market's efficiency will be increased.
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
14) The figure above shows the market for education. Education has an external benefit.
a. If the market is competitive and left unregulated, how many students will be enrolled per year?
b. What is the efficient number of students?
c. In the figure, show the effect of a government subsidy that moves the market to the efficient number of students. What is the amount of the subsidy and what tuition must the students pay?
a. If the market is competitive and left unregulated, 4 million students will be enrolled.
b. The efficient number of students enrolled is 6 million students.
c. The above figure shows the effect of the government subsidy and how the supply curve shifts. The subsidy is $6,000 and students pay tuition of $10,000.
Topic: Subsidies
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
15) When young students are hungry, they can be disruptive and inattentive in class. Thus, providing lunch to students has external benefits. The figure above represents the market for school lunches before and after government vouchers are issued.
a. What is the unregulated private market equilibrium?
b. What is the efficient quantity of lunches?
c. What is the amount of the voucher necessary to move the economy to the efficient number of lunches?
d. When vouchers are used, what is the dollar price of the lunch that suppliers receive and what is the dollar price that consumers pay when the voucher is used?
a. If the market is left unregulated, 4 million school lunches per day will be served and the price will be $1.50 per school lunch.
b. The efficient quantity of lunches is 6 million school lunches per day.
c. The amount of the voucher is $1.00.
d. The dollar price of the lunch received by sellers is $2.00. The consumers have a voucher for $1, so the total dollar price paid by the consumers is $1.00.
Topic: Vouchers
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
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Connected Book
Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade
By Robin Bade