Parkin&Bade, Microeconomics, 2nd edition

Chapter 10: Externalities

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) A cost that arises from production or consumption that falls on someone other than the producer or consumer is called

A) a negative externality.

B) a private good.

C) a negative benefit.

D) a public choice impact.

E) a positive externality.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

2) An example of someone bearing the burden of a negative production externality would be

A) Jess's roommate smokes and she doesn't.

B) Taylor living downwind from a smelly feedlot where pigs are raised.

C) Lyn's neighbours play loud music late at night.

D) All of these are examples of a negative production externality.

E) None of these is an example of a negative production externality.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

3) An example of someone bearing the burden of a negative consumption externality would be

A) Zoe grows beautiful roses in her garden.

B) Taylor living downwind from a feedlot.

C) Jess's roommate smokes and she doesn't.

D) All of these are examples of a negative consumption externality.

E) None of these is an example of a negative consumption externality.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

4) 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) Positive production externality

B) Positive consumption externality

C) Neutral externality.

D) Negative production externality

E) Negative consumption externality

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

5) Pollution is an example of a ________ externality.

A) negative consumption

B) positive production

C) positive consumption

D) negative production

E) Coasian

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

6) Marginal private cost

A) is the cost of producing an additional unit of a good or service that is paid by the producer of that good or service.

B) is always zero if there is an external cost.

C) equals the marginal social cost only if the marginal external cost is positive.

D) is 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.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

7) 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) private cost.

B) public cost.

C) external cost.

D) social cost.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

8) Zoe, the owner of a beauty salon, hires a new hair stylist. The wages paid to the new stylist are

A) neither a private cost nor an external cost.

B) a private cost and not an external cost.

C) both a private cost and an external cost.

D) an external cost and not a private cost.

E) only a private benefit because people want their hair styled.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

9) For a product with an external cost, the supply curve

A) is the same as the marginal private cost curve.

B) is undefined.

C) represents the various quantities people can buy.

D) is the same as the marginal social cost curve.

E) is the same as the marginal external cost curve.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

10) The cost of producing an additional unit of a good or service that falls on people other than the producer is the marginal

A) private cost.

B) social benefit.

C) external cost.

D) social cost.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

11) A marginal external cost of a product is equal to

A) the cost someone other than the producer incurs when another unit is produced.

B) what the producer has to pay to hire resources to produce another unit.

C) what the consumer must pay when he or she buys the good or service.

D) the cost the producer incurs to produce another unit.

E) None of these answers describes a marginal external cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

12) A firm dumps raw sewerage 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

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

13) When logging in Tasmania destroys forests that hikers would have used for eco-tourism, the destruction of the trails is an example of

A) a government cost.

B) an external cost.

C) a private cost.

D) an external benefit.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

14) A landfill site produces an obnoxious odour. 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 odour is the only detectable difference between the two neighbourhoods, the difference in the rent is the ________ of the odour.

A) marginal cost-benefit

B) private cost

C) private benefit

D) external cost

E) social cost

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

15) Suppose two neighbourhoods with 10 homes each in Sydney 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) $1,300,000.

B) $400,000.

C) $900,000.

D) $90,000.

E) $500,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

16) 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 average of marginal private cost and marginal external cost.

D) the sum of marginal private cost and marginal external cost.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

17) Which of the following equations is correct?

A) MSC = MC ÷ marginal external cost

B) MSC = MC + marginal external cost

C) MC = marginal external cost - MSC

D) MC = MSC + marginal external cost

E) MSC = MC × marginal external cost

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

18) If there is no external cost, then marginal social cost

A) increases as output increases.

B) is unrelated to output levels.

C) is constant regardless of the level of output.

D) first increases and then decreases as output increases.

E) decreases as output increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

19) If a product has zero external costs, then

A) marginal social cost equals zero.

B) marginal social cost is less than marginal private cost.

C) marginal social cost equals marginal private cost.

D) marginal social cost is greater than marginal private cost.

E) We need more information to determine the relationship between marginal private cost and marginal social cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

20) If the marginal private cost of running a car is $0.30 a kilometre and the marginal external cost is $0.10, what is the marginal social cost?

A) $0.40

B) $0.20

C) $3.00

D) $0.03

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

21) If the marginal social cost of producing a tonne of cement is $4,000 and the marginal private cost is $3,500, then the

A) marginal external cost of producing a tonne of cement is $500.

B) marginal benefit of a tonne of cement will equal $4,000.

C) marginal external cost of producing a tonne of cement is $4,000.

D) marginal external cost of producing a tonne of cement is $7,500.

E) total cost of producing a tonne of cement is $7,500.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

22) If the production of a good causes an external cost, then the efficient quantity is

A) more than the quantity at which the marginal benefit equals the marginal cost.

B) the quantity at which the marginal private benefit is greater than the marginal social benefit.

C) equal to the quantity at which the marginal benefit equals the marginal cost.

D) less than the quantity at which the marginal benefit equals the marginal cost.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

23) The basic reason that a competitive unregulated market produces an inefficient amount of a good with an external cost is because

A) external costs are not a political issue.

B) the general public does not care about external costs.

C) producers cannot measure marginal social cost.

D) the external cost is paid by consumers rather than producers.

E) producers do not pay the external cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

24) If producing a good or a service creates pollution, then

A) the industry's supply curve includes the extra cost of pollution.

B) at the unregulated, competitive market equilibrium quantity, marginal social benefit is less than the equilibrium price.

C) at the unregulated, competitive market equilibrium quantity, marginal social benefit and marginal social cost are equal.

D) at the unregulated, competitive market equilibrium quantity, marginal social cost is greater than the equilibrium price.

E) an unregulated competitive market produces an efficient output.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

25) The deadweight loss associated with producing a product that has an external cost occurs because

A) too little output is produced.

B) too much output is produced.

C) the marginal social cost does not equal zero.

D) not enough resources are allocated to producing the good.

E) the price that firms charge for the good is too high.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

26) 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) zero.

C) where the marginal social cost curve and marginal benefit curve intersect.

D) the amount of production so that the marginal social benefit exceeds the marginal social cost by as much as possible.

E) as low as possible.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

27) The figure above illustrates the marginal private cost and the marginal social cost to the city of Geelong for each rock concert that is offered. If 5 concerts are put on, then the

A) marginal external cost will equal zero.

B) marginal external cost will be greater than the marginal social cost.

C) marginal external cost will equal the marginal private cost.

D) marginal external cost will be greater than the marginal private cost.

E) marginal social cost will equal the marginal external cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

28) The figure above illustrates the marginal private cost and the marginal social cost to the city of Geelong 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 the marginal private cost.

B) marginal external cost equals $30,000.

C) marginal external cost equals $40,000.

D) marginal social cost equals $30,000.

E) marginal external cost equals $10,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

29) The figure above represents the relationship between output and cost in an industry with an external cost. Which line represents the marginal private cost (MC) curve?

A) Curve 2

B) The dotted line BC

C) The dotted line AB

D) The y-axis

E) Curve 1

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

30) 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) $0.04

B) $0.00

C) $0.12

D) $0.08

E) $0.20

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

31) 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) 10 cents per kilowatt hour.

B) 15 cents per kilowatt hour.

C) 5 cents per kilowatt hour.

D) 0 cents per kilowatt hour.

E) 20 cents per kilowatt hour.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

32) 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) 5 cents per kilowatt hour.

B) 10 cents per kilowatt hour.

C) 20 cents per kilowatt hour.

D) 15 cents per kilowatt hour.

E) 0 cents per kilowatt hour.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

33) 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 cents per kilowatt hour.

B) 5 cents per kilowatt hour.

C) 20 cents per kilowatt hour.

D) 10 cents per kilowatt hour.

E) 15 cents per kilowatt hour.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

34) 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) 10 cents per kilowatt hour.

B) 5 cents per kilowatt hour.

C) 15 cents per kilowatt hour.

D) 0 cents per kilowatt hour.

E) 20 cents per kilowatt hour.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

35) The figure above shows the costs and benefits associated with producing paper. What is the marginal external cost when output is 6 tonnes?

A) $1,600

B) $600

C) $1,200

D) $400

E) $1,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

36) The figure above shows the costs and benefits associated with producing paper. What is the efficient level of output?

A) More than 6 tonnes

B) 6 tonnes

C) 4 tonnes

D) 0

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

37) The figure above illustrates the marginal private cost and the marginal social cost to the city of Geelong for each rock concert that is offered. It also illustrates the marginal benefit. There is no external benefit. If the city of Geelong puts on 5 concerts per year, then the marginal benefit will

A) equal the marginal private cost.

B) equal the marginal social cost.

C) exceed the marginal social cost.

D) be less than the marginal social cost.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

38) The figure above illustrates the marginal private cost and the marginal social cost to the city of Geelong 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 Geelong is

A) 5.

B) 15.

C) 10.

D) 0.

E) 20.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

39) Legally established titles to ownership, use and disposal of factors of production and goods and services are called ________ rights.

A) government

B) property

C) pollution

D) inefficient

E) private

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

40) One reason why property rights help achieve an efficient level of pollution is because property rights

A) eliminate marginal private costs.

B) force the marginal social cost to zero.

C) change the marginal external cost so that it is equal to the marginal social benefit.

D) force the marginal private cost to equal the marginal social cost.

E) force the marginal external cost to a lower level than marginal private cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

41) The Coase theorem deals with the problem of pollution by

A) making all polluters stop polluting.

B) giving the government regulatory power over polluters.

C) having the government take over ownership of all polluting processes.

D) establishing and enforcing private property rights.

E) allowing the government to set the proper emissions charge.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

42) Transactions costs are the

A) external costs when a firm pollutes.

B) reason why taxes cannot affect the inefficiency resulting from an external cost.

C) costs of using the Coase theorem.

D) external marginal costs of the externality.

E) opportunity costs of conducting a transaction.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

43) Which of the following is the best example of a transactions cost?

A) The price of a new set of tyres.

B) The price of labour and materials used to produce a house.

C) The value of the time spent negotiating a contract.

D) The cost associated with producing a golf club.

E) The price of food.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

44) Which of the following is a common method used by governments to cope with the situation in which the production of a good creates an external cost?

A) Subsidising production

B) Removing property rights

C) Vouchers

D) Marketable permits

E) Lottery

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

45) 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 tonnes of leather will be produced?

A) 300 tonnes

B) 0 tonnes

C) 200 tonnes

D) More than 300 tonnes

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

46) 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 tonnes of leather are produced?

A) 300 tonnes

B) 0 tonnes

C) 200 tonnes

D) More than 300 tonnes

E) More than 0 tonnes and less than 200 tonnes

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

47) 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 and ii

B) ii and iii

C) i and iii

D) i, ii and iii

E) i only

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

48) 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) price of the good.

B) marginal private cost.

C) marginal external cost.

D) marginal benefit of polluting.

E) marginal social cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

49) If the government taxes producers that create pollution, the government's policy

A) forbids the firms from passing along higher 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) allows the producers to pollute more by increasing their costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

50) 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

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

51) The figure above illustrates the petrol market. There is no external benefit from petrol. If this market is left unregulated and no pollution tax is imposed, the equilibrium quantity of petrol is

A) 10 million litres.

B) 15 million litres.

C) 0 litres.

D) 5 million litres.

E) 20 million litres.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

52) The figure above illustrates the petrol market. There is no external benefit from petrol. If a pollution tax equal to the marginal external cost is imposed on petrol, then the quantity of petrol produced and consumed equals

A) 5 million litres.

B) 20 million litres.

C) 10 million litres.

D) 0 litres.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

53) The figure above illustrates the petrol market. There is no external benefit from petrol. If a tax on petrol is imposed as shown in the figure, then the total tax revenue earned by the government equals

A) $16 million.

B) less than $8 million.

C) $24 million.

D) more than $24 million.

E) $8 million.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

54) The figure above shows a tax imposed on a good with an external cost. The area of the rectangle abcd equals

A) the MC.

B) the total tax revenue collected by the government.

C) the amount of pollution tax per tonne.

D) the MSB.

E) the deadweight loss.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

55) 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 cents; 200

B) 20 cents; 100

C) 7.5 cents; 150

D) 15 cents; 150

E) 20 cents; 200

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

56) 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) 250; 0

B) 150; 150

C) 0; 150

D) 150; 200

E) 200; 150

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

57) 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) more than 200 billion

B) 200 billion

C) 0

D) 100 billion

E) 150 billion

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

58) 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) 2.5 cents

B) 0 cents

C) 15 cents

D) 7.5 cents

E) 10 cents

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

59) A problem with pollution charges or taxes as a solution to pollution is that

A) taxes are already too high.

B) the necessary information about the polluting industry is costly and usually unavailable.

C) the producers do not want the property right to their pollution.

D) people don't want the government to regulate industry.

E) pollution would still continue.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

60) Cap-and-trade refers to

A) capping emissions and issuing tradeable emissions permits.

B) countries trading fishing rights in international waters.

C) capping the benefits gained from pollution controls.

D) capping taxes on firms that engage in international trade.

E) capping revenue from selling emissions permits.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

61) Firm A and Firm B emit 300 tonnes of pollution each and each have marketable permits that allow each to emit 100 tonnes of pollution. If it costs $5,000 for Firm A to eliminate 100 tonnes of pollution and it costs Firm B $6,000 to eliminate 100 tonnes of pollution, then

A) Firm A sells its permits to Firm B for a price above $6,000.

B) Firm A sells its permits to Firm B for a price below $6,000.

C) Firm B sells its permits to Firm A for a price below $6,000.

D) Firm B sells its permits to Firm A for a price above $6,000.

E) neither Firm A nor Firm B sells permits because neither has extra permits.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

62) The cost of producing an additional unit of a good or service that is borne by the producer of that good or service

A) equals the cost borne by people other than the producer.

B) is the external cost.

C) is the marginal social cost.

D) is the marginal private cost.

E) always equals the benefit the consumer derives from that good or service.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

63) 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) ii and iii

B) iii only

C) i and ii

D) i only

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

64) If the marginal private cost of producing one kilowatt of power in South Australia 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) fourteen cents

D) four cents

E) zero cents

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

65) If a polluting producer is forced to pay a pollution charge, what is the effect on the supply and/or demand curves for the product?

A) The firm's supply curve shifts rightward.

B) The firm's demand curve shifts leftward.

C) The firm's supply curve shifts leftward.

D) The quantity supplied along the firm's supply curve increases.

E) BOTH the supply curve and the demand curve shift leftward.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.1 Negative Externalities:Pollution

66) 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) a marginal cost.

B) a Coasian good.

C) an external benefit.

D) an equilibrium social output.

E) an external cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

67) When a person receives a flu vaccination, the ________ is the additional benefit the person receives from getting the shot.

A) marginal external cost

B) marginal external benefit

C) marginal private benefit

D) marginal social cost

E) marginal social benefit

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

68) If the marginal private benefit of attending college for Shelly is $40,000 and the marginal external benefit is $15,000, she will attend university if the cost of attendance is no more than

A) $55,000.

B) $45,000.

C) $40,000.

D) $15,000.

E) $25,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

69) Education leads to external benefits because

A) better educated people are less lazy.

B) the people who become better educated get better jobs.

C) better educated people commit fewer crimes.

D) better educated people are more productive.

E) little pollution is created when educating people.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

70) Which of the following actions would most likely have an external benefit?

A) Developing a better marketing strategy for Honda

B) Attending university

C) Throwing rubbish out your car window as you drive to class

D) Eating a peanut butter sandwich

E) Sleeping

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

71) 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 = MB + Marginal external benefit - Marginal external cost

E) MSB = Marginal external cost - marginal external benefit

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

72) If a product has an external benefit, how does its marginal private benefit compare to its marginal social benefit?

A) Marginal private benefit is greater than marginal social benefit.

B) 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.

C) 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.

D) Marginal private benefit cannot be compared to marginal social benefit.

E) Marginal private benefit is less than marginal social benefit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

73) Suppose scientific research generates external benefits. Without government intervention, the market for scientific research would

A) produce some research, but less than the efficient amount.

B) produce more than the efficient amount.

C) produce 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.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

74) For a product with external benefits that is produced in a competitive, unregulated market, how can the resulting market output be described?

A) Underproduction and overproduction are both possible depending on whether the external benefit is to consumption or production.

B) There is overproduction compared to the efficient level.

C) Production equals the efficient level.

D) There is underproduction compared to the efficient level.

E) None of the above is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

75) The figure above shows the market for university education. The efficient quantity of education is

A) more than 4 million students and less than 6 million students.

B) more than 6 million students.

C) zero students.

D) 6 million students.

E) 4 million students.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

76) The figure above shows the market for university education. Left to itself without any government intervention, a competitive market would create a deadweight loss equal to

A) the area d.

B) the area b + c.

C) the area a + c.

D) zero.

E) the area b + d.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

77) The figure above shows the market for private school education in Adelaide. There is no external cost of private 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) 600 students; 600 students

B) 0 students; 400 students

C) 400 students; 400 students

D) 400 students; 600 students

E) 600 students; 400 students

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

78) The figure above shows the market for private school education in Adelaide. There is no external cost of private education. If the government does not intervene in this market, the deadweight loss equals

A) $800,000.

B) $1,600,000.

C) more than $800,000 and less than $1,600,000.

D) more than $1,600,000.

E) zero.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

79) The figure above shows the market for private school education in Adelaide. There is no external cost of private education. If the marginal social benefit of private school education equalled the marginal social cost, the deadweight loss in Adelaide's private education market would equal

A) more than $800,000 and less than $1,600,000.

B) more than $1,600,000.

C) $800,000.

D) zero.

E) $1,600,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

80) 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) Regulations, public provision and vouchers

B) Public provision, taxes and private subsidies

C) Taxes, private subsidies and regulation

D) Public provision, taxes and vouchers

E) Vouchers, public provision and private subsidies

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

81) The production of a good or service by an authority that receives most of its revenue from the government is referred to as

A) copyrights.

B) private subsidies.

C) vouchers.

D) public provision.

E) Coasian production.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

82) Which of the following is an example of a product that is made available through public provision?

i. Police protection

ii. Public schools

iii. The fire department

A) i only

B) i and iii

C) i and ii

D) i, ii and iii

E) iii only

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

83) A subsidy is

A) a payment that the government makes to private producers of goods and services.

B) a tax imposed on the producers of certain goods or services.

C) a voucher received by the government from producers of goods and services.

D) the revenue received from the government to produce a good or service by a public authority.

E) a tax imposed on the consumers of certain goods or services.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

84) 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) Subsidising production

B) Imposing Coasian taxes

C) Running a lottery

D) Marketable permits

E) Removing property rights

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

85) Private subsidies granted to producers affect

A) the supply side of the market by shifting the supply curve.

B) property rights.

C) the demand side of the market by shifting the demand curve.

D) transaction costs.

E) both the supply side of the market and the demand side of the market.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

86) 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) Private production and private consumption must both be directly subsidised.

B) The quantity demanded must be decreased to the efficient amount.

C) The government must produce the product.

D) Private production without the subsidy must be prohibited.

E) The size of marginal external benefit must be accurately determined.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

87) 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) 10; $100

B) 8; $150

C) 10; $150

D) 10; $250

E) 8; $300

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

88) 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) 10; marginal social benefit exceeds marginal benefit

B) 10; marginal cost exceeds marginal benefit

C) 8; marginal benefit exceeds marginal cost

D) 8; marginal cost exceeds marginal benefit

E) 10; marginal external benefit exceeds marginal social benefit

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

89) 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; $50

B) $150; $250

C) $200; $150

D) $350; $200

E) $350; $150

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

90) 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 the marginal external benefit

B) 8; marginal benefit equals marginal cost

C) 8; marginal cost is less than marginal social benefit

D) 10; marginal cost equals marginal social benefit

E) 10; marginal social benefit exceeds marginal benefit

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

91) 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) $50

B) $100

C) $250

D) $300

E) $150

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

92) 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) $10,000

B) $6,000

C) $2,000

D) $16,000

E) $8,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

93) The figure above shows the market for university education. If the market for education is competitive and with no government intervention, the equilibrium quantity of university students is ________ million and the efficient quantity of university students is ________ million.

A) 4; 8

B) 2; 4

C) 8; 4

D) 0; 10

E) 8; 2

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

94) The figure above shows the market for university education. The efficient number of students is

A) more than 8 million.

B) 4 million.

C) less than 4 million.

D) 8 million.

E) more than 4 million and less than 8 million.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

95) The figure above shows the market for university education. In order for the efficient amount of education to occur, the government could provide a subsidy of ________ per student.

A) $20,000

B) $4,000

C) $12,000

D) $16,000

E) $8,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

96) The figure above shows the market for annual influenza immunisations in Australia. With no government intervention, the market equilibrium is at a price of ________ and ________ million immunisations per year.

A) $30; 14

B) $40; 14

C) $40; 22

D) $60; 14

E) None of the above answers are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

97) The figure above shows the market for annual influenza immunisations in Australia. The market equilibrium with no government intervention is ________ because health care generates ________.

A) inefficient; public goods

B) inefficient; positive external costs

C) efficient; positive external costs

D) inefficient; positive external benefits

E) efficient; positive external benefits

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

98) The figure above shows the market for annual influenza immunisations in Australia. If there is NO external benefit from health care and the government does not intervene in the market, then the equilibrium price of immunisations is

A) $30.

B) $70.

C) $40.

D) $60.

E) $20.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

99) The figure above shows the market for annual influenza immunisations in Australia. The efficient quantity of immunisations is

A) less than 10 million per year.

B) 14 million per year.

C) 22 million per year.

D) 10 million per year.

E) between 14 and 21 million per year.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

100) The figure above shows the market for annual influenza immunisations in Australia. The marginal external benefit associated with immunising 14 million people is ________ per person per year.

A) $60

B) $20

C) $90

D) $30

E) $40

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

101) The figure above shows the market for annual influenza immunisations in Australia. If the government does not intervene in this market, the number of immunisations per year is ________ and the efficient number of immunisations per year is ________.

A) 14 million; 22 million

B) 10 million; 14 million

C) 14 million; 20 million

D) 14 million; 10 million

E) 20 million; 22 million

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

102) The figure above shows the market for annual influenza immunisations in Australia. If the government does not intervene in this market, deadweight loss equals

A) $600 million.

B) $350 million.

C) $250 million.

D) $500 million.

E) $37.5 million.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

103) The figure above shows the market for annual influenza immunisations in Australia. If the government intervenes in the market and provides a subsidy to providers of immunisations to immunise the efficient number of people, the amount of the subsidy is ________ per person.

A) $40

B) $25

C) $35

D) $50

E) $15

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

104) The figure above shows the market for annual influenza immunisations in Australia. If the government intervenes in the market and provides a $10 subsidy to providers of immunisations, the number of people immunised is

A) more than 10 million and less than 15 million.

B) between 15 and 20 million per year.

C) less than 10 million per year.

D) exactly 10 million per year.

E) 20 million per year.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

105) The figure above shows the market for annual influenza immunisations in Australia. Area A is the

A) remaining deadweight loss when there is the illustrated subsidy.

B) gain in efficiency from the illustrated subsidy.

C) consumer surplus with the illustrated subsidy.

D) loss in efficiency from the illustrated subsidy.

E) total deadweight loss when there is not the illustrated subsidy.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

106) The figure above shows the market for annual influenza immunisations in Australia. Area B is the

A) loss in efficiency from the illustrated subsidy.

B) gain in efficiency from the illustrated subsidy.

C) remaining deadweight loss when there is the illustrated subsidy.

D) equilibrium with the illustrated subsidy.

E) deadweight loss when there is not the illustrated subsidy.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

107) The figure above shows the market for annual influenza immunisations in Australia. Area A + Area B is the

A) loss in efficiency from the illustrated subsidy.

B) gain in efficiency from the illustrated subsidy.

C) remaining deadweight loss when there is the illustrated subsidy.

D) equilibrium with the illustrated subsidy.

E) deadweight loss when there is not the illustrated subsidy.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

108) 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) Coasian

D) external

E) extra

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education

109) If an external benefit is present, then the

A) marginal social cost curve lies above the marginal private benefit curve.

B) marginal private benefit curve lies above the marginal private cost curve.

C) marginal social benefit curve lies above the marginal private benefit curve.

D) marginal social benefit curve is the same as the marginal private benefit curve.

E) marginal social benefit is equal to the marginal social cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 10.2 Positive Externalities: Education