Test Bank Chapter 4 Markets, Externalities, And Public Goods

Chapter 04

Markets, Externalities, and Public Goods

Multiple Choice Questions

Figure 4.1

1. Suppose for a given market that the MWTP and MC curves are represented in Figure 4.1. Assuming all market and non-market values are incorporated into the data, the MWTP at the socially efficient level of output is equal to ________. 
A. 100 units
B. 140 units
C. $230
D. $250

Difficulty: Easy

3. A small coastal community with the power to control access to its scallop fishery is an example of ________. 
A. common property rights
B. private property rights
C. an open access resource
D. a positive externality

 Difficulty: Easy 

4. A common pasture on which anyone is allowed to freely graze sheep or cattle is an example of ________. 
A. private property rights
B. an open access resource
C. common property rights
D. community property rights

 
Difficulty: Easy 

Figure 4.2

5. In the Figure 4.2 the net social value is equal to ________.
A. area c
B. areas a + b - c
C. areas a + b + c
D. areas a + b

Difficulty: Easy

6. ________ cause private and social marginal cost curves to diverge while ________ cause private demand and social marginal WTP to diverge. 
A. External benefits; external costs
B. External costs; external benefits
C. Market failures; public goods
D. Taxes; subsidies

 Difficulty: Moderate

7. In the case of an open access resource, a(n) ________ takes place due to a lack of ________. 
A. externality; regulation
B. free rider problem; ethical behavior
C. market failure; property rights
D. external benefit; rivalry in consumption

 Difficulty: Easy 

8. When production results in environmental degradation, private firms do not take the ________ into consideration when making their output decisions resulting in ________. 
A. external costs; a market failure
B. market failure; an externality
C. marginal costs; pollution
D. market failure; pollution

Difficulty: Easy

Figure 4.3

9. In the Figure 4.3, the socially efficient level of output is equal to ________. 
A. q*
B. q^m
C. p*
D. None of the choices are correct.

Difficulty: Easy

Table 4.4

10. In Table 4.4, social MWTP equals private MWTP plus external benefits from production. In this market, the socially efficient level of output is ________. 
A. Q₂
B. Q₃
C. Q₄
D. None of the choices are correct.

Difficulty: Moderate 

11. The ________ level of pollution can be negotiated privately based on property rights when only a few parties are involved and the source, amount, and type of pollution is clearly identifiable. 
A. cost-effective
B. zero-emissions
C. fair
D. socially efficient

Difficulty: Easy.

12. When the rate of output is at the socially efficient level, _______________. 

A. net social value which is equal to total WTP minus total costs is as large as possible
B. the total willingness to pay is as large as possible
C. profit is a large as possible
D. output is as large as possible

Difficulty: Easy

13. If social values are not reflected in the market values determined by the market demand and market supply curves, the competitive market equilibrium output will ______________. 

A. always be the socially efficient level of output
B. not be the socially efficient level of output
C. always be higher than the socially efficient level of output
D. always be lower than the socially efficient level of output

Difficulty: Easy

 

14. External costs can drive a wedge between the ­­­_______ and the _________ resulting in a market failure. 

A. private marginal WTP curve; social marginal WTP curve
B. market demand curve; social marginal WTP curve
C. market supply curve; social marginal costs
D. None of the choices are correct.

Difficulty: Easy

15. External benefits can drive a wedge between the _______ and the _______ resulting in a market failure. 

A. private marginal WTP curve; social marginal WTP curve
B. market demand curve; social marginal WTP curve
C. market supply curve; social marginal costs
D. None of the choices are correct. 

Difficulty: Easy

16. In the case of open access resources and public goods, the competitive market output level will be ___________. 

A. equal to the socially efficient level of output
B. lower than the socially efficient level of output
C. unequal to the socially efficient level of output
D. higher than the socially efficient level of output

Difficulty: Easy

 17. Each of the following is a cause of market failure, except ______________. 

A. external costs
B. public goods
C. external benefits
D. time

Difficulty: Easy

18. When you enjoy the view of your next-door neighbor's prize-winning garden, this is an example of ________. 
A. common property rights
B. a positive externality
C. a negative externality
D. a public good

Difficulty: Easy

19. When we drive our cars, we get the ________ of transportation services, while others experience the detrimental effects such as pollution and congestion which environmental economists refer to as a(n) ________. 
A. positive externality; negative externality
B. direct benefit; opportunity cost
C. direct benefit; negative externality
D. positive externality; opportunity cost

Difficulty: Easy

20. The number of miles a household drives its vehicles each year is determined by its ________ of driving. 
A. opportunity cost
B. private cost
C. social cost
D. external cost

Difficulty: Easy

Figure 4.5

Individual Demand for Lowering Indoor Carbon Monoxide in $/yr.

Three Students Share a Home

21. Refer to Figure 4.5. If the group living in the house consists of Students A, B, and C, the aggregate willingness to pay to reduce CO concentration to 80 ppm is ______.
A. $65/yr
B. $140/yr
C. $85/yr
D. indeterminate

Difficulty: Moderate

22. Refer to Figure 4.5. If the group living in the house consists of Students A, B, and C, the socially optimal level of CO concentrations is _________.
A. $70/yr
B. 70 ppm
C. $95/yr
D. 50 ppm

Difficulty: Moderate

23. Refer to Figure 4.5. If the group living in the house is reduced to Students A and C, aggregate willingness to pay for most CO levels _________. 
A. increases
B. declines
C. remains unchanged
D. is unpredictable

Difficulty: Moderate

24. By definition, a free rider is a person _______________. 

A. who underpays for a public good relative to the benefits that they receive
B. who refuses to pay for a public good because they receive no value from it
C. who contributes less than others toward payment of a public good
D. who pays less than the marginal cost of producing a public good

Difficulty: Moderate

25. Due to free riding, public goods are typically ____________. 

A. under supplied
B. supplied by private firms who can restrict access
C. taxed
D. over supplied

Difficulty: Easy

Figure 4.6

26. Refer to Figure 4.6. At quantities lower than the socially efficient level, __________.

A. MWTP is higher than the marginal cost of production, the good is under supplied
B. quantity demanded is greater than the willingness to supply, the good is over supplied
C. MWTP is less than willingness to supply, the good will not be produced
D. the graph does not depict quantities that are lower than the socially efficient level

Difficulty: Easy

Figure 4.7

Willingness to pay for a Public Park

27. Refer to Figure 4.7. If the marginal cost to provide the park is $3/hectare, __________.

A. the socially efficient size of the park is 4 hectares
B. the socially efficient size of the park is 3 hectares
C. there is no socially efficient solution
D. None of the above are true.

Difficulty: Easy

28. Refer to Figure 4.7. As MWTP _______, total willingness to pay _______.

A. increases; increases
B. declines; declines
C. declines; increases
D. The table does yield enough information.

Difficulty: Easy

29. The central idea of economic efficiency is that ___________________.

A. all people must value the production of the goods that society produces
B. there is a balance between aggregate marginal willingness to pay and the marginal costs of production
C. the marginal willingness to pay of all consumers is equal to the total cost of production
D. production is maximized

Difficulty: Easy

30. In judging whether people from Chicago can justifiably claim that they have been damaged by species endangerment in Africa, the presence or absence of ___________ is the economic index used to validate that claim.

A. public goods
B. social costs
C. willingness to pay
D. market efficiency

Difficulty: Easy

1. Equity means

A. equality

B. maximum net benefits

C. fairness

D. equilibrium

1. Efficiency means

A. equality

B. maximum net benefits

C. fairness

D. equilibrium

1. If society had to pay external costs plus production costs, the supply of goods would

A. increase

B. decrease

C. not change

D. cannot be determined

1. An example of an external cost of driving automobiles is

A. fuel or energy for the vehicle

B. flat tire replacement

C. insurance and registration

D. road congestion

1. Market failure

A. is a problem only in the United States

B. does not occur in socialist economies

C. means a good is free or has a price of zero

D. can result from externalities