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Exam 10: Externalities and Public Goods

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Question 1

Multiple Choice

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(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are external benefits, a subsidy given to consumers will:

A) decrease the equilibrium quantity.
B) increase the equilibrium quantity.
C) have no effect on the equilibrium price.
D) decrease the equilibrium price.

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Question 2

Multiple Choice

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(Figure: Market 4) Use the graph to answer the question. The graph show the marginal social benefit, demand, and supply curves in the milkshake market. Market forces would yield a quantity of _____ and a price of _____ in the milkshake market.

A) 12; $1
B) 16; $4
C) 12; $3
D) eight; $2

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D

Question 3

Multiple Choice

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The socially optimal amount of an externality is:

In general, a corrective subsidy:

The supply curve of a firm is also its _____ cost curve.

Cap and trade is a system of:

Which is a private good?

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are no external benefits or costs, the output at Q will be:

Which statement illustrates an environmental policy that uses cap and trade?

The benefit enjoyed by a buyer as a result of purchasing one additional unit of a good is the marginal _____ benefit.

City police services and clean water are similar in that both are _____, but they differ in that clean water is _____, while city police services are not.

Your college roommate has the right to practice her tuba during the day. You, however, find that studying during the day is most conducive to good grades, and her tuba-playing makes it difficult for you to concentrate. You make a deal with your roommate: you will clean the dorm room once a week if she will practice her tuba at other times or elsewhere. This is an example of

Which of the following would be both nonrival and nonexcludable?

A good has a free-rider problem when:

What happens in a supply and demand diagram of the pesticide market when a corrective tax is used to solve a negative externality problem?

Which good is MOST likely to be a public good?

An external benefit is:

(Figure: Market 2) Use the graph to answer the question. ​ The graph shows the marginal social cost, demand, and supply curves in the cinnamon roll market. A corrective tax of _____ per unit will move the cinnamon roll market to the socially optimal output of _____ units.

Suppose that the city of Cleveland has set an emissions tax to reduce the amount of pollution going into the Cuyahoga River. Assume that the optimal tax would be $2,500 but that city officials have set the tax at $1,000. At the equilibrium with the $1,000 tax:

A public good, such as national defense, _____ excludable and is _____ in consumption.