Question 1

The pollution emitted by your car is an example of a(n) :

Accepted Answer

A)   internal cost.
B)   social cost.
C)   external cost.
D)   production cost.
E)   public-good cost.

Question 2

When production of a good creates an external benefit:

Accepted Answer

A)   there is a negative externality.
B)   too much of the good is being produced.
C)   there is a positive externality.
D)   it results in the tragedy of the commons.
E)   a club good is being produced.

Question 3

According to the Coase theorem, negative externalities can be internalized if:

Accepted Answer

A)   property rights are assigned to either party.
B)   property rights are assigned to the party who is being damaged.
C)   property rights are assigned to the party who is doing the damage.
D)   the party causing the damage is forced out of business.
E)   the government takes action to solve the problem.

Question 4

Refer to the following scenario to answer the questions.
Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does
-How many fishermen will choose to operate their boats?

Accepted Answer

A)   1
B)   2
C)   3
D)   4
E)   5

Question 5

A positive externality exists whenever:

Accepted Answer

A)   there are no internal costs.
B)   production of a good creates an external cost.
C)   production of a good creates an external benefit.
D)   production of a good has no social cost.
E)   production of a good has no social benefit.

Question 6

Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

Accepted Answer

A)   the third-party problem.
B)   the tragedy of the commons.
C)   an internal cost.
D)   the free-rider problem.
E)   a positive externality.

Question 7

Externalities are minimized if:

Accepted Answer

A)   private property rights are well established.
B)   the government owns all of the productive resources.
C)   there are no private goods.
D)   there are no public goods.
E)   there are no free-riders.

Question 8

Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a deadweight loss because the:

Accepted Answer

A)   internal cost is not equal to the external cost.
B)   internal cost is not equal to the internal benefit.
C)   internal benefit is not equal to the external benefit.
D)   social cost is greater than the internal benefit.
E)   internal benefit is less than the internal cost.

Question 9

The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

Accepted Answer

A)   supply curve shifts to the left.
B)   supply curve shifts to the right.
C)   demand curve shifts to the left.
D)   demand curve shifts to the right.
E)   the supply curve and the demand curve shift to the left.

Question 10

Refer to the accompanying figure. The market for college degrees is currently in equilibrium at point A, and the government decides to subsidize the cost of a college education by offering grants to students. The new socially optimal equilibrium will be at point:

Accepted Answer

A)   R.
B)   W.
C)   T.
D)   U.
E)   V.

Question 11

Which of the following is the best example of a common-resource good?

Accepted Answer

A)   a fireworks display
B)   a lighthouse
C)   cable television
D)   fish in a lake
E)   the production of gasoline

Question 12

Which rule would not protect fish populations?

Accepted Answer

A)   limiting the length of the fishing season
B)   limiting the number of fish that can be caught
C)   not allowing female fish to be caught
D)   not allowing young fish to be caught
E)   catching any fish except males

Question 13

Global warming is an example of:

Accepted Answer

A)   the tragedy of the commons.
B)   a public good.
C)   the club-good problem.
D)   a positive externality.
E)   a problem that has an easy solution.

Question 14

Consider the following scenario when answering the questions:
Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is
-If property rights over the river are assigned to Smith, then:

Accepted Answer

A)   Smith will force Jones to close the factory.
B)   Smith will pay Jones up to $75 per day to install the filter.
C)   Smith will pay Jones up to $125 to install the filter.
D)   Jones will install a filter and pay Smith at least $75 per day.
E)   Jones will install a filter.

Question 15

The air is a:

Accepted Answer

A)   private good.
B)   public good.
C)   club good.
D)   common-resource good.
E)   government good.

Question 16

The costs or benefits of a market activity that affect a third party are called:

Accepted Answer

A)   externalities.
B)   public goods.
C)   club goods.
D)   internal costs.
E)   common-resource goods.

Question 17

Are city parks considered public goods? Why or why not?

Accepted Answer

City parks are not pure public goods. Th...

Question 18

When people elect to spend more years in school, this results in a _________ externality because there are _________ associated with this decision.

Accepted Answer

A)   negative; internal costs
B)   negative; external costs
C)   positive; external benefits
D)   positive; external costs
E)   positive; internal benefits

Question 19

Common-resource goods are:

Accepted Answer

A)   nonrival, like public goods, and excludable, like private goods.
B)   nonrival, like private goods, and excludable, like club goods.
C)   nonrival, like club goods, and excludable, like public goods.
D)   rival, like private goods, and nonexcludable, like public goods.
E)   rival, like club goods, and nonexcludable, like private goods.

Question 20

You drive to work each day. The best example of an internal cost is the:

Accepted Answer

A)   amount of pollution emitted by your car.
B)   congestion created by your car being on the road.
C)   amount the government paid to build the road.
D)   amount you pay to maintain your car.
E)   amount of money you save each day by avoiding the toll roads.

Exam 7: Market Inefficiencies: Externalities and Public Goods

A positive externality exists whenever:

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The pollution emitted by your car is an example of a(n) :

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Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

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According to the Coase theorem, negative externalities can be internalized if:

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Refer to the accompanying figure. The market for college degrees is currently in equilibrium at point A, and the government decides to subsidize the cost of a college education by offering grants to students. The new socially optimal equilibrium will be at point:

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Global warming is an example of:

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When production of a good creates an external benefit:

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Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a deadweight loss because the:

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Are city parks considered public goods? Why or why not?

Correct AnswerverifiedCity parks are not pure public goods. Th...View AnswerShow Answer

Refer to the following scenario to answer the questions. Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does -How many fishermen will choose to operate their boats?

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Consider the following scenario when answering the questions: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is -If property rights over the river are assigned to Smith, then:

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Which of the following is the best example of a common-resource good?

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Common-resource goods are:

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The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

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Which rule would not protect fish populations?

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The air is a:

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When people elect to spend more years in school, this results in a _________ externality because there are _________ associated with this decision.

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Externalities are minimized if:

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You drive to work each day. The best example of an internal cost is the:

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The costs or benefits of a market activity that affect a third party are called:

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City parks are not pure public goods. Th...
View Answer

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When people elect to spend more years in school, this results in a _ externality because there are _ associated with this decision.

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