its cost to everyone in the society that occurs in addition to the private costs.. ANSWER: c its cost to everyone in the society that occurs in addition to the private costs.. private co
Trang 1Externalities
1 Market failure in the form of externalities arises when
a production costs are included in the prices of goods
b not all costs and benefits are included in the prices of goods
c the benefits exceed the costs of consuming goods
d the market fails to achieve equilibrium
ANSWER: b not all costs and benefits are included in the prices of goods
SECTION: INTRO OBJECTIVE: 1
2 Which of the following is an example of a positive externality?
a air pollution
b a person littering in a public park
c a nice garden in front of your neighbor’s house
d the pollution of a stream
ANSWER: c a nice garden in front of your neighbor’s house
SECTION: INTRO OBJECTIVE: 1
3 The social cost of a good is
a its benefit to the people who buy and consume it
b its total benefit to everyone in society
c its cost to everyone in the society that occurs in addition to the private costs
d the cost paid by the firm that produces and sells it
ANSWER: c its cost to everyone in the society that occurs in addition to the private costs
SECTION: INTRO OBJECTIVE: 1
4 The private benefit of consuming a good is
a its benefit to the people who buy and consume it
b its total benefit to everyone in the society
c its cost to everyone in the society
d the cost paid by the firm that produces and sells it
ANSWER: a its benefit to the people who buy and consume it
SECTION: INTRO OBJECTIVE: 1
5 When a person drives a car that pollutes the air the
a private cost of consuming the car’s services exceeds the social cost
b private benefit of consuming the car’s services exceeds the social benefit
c social cost of consuming the car’s services exceeds the private cost
d social benefit of consuming the car’s services exceeds the private benefits
ANSWER: c social cost of consuming the car’s services exceeds the private cost
SECTION: INTRO OBJECTIVE: 1
Trang 27 Flu shots are associated with a positive externality. (Those who come in contact with people who are inoculated are helped as well.) Given perfect competition with no government intervention in the vaccination market, which of the following holds?
a At the current output level, the marginal social benefit exceeds the marginal private benefit
b The current output level is inefficiently low
c A pershot subsidy could turn an inefficient situation into an efficient one
d All of the above are correct
ANSWER: d All of the above are correct
SECTION: 1 OBJECTIVE: 2
8 Because there are positive externalities from higher education,
a private markets would provide too little of it
b private markets would provide too much of it
c the government should impose a tax on college students
d the government should impose a tax on students’ families
ANSWER: a private markets would provide too little of it
SECTION: 1 OBJECTIVE: 2
9 This diagram represents the tobacco industry. Which of the following would be included in the supply (private cost) curve?
a the cost of labor
b the cost to the government of the hospital expenses of smokers with cancer
c the increased risk of cancer to the nonsmoking passengers in the smoker’s car pool
d the price of a pack of cigarettes
ANSWER: a the cost of labor
SECTION: 1 OBJECTIVE: 2
Trang 310 This diagram represents the tobacco industry. It is clear that the industry creates
a positive externalities
b negative externalities
c no externalities
d no equilibrium in the market
ANSWER: b negative externalities
SECTION: 1 OBJECTIVE: 2
11 This diagram represents the tobacco industry. The market creates an equilibrium price and quantity exchanged of
a $1.90 and 42 units
b $1.80 and 35 units
c $1.60 and 42 units
d $1.35 and 59 units
ANSWER: c $1.60 and 42 units
SECTION: 1 OBJECTIVE: 2
12 This diagram represents the tobacco industry. The socially optimal price and quantity exchanged are
a $1.90 and 42 units
b $1.80 and 35 units
c $1.60 and 42 units
d $1.35 and 59 units
ANSWER: b $1.80 and 35 units
SECTION: 1 OBJECTIVE: 2
Trang 414 This diagram represents the tobacco industry. If the government uses a pollution tax, how much tax revenue will the government receive?
a $12.60
b $10.50
c $66.50
d $63.00
ANSWER: b $10.50
SECTION: 1 OBJECTIVE: 2
15 Internalizing an externality means
a the good becomes a public good
b government regulations or taxes are sufficient to eliminate the externality completely
c government imposes regulations that eliminate the externality completely
d incentives are altered so that people take account of the external effects of their actions
ANSWER: d incentives are altered so that people take account of the external effects of their actions SECTION: 2 OBJECTIVE: 3
16 A dentist shared an office building with a radio station. The electrical current from the dentist’s drill causes static in the radio broadcast, causing the radio station to lose $10,000 in discounted future profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?
a The radio station puts up a shield, which it pays for
b The radio station puts up a shield, which the dentist pays for
c The radio station does not put up a shield and the dentist does not buy a new drill
d The dentist gets a new drill and it does not matter who pays for it
ANSWER: d The dentist gets a new drill and it does not matter who pays for it
SECTION: 2 OBJECTIVE: 3
17 Why can’t private individuals always internalize an externality without the help of government?
a Legal restrictions prevent side payments between individuals
b Transactions costs may be too high
c Side payments between individuals are inefficient
d Side payments between individuals violate equity standards
ANSWER: b Transactions costs may be too high
SECTION: 2 OBJECTIVE: 4
Trang 518 What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?
a The Coase Theorem
b Say’s Law
c The Law of Comparative Advantage
d The Law of Supply
ANSWER: a The Coase Theorem
SECTION: 2 OBJECTIVE: 3
19 Assume the production of the product in the figure imposes a cost on society of $7.00 per unit. If the free market equilibrium output is 50 units, the government should
a impose a tax of $2.50 per unit
b reduce the output of the firm by approximately 39 units
c impose a lumpsum tax of $350 per period
d impose a tax of $7.00 per unit
ANSWER: d impose a tax of $7.00 per unit
SECTION: 3 OBJECTIVE: 5
20 A benefit of taxes over regulation to internalize externalities is
a it is easier to choose the optimal amount of taxes than the optimal amount of regulation
b regulations are more difficult to impose than taxes
c taxes equate the social costs with the social benefits
d taxes provide incentives to adopt new methods to reduce the externality
ANSWER: d taxes provide incentives to adopt new methods to reduce the externality
SECTION: INTRO OBJECTIVE: 1
21 If the government wants to tax a polluter, the economically efficient outcome occurs when the
a marginal tax equals the marginal cost to other people from the pollution
b average tax equals the average cost to other people from the pollution
c total tax equals the total cost to other people from the pollution
d tax is high enough to stop pollution completely
ANSWER: a marginal tax equals the marginal cost to other people from the pollution
SECTION: INTRO OBJECTIVE: 1
Trang 623 A common complaint about environmental regulation and enforcement is that it
a applies only to firms that produce goods, not services
b is politically motivated and so is always misdirected
c can be too burdensome to producers who can pay the fines more easily than they can reduce pollution
d results in more pollution than without the regulations
ANSWER: c can be too burdensome to producers who can pay the fines more easily than they can reduce pollution
SECTION: 3 OBJECTIVE: 5
24 The benefit to a pollution tax over other forms of internalizing a pollution externality is that it
a eliminates pollution completely
b forces cleanup to occur
c is imposed only on the market with the externality
d creates positive externalities to compensate for negative externalities
ANSWER: c is imposed only on the market with the externality
SECTION: 3 OBJECTIVE: 5
25 Pollution permits
a impose regulations on firms that they must achieve
b set a quantity of pollution that will exist
c cannot be traded between firms in order to make sure that the worst offenders must clean up their production processes
d are efficient because they eliminate all pollution
ANSWER: set a quantity of pollution that will exist
SECTION: 3 OBJECTIVE: 5
Trang 726 This diagram shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution here is
a $500
b $1000
c $1500
d $2000
ANSWER: b $1000
SECTION: 3 OBJECTIVE: 5