Externalities
Cowen/Tabarrok, Chapter 10
Consider the following graph in answering the next questions:
___C__1. The difference between Social.MC and Private.MC indicates we are dealing with a:
A. monopolized industry
B. competitive industry
C. negative externality
D. positive externality
E. tax wedge
__A__2. In the market equilibrium, we have:
A. Q = 50, P = 50
B. Q = 25, P = 75
C. Q = 25, P = 100
D. Q = 50, P = 100
__C_ 3. The dashed line surrounding the letters J through Q indicates:
A. monopoly profits
B. consumer surplus
C. total social costs
D. producer surplus
E. deadweight loss
__B_4. The deadweight loss in the graph is indicated by the areas marked by the letter or letters:
A. O only
B. M and N
C. O and S
D. Q and P
E. J and Q
_B_5. At the market equilibrium, the consumer surplus enjoyed by purchasers in the market is indicated by the
letter or letters:
A. J only
B. J, Q , P and O
C. J, Q and P
D. J and Q
E. P only
_J__6. At the social optimum, the consumer surplus enjoyed by purchasers in the market is indicated by the
letter or letters: [same options as the previous question]
__P_7. At the social optimum, the producer surplus enjoyed by suppliers in the market is indicated by the letter
or letters:
E. P only
But note that the other areas are surplus to people outside of the market.
_B_8. Antibiotics are used by the text to illustrate:
A. Positive externalities (fertilizing neigbors apple trees, less chance of flu for others)
B. Negative externalities (antibiotics)
C. Monopoly protected by patents
D. An optimal market equilibrium
_A_9. Bees were used by James Meade as an example of:
[same options as the previous question]
_A_10. Flu shots were used by the text in its discussion of:
[same options as the previous question]
_A_11. The Coase theorem says that private solutions to externality problems are possible if and only if:
(Note that the answer must be chosen from A - E below
I. Transactions costs are low
1
II. The externalities are positive externalities
III. The externalities are negative externalities
IV. Property rights are well defined.
A. I and II
B. II and IV
C. I and III
D. I and IV
E. III and IV
Consider the diagram below in answering questions 13 to 18:
__D__13. The difference between Social.MB and Private.MB indicates we are dealing with a:
A. monopolized industry
B. competitive industry
C. negative externality
D. positive externality
E. tax wedge
___A__14. In the market equilibrium, we have:
A. Q = 50, P = 50
B. Q = 25, P = 75
C. Q = 50, P = 100
D. Q = 50, P = 75
__B__15. The deadweight loss in the graph is indicated by the areas marked by the letter or letters:
A. E only
B. D and I
C. G and L
D. B, F and G
E. A, B, C and D
_D_16. At the market equilibrium, the consumer surplus enjoyed by purchasers in the market is indicated by the
letter or letters: [same options as the previous question]
_C__17. The best solution to the problem illustrated on the previous graph might be one of the following
options:
A. Command and control policies
B. Taxes
C. Subsidies
D. Quotas
E. Tariffs
__C__18. Arthur Pigou suggested that taxes could be a solution to:
A. Monopoly power
B. Positive externalities
C. Negative externalities
D. Price discrimination
E. Trade imbalances
__C_19. Tradeable allowances are preferable to taxes --A. Always
B. Never
C. If we know the maximum amount of pollution that we can tolerate
D. If we know the marginal cost of pollution
E. Both policies are always equivalent.
_D__20. Taxes are preferable to tradeable allowances:
[same options as the previous question]