Microeconomics - Testbank 1 (Hubbard/O'Brien)
Chapter 5 Exernalities, Environmental Policy, and Public Goods
c1) An externality is:
A a benefit realized by the purchaser of a good or service.
)
B a cost paid for by the producer of a good or service.
)
C a benefit or cost felt by someone who is not a producer or
) consumer of a good or service.
D anything that is external or not relevant to the production of
) a good or service.
2) If your neighbor burns auto tires in the yard and you can smell
them and cannot see sunlight because of the black smoke, you
are experiencing:c
A a positive externality.
)
B a negative externality.
)
C a private cost.
)
D a private benefit.
)
3) Externalities:c
A should be banned.
)
B should be subsidized.
)
C can either be positive or negative.
)
D are what the private consumer and producer in an exchange
) realize.
4) If you buy a sweater to keep you warm in the winter, you are
experiencing a:a
A private benefit.
)
B external benefit.
)
C social cost because it cost you some money.
)
D loss of consumer surplus.
)
5) If a negative exrternalitiy exists in reality, it will be experienced
by: a
A some people not directly involved in the production or
) consumption of the good or service.
B the producer of the good or service.
)
C the consumers of the good or service.
)
D the government.
)
6) An example of a positive externality would be:
A cleaning up the sidewalk on your block.
)
B graduating from college.
)
C repainting the house you live in.
)
D all of the above.
)
7) Which of the following is correct?
A Private cost equals external cost.
)
B Private benefit plus external benefit equals social benefit.
)
C External cost minus private cost equals social cost.
)
D Private benefit equals external benefit minus social benefit.
)
8) Why might even well-meaning producers in a market economy
pollute?
A To avoid the external costs of production
)
B By polluting, supply is reduced and market price increases.
)
C Polluting producers are being irrational.
)
D There is no good reason why some producers pollute.
)
9) If there is pollution in producing a good and service, then:
A equilibrium price is too high and equilibrium quantity is too
) low.
B equilibrium price and equilibrium quantity are too low.
)
C equilibrium price and equilibrium quantity are too high.
)
D equilibrium price is too low and equilibrium quantity is too
) high.
10) Because producers do not bear the external cost of pollution:
A the economically efficient level of production is achieved.
)
B production is below the economically efficient level.
)
C production is beyond the economically efficient level.
)
D the market price is too high.
)
Refer to Figure 5.1 for the questions below.
Figure 5.1
11) Figure 5.1 shows:
A a positive externality.
)
B a negative externality.
)
C common property.
)
D a public good.
)
12) In figure 5.1 the firm wants to produce:
A Q1.
)
B Q2.
)
C Q3.
)
D Q4.
)
13) In figure 5.1 the efficient output is:
A Q1.
)
B Q2.
)
C Q3.
)
D Q4.
)
14) When a competitive market equilibrium is economically
efficient:
A there is a positive deadweight loss.
)
B producer and consumer surplus are exactly equal in size.
)
C there are no positive and no negative external effects from
) consumption and production.
D All of these must be correct.
)
15) Which of the following is true when a negative external effect
creates a deadweight loss?
A The marginal benefit to consumers is equal to the marginal
) cost to society of the last units produced.
B The marginal benefit to consumers is above the marginal
) cost to society of the last units produced.
C The marginal benefit to consumers is below the marginal
) cost to society of the last units produced.
D None of these are true.
)
16) When there is a positive externality in a free market, there is:
A too much of the good produced and consumed.
)
B too little of the good produced and consumed.
)
C the right amount of the good produced and consumed.
)
D an economically efficient level of production and
) consumption.
17) When there is a positive externality, then:
A the marginal private benefit is less than the marginal social
) benefit at equilibrium.
B the marginal private benefit is greater than the marginal
) social benefit at equilibrium.
C the marginal private benefit is equal to the marginal social
) benefit at equilibrium.
D the marginal private costs are declining.
)
Refer to Figure 5.2 for the questions below.
Figure 5.2
18) If figure 5.2, the firm wants to produce:
A Q1.
)
B Q2.
)
C Q3.
)
D Q4.
)
19) If figure 5.2, the efficient output is:
A Q1.
)
B Q2.
)
C Q3.
)
D Q4.
)
20) If figure 5.2, the dead weight loss due to the externality is:
A F+J
)
B H+L
)
C T+U
)
D A+B+C+E+F
)
21) The level of pollution in reality should be:
A reduced completely to zero because by definition, it is a
) negative external effect.
B
)
ignored has always been present since the beginning of history.
because it
C reduced to the point where the marginal benefit is equal to
) the marginal cost to society.
D left alone because the optimal level is controversial.
)
22) The best level of pollution for society is:
A zero.
)
B where total benefit from reducing the pollution is the
) greatest.
C where marginal benefit from reducing the pollution is the
) greatest.
D where net benefit from reducing the pollution is the
) greatest.
23) The Coase theorem is that:
A government intervention is always needed if externalities
) are present.
B assigning property rights is the only thing the government
) should do in a market economy.
C if transactions costs are low, private bargaining will result in
) an efficient solution to the problem of externalities.
D a free market equilibrium is always the best solution.
)
24) If government decides to control pollution by placing a tax on
the product that is associated with the pollution, the size of the
tax should be:
A that will force the market price so high that no buyer can
) afford the product.
B equal to the social cost of the product.
)
C
)
equal to
the private cost of the product.
D equal to the external cost of the product.
)
25) Government can increase the consumption of a good or service
that has positive externalities by:
A subsidizing the production of the good or service so that the
) supply is increased and market price is reduced.
B taxing the production and consumption of the good or
) service.
C convincing everyone to consume the good.
)
D by assigning property rights.
)
26) Who was the economist who first proposed that governments
use taxes and subsidies to correct for externalities?
A Ronald Coase
)
B A. C. Pigou
)
C Adam Smith
)
D none of these
)
27) The imposition of a tax on the production of a polluting good or
service that is equal to the external costs will:
A increase the equilibrium market price.
)
B decrease the equilibrium quantity produced and consumed.
)
C decrease market supply of the product.
)
D
)
all of the above.
28) A good or service is considered to be excludable:
A if you can keep other people who did not pay for the item
) from enjoying its benefits.
B if you can't keep other people who did not pay for the item
) from enjoying its benefits.
C when you consume a unit of the good, there is one less for
) everyone else.
D when all people can be considered as an owner and no one is
) excluded from ownership.
29) A good or service is considered to be nonexcludable:
A if you can keep other people who did not pay for the item
) from enjoying its benefits.
B if you can't keep other people who did not pay for the item
) from enjoying its benefits.
C when if you consume a unit, there is one less for everyone
) else.
D when all people are considered owners.
)
30) When is a good or service considered to be rival in nature?
A If you can keep other people who did not pay for the item
) from enjoying its benefits.
B If you can't keep other people who did not pay for the item
) from enjoying its benefits.
C When you consume one unit there is one less for everyone
) else.
D All people are considered to be owners.
)
31) A good that is both rival and excludable is a:
A public good.
)
B private good.
)
C natural monopoly.
)
D common resource.
)
32) A good that is nonrivalrous and nonexcludable is a:
A public good.
)
B private good.
)
C natural monopoly.
)
D common resource.
)
33) A good that is rival and nonexcludable is a:
A public good.
)
B private good.
)
C natural monopoly.
)
D common resource.
)
34) A public good differs from a private good in that:
A only the government can produce public goods.
)
B if a person does not pay for the good, they can be kept from
) enjoying the benefits of a public good.
C if you consume a unit of a public good, there is one less for
) everyone.
D
)
no one
enjoying the benefits of a public good and one person using
can be
it does not reduce the amount available for everyone else.
kept from
35) If someone enjoys the benefits from national defense but never
pays any taxes to support it, that person is known in economics
as a:
A tax cheater.
)
B free loader.
)
C homeless person.
)
D free rider.
)
36) An example of a good that has nonexclusive benefits would be:
A cakes for sale at a bakery.
)
B a light house.
)
C houses.
)
D toothpicks.
)
37) An example of a natural monopoly type of good would be:
A cable television.
)
B apples.
)
C air.
)
D none of these.
)
38) The market demand for public goods can be determined by:
A by adding up how much each citizen is willing to buy at
) every possible price.
B multiplying how much each citizen is willing to buy at every
) price.
C adding up how much each consumer will pay for each unit
) of the public good.
D multiplying how much each consumer will pay for each unit
) of the public good.
39) For profit producers will produce only private goods because:
A they are small enough that everyone can afford them.
)
B the cost of production is easily found.
)
C buyers will be willing to pay for it because benefits are
) excludable.
D they are greedy.
)
40) In which of these situations is there no deadweight loss?
A Free market production of a private good with a negative
) externality
B Free market consumption of a private good with a positive
) externality
C Free market production and consumption of a private good
) without any externalities
D Consumption of a common resource without government
) restrictions
41) Overuse of a common resource may be avoided in modern times
by:
A governments taxing use of common resources.
)
B governments issuing tradeable permits for use of common
) resources.
C governments issuing quotas or legal limits for use of
) common resources.
D all of the above.
)
42) If you buy a product for your own use, it is a:
A private good.
)
B public good.
)
C natural monopoly.
)
D common resource.
)
43) The social cost of cutting trees for firewood in a government
forest are:
A the rising chance of flooding as more trees are cut.
)
B the rising chance of flooding as more trees are cut plus the
) private cost of the cutting.
C opportunity cost to the individual of cutting the wood.
)
D the marginal costs of cutting the last tree.
)