Deck 10: Externalities

Question 1

The difference between private cost and social cost is that

A)social cost only considers the external cost borne by society.
B)social cost only considers the cost borne by people other than the producer.
C)private cost only considers the cost borne by producers of the good.
D)social cost also includes any external benefit whereas private cost excludes all external benefits.
E)there is no difference; the terms refer to the same cost.

Answer 1

C

Question 2

Evidence of external costs in the production of a product is present if

A)the price of the product is higher than it should be.
B)the production cost increases because of an increase in the minimum wage.
C)non-buyers and/or non-producers of the product experience a loss for which they are not compensated.
D)buyers refuse to purchase the product.
E)producers pay all of the costs of producing the good or service.

Answer 2

C

Question 3

For a firm, its labor costs are

A)a marginal benefit.
B)a private cost.
C)an external cost.
D)Both answers A and C are correct.
E)Both answers A and B are correct.

Answer 3

B

Question 4

Marginal private cost

A)is always zero if there is an external cost.
B)equals the marginal social cost only if the marginal external cost is positive.
C)is the cost of producing an additional unit of a good or service that is paid by the producer of that good or service.
D)the cost of producing an additional unit of a good or service that falls on people other than the producer of that good or service.
E)the cost of producing an additional unit of a good or service that is paid by the entire society.

Question 5

An example of someone bearing the burden of a negative production externality would be

A)Taylor living downwind from a smelly feedlot where pigs are raised.
B)Jess's roommate smokes and she doesn't.
C)Lynna's neighbors play loud music late at night.
D)All of these are examples of someone bearing the burden of a negative production externality.
E)None of these is an examples of someone bearing the burden of a negative production externality.

Question 6

Harry, the owner of a beauty salon, hires a new hair stylist.The wages paid to the new stylist are

A)a private cost and not an external cost .
B)an external cost and not a private cost.
C)both a private cost and an external cost.
D)neither a private cost nor an external cost.
E)only a private benefit because people want their hair styled.

Question 7

When studying pollution and the environment, economists

A)have no role to play.
B)concentrate on the physical aspects of the environment.
C)emphasize costs and benefits.
D)attempt to reduce pollution at all costs.
E)think pollution is good if it occurs when production takes place.

Question 8

To ensure all students are protected from getting the flu this year, your school offers free flu shots.What type of externality exists in this example?

A)Negative consumption externality.
B)Positive consumption externality.
C)Positive production externality.
D)Negative production externality.
E)Neutral externality.

Question 9

The cost of producing an additional unit of a good or service that is borne by the producer of that good or service is the marginal

A)external cost.
B)private cost.
C)social cost.
D)public cost.
E)None of the above answers is correct.

Question 10

Which of the following is NOT an example of a good with an external cost?

A)electricity generation that produces carbon dioxide emissions that contribute toward global warming
B)logging that pollutes a nearby river
C)Jess smoking near her non-smoking roommate
D)Ahmed working at a bank and he gets a flu shot each fall
E)noise pollution from aircraft

Question 11

For a product with an external cost, the supply curve

A)represents the various quantities people can buy.
B)is the same as the marginal private cost curve.
C)is the same as the marginal social cost curve.
D)is the same as the marginal external cost curve.
E)is undefined.

Question 12

Pollution is an example of a ________ externality.

A)negative production
B)positive production
C)negative consumption
D)positive consumption
E)Coasian

Question 13

Joanne rents a TV production studio to produce an extra hour of a TV show.The rent is

A)a private cost and not an external cost.
B)an external cost and not a private cost.
C)both a private cost and an external cost.
D)neither a private cost nor an external cost.
E)a private benefit because viewers will benefit from watching the extra hour of the show.

Question 14

A private cost is a cost of production that is

A)borne by the producer of a good.
B)measured in marginal terms.
C)borne by someone other than the producer of a good.
D)measured in total terms.
E)the same as an external cost.

Question 15

A cost that arises from the production or consumption that falls on someone other than the producer or consumer is called

A)a negative benefit.
B)a public choice impact.
C)a positive externality.
D)a negative externality.
E)a private good.

Question 16

Externalities

A)can be either benefits or costs.
B)always create extra social costs.
C)always make society better off.
D)cannot be expressed in dollar amounts.
E)are always part of private costs or private benefits.

Question 17

The production of electricity creates pollution.When deciding how much electricity to buy, customers ________ the cost of pollution.When deciding how much electricity to buy, producers ________ the cost of pollution.

A)take into account; take into account
B)do not take into account; do not take into account
C)take into account; do not take into account
D)do not take into account; take into account
E)None of the above answers is correct.

Question 18

The cost of producing an additional unit of a good or service that falls on people other than the producer is the marginal

A)external cost.
B)private cost.
C)social cost.
D)social benefit.
E)None of the above answers is correct.

Question 19

An example of someone bearing the burden of a negative consumption externality would be

A)Taylor living downwind from a feedlot.
B)LaShawn grows beautiful roses in her garden.
C)Jess's roommate smokes and she doesn't.
D)All of these are examples of someone bearing the burden of a negative consumption externality.
E)None of these is an example of someone bearing the burden of a negative consumption externality.

Question 20

A example of a good with external benefits is

A)a pizza.
B)a dose of flu vaccine.
C)a sewing machine.
D)an imported good.
E)a pair of running shoes.

Question 21

Suppose two neighborhoods with 10 homes each in Buffalo, New York are identical except one of them is near a toxic waste dump.If homes near the dump sell for an average of $40,000 and the other homes sell for $90,000, the external cost of the dump is

A)$400,000.
B)$1,300,000.
C)$900,000.
D)$500,000.
E)$90,000.

Question 22

If a product has zero external costs, then

A)marginal social cost equals marginal private cost.
B)marginal social cost is greater than marginal private cost.
C)marginal social cost is less than marginal private cost.
D)marginal social cost equals zero.
E)We need more information to determine the relationship between marginal private cost and marginal social cost.

Question 23

The marginal cost incurred by the entire society to produce a good or service is the

A)marginal external cost.
B)marginal private cost.
C)marginal social cost.
D)marginal social benefit.
E)marginal private benefit.

Question 24

A loud band plays a concert late at night in a neighborhood park.The noise produced by the band that keeps the neighbors not attending the concert awake is

A)only a private cost.
B)only an external cost.
C)both a private cost and an external cost.
D)neither a private cost nor an external cost.
E)a private benefit because the neighbors get to hear the band.

Question 25

If there is no external cost, then marginal social cost

A)increases as output increases.
B)decreases as output increases.
C)is constant regardless of the level of output.
D)is unrelated to output levels.
E)first increases and then decreases as output increases.

Question 26

A firm dumps dioxin in a river, thereby severely polluting the river.The cost of the water pollution is
I∙zero for the firm.
Ii∙an external cost.
Iii∙part of the marginal social cost

A)i only
B)ii only
C)iii only
D)ii and iii
E)i, ii, and iii

Question 27

Marginal social cost is the

A)price a consumer pays for one more unit of a good.
B)cost a producer incurs producing one more unit of a good.
C)cost of producing one more unit of a good that falls on someone other than the producer.
D)sum of the cost a producer incurs from producing one more unit of a good plus the cost of producing one more unit of a good that falls on someone other than the producer.
E)same as marginal cost only if there is an external cost when the good is produced.

Question 28

Jacob pays $5,000 to paint his house because pollution from a nearby factory damaged the paint.To the factory, the $5,000 cost is

A)a private cost and not an external cost.
B)an external cost and not a private cost.
C)both a private cost and an external cost.
D)neither a private cost nor an external cost.
E)a private benefit because viewers will benefit from watching the extra hour of the show.

Question 29

Which of the following is an example of an external cost?

A)taxes
B)the price of a car wash
C)pollution
D)an electricity bill
E)paying a wage that exceeds the minimum wage

Question 30

A landfill site produces an obnoxious odor.Homes downwind of the site rent for $1000 per month while homes upwind of the site rent for $1500 per month.If the odor is the only detectable difference between two neighborhoods, the difference in the rent is the ________ of the odor.

A)social cost
B)external cost
C)private cost
D)marginal cost-benefit
E)private benefit

Question 31

Which of the following is true?

A)

Question 32

If the marginal external cost of building a children's playground equals zero, then the
I∙marginal private cost equals the marginal social cost.
Ii∙marginal social cost equals zero.
Iii∙marginal private cost equals zero.

A)i only
B)ii only
C)iii only
D)ii and iii
E)i and ii

Question 33

The marginal social cost of producing a good or service is the

A)cost of producing an additional unit borne by the producer.
B)cost of producing an additional unit borne by people other than the producer.
C)sum of the marginal private cost and the marginal external cost.
D)same as marginal external cost.
E)sum of the marginal private cost and the marginal external cost minus the marginal social benefit.

Question 34

When logging in the Pacific Northwest destroys forests that hikers would have used for eco-tourism, the destruction of the trails is an example of

A)an external cost.
B)a private cost.
C)a government cost.
D)an external benefit.
E)None of the above answers is correct.

Question 35

Marginal social cost is equal to

A)the amount people who buy a product pay for another unit.
B)whatever producers have to pay to produce output.
C)the sum of marginal private cost and the marginal external cost.
D)the average of marginal private cost and the marginal external cost.
E)None of the above answers is correct.

Question 36

Suppose two neighborhoods (A and B)have identical housing, but neighborhood A has a strictly enforced deed restriction that prohibits homeowners from parking junk cars in the front yard.If houses in neighborhood A sell for $105,000 and houses in neighborhood B sell for $100,000, how would an economist value the external cost of visible junk cars, per house?

A)$205,000
B)$105,000
C)$100,000
D)$5,000
E)None of the above answers is correct.

Question 37

Which of the following equations is correct?

A)MC =

Question 38

Which of the following is an example of an external cost?

A)a grove of trees planted in a park in Seattle
B)a library built in Philadelphia
C)a new, faster computer chip
D)an oil spill off the coast of South America
E)a student graduating from college

Question 39

A marginal external cost of a product is equal to

A)what the producer has to pay to hire resources to produce another unit.
B)the cost someone other than the producer incurs when another unit is produced.
C)the cost the producer incurs to produce another unit.
D)what the consumer must pay when he or she buys the good or service.
E)None of these answers describes a marginal external cost.

Question 40

If the marginal private cost of running a car is $0.30 a mile and the marginal external cost is $0.10, what is the marginal social cost?

A)$0.20
B)$3.00
C)$0.03
D)$0.40
E)None of the above answers is correct.

Question 41

When production of a good results in an external cost, the unregulated competitive market equilibrium quantity is

A)the efficient level of output.
B)greater than the efficient level of output.
C)not zero but is less than the efficient level of output.
D)unattainable.
E)zero.

Question 42

The marginal external cost and marginal private cost

A)are all borne by the seller.
B)are opportunity costs.
C)when added, equal the sum of the marginal private benefit plus the marginal social benefit at equilibrium.
D)are regulated by the government.
E)must always be equal in equilibrium.

Question 43

The figure above shows the marginal social cost of generating electricity and the marginal private cost.For 4 billion kilowatts, what is the marginal external cost?

A)$0.12
B)$0.08
C)$0.04
D)$0.00
E)$0.20

Question 44

If producing a good or a service creates pollution, then

A)an unregulated competitive market produces an efficient output.
B)the industry's supply curve includes the extra cost of pollution.
C)at the unregulated, competitive market equilibrium quantity, marginal social cost is greater than the equilibrium price.
D)at the unregulated, competitive market equilibrium quantity, marginal social benefit and marginal social cost are equal.
E)at the unregulated, competitive market equilibrium quantity, marginal social benefit is less than the equilibrium price.

Question 45

An external cost in the production of a good creates a difference between the
I∙costs borne by the producer and the costs borne by society in general.
Ii∙efficient quantity of output and the equilibrium quantity of output.
Iii∙marginal social cost and the marginal private cost.

A)i only
B)iii only
C)ii and iii
D)i, ii, and iii
E)i and iii

Question 46

The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.Suppose the marginal private cost of the 5th concert is $10,000.Then, for the 5th concert, the

A)marginal external cost equals $30,000.
B)marginal social cost equals $30,000.
C)marginal external cost equals the marginal private cost.
D)marginal external cost equals $40,000.
E)marginal external cost equals $10,000.

Question 47

If a good has an external cost, the

A)unregulated competitive market outcome is efficient.
B)marginal private cost reflects the external cost.
C)unregulated competitive market outcome is inefficient.
D)marginal social benefit is equal to the marginal social cost when the market is in equilibrium.
E)external benefit must equal the external cost.

Question 48

The figure above represents the relationship between output and cost in an industry with an external cost.When output is at D, what distance represents the marginal external cost?

A)AB
B)BC
C)CD
D)BD
E)None of the above answers is correct.

Question 49

The basic reason that a competitive unregulated market produces an inefficient amount of a good with an external cost because

A)producers cannot measure marginal social cost.
B)producers do not pay the external cost.
C)the general public does not care about external costs.
D)external costs are not a political issue.
E)the external cost is paid by consumers rather than producers.

Question 50

The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.If 5 concerts are put on, then the

A)marginal external cost will be greater than the marginal social cost.
B)marginal external cost will be greater than the marginal private cost.
C)marginal external cost will equal the marginal private cost.
D)marginal social cost will equal the marginal external cost.
E)marginal external cost will equal zero.

Question 51

If the marginal social cost of generating a kilowatt of electricity is $0.10 and the marginal private cost is $0.08, what is the marginal external cost?

A)$0.18
B)$0.10
C)$0.08
D)$0.02
E)$0.80

Question 52

The deadweight loss associated with producing a product that has an external cost occurs because

A)too much output is produced.
B)too little output is produced.
C)the price firms charge for the good is too high.
D)not enough resources are allocated to producing the good.
E)the marginal social cost does not equal zero.

Question 53

If a good has an external cost, then the marginal private cost curve

A)lies below then the marginal social cost curve.
B)lies above the marginal social cost curve.
C)lies below the horizontal axis.
D)is the same as the marginal external cost curve.
E)is undefined because the firms' costs are not equal to the social costs.

Question 54

The figure above represents the relationship between output and cost in an industry with an external cost.Which line represents the marginal private cost (MC)curve?

A)Curve 1
B)Curve 2
C)the dotted line BC
D)the y-axis
E)the dotted line AB

Question 55

The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.At 10 concerts, the

A)marginal private cost equals the marginal external cost.
B)marginal social cost equals $60,000.
C)marginal private cost is more than $40,000.
D)marginal external cost equals $60,000.
E)marginal external cost equals $80,000.

Question 56

If the production of a good causes an external cost, then the efficient quantity is

A)equal to the quantity at which the marginal benefit equals marginal cost.
B)less than the quantity at which the marginal benefit equals the marginal cost.
C)more than the quantity at which the marginal benefit equals the marginal cost.
D)the quantity at which the marginal private benefit is greater than the marginal social benefit.
E)None of the above answers is correct.

Question 57

The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The difference between the marginal cost curve and the marginal social cost curve equals

A)marginal private cost.
B)private cost.
C)external cost.
D)marginal external cost.
E)Coasian cost.

Question 58

If the marginal social cost of producing a ton of cement is $4,000 and the marginal private cost is $3,500, then the

A)marginal benefit of a ton of cement will equal $4,000.
B)total cost of producing a ton of cement is $7,500.
C)marginal external cost of producing a ton of cement is $500.
D)marginal external cost of producing a ton of cement is $7,500.
E)marginal external cost of producing a ton of cement is $4,000.

Question 59

When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because ________.

A)

Question 60

For a good whose production creates an external cost, the efficient quantity of output is

A)where the market demand curve and the market supply curve intersect.
B)where the marginal social cost curve and marginal benefit curve intersect.
C)as low as possible.
D)zero.
E)the amount of production so that the marginal social benefit exceeds the marginal social cost by as much as possible.

Question 61

Legally established titles to the ownership, use, and disposal of factors of production are referred to as

A)property rights.
B)Coase rights.
C)pollution rights.
D)emission rights.
E)price-setting rights.

Question 62

In part, the Coase theorem is a proposition about

A)assigning property rights.
B)measuring private costs.
C)subsidizing external benefits.
D)taxing external costs.
E)how increasing transactions costs can reduce deadweight losses.

Question 63

The figure above shows the costs and benefits associated with producing paper.What is the efficient level of output?

A)0
B)4 tons
C)6 tons
D)More than 6 tons
E)None of the above answers is correct.

Question 64

The proposition that if property rights exist and are enforced, then private transactions are efficient is referred to as the

A)Coase theorem.
B)property rights theorem.
C)pollution rights theorem.
D)emission rights theorem.
E)private-market efficiency theorem.

Question 65

The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal cost borne by producers when 100 billion kilowatt hours are produced is

A)5¢ per kilowatt.
B)10¢ per kilowatt.
C)15¢ per kilowatt.
D)20¢ per kilowatt.
E)0¢ per kilowatt.

Question 66

The figure above shows the costs and benefits associated with producing paper.What is the unregulated competitive market level of output?

A)0
B)4 tons
C)6 tons
D)More than 6 tons
E)None of the above answers is correct.

Question 67

The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal cost paid by the producers and everyone else in society when 200 billion kilowatt hours are produced is

A)0¢ per kilowatt.
B)10¢ per kilowatt.
C)20¢ per kilowatt.
D)15¢ per kilowatt.
E)5¢ per kilowatt.

Question 68

The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal cost borne by producers when 200 billion kilowatt hours are produced is

A)0¢ per kilowatt.
B)10¢ per kilowatt.
C)20¢ per kilowatt.
D)15¢ per kilowatt.
E)5¢ per kilowatt.

Question 69

The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city.The market is efficient when the quantity of steel produced is ________ tons per week.

A)5
B)10
C)15
D)20
E)25

Question 70

The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal cost paid by the producers and everyone else in society when 100 billion kilowatt hours are produced is

A)0¢ per kilowatt.
B)5¢ per kilowatt.
C)10¢ per kilowatt.
D)20¢ per kilowatt.
E)15¢ per kilowatt.

Question 71

Legally established titles to ownership, use, and disposal of factors of production and goods and services, are called ________ rights.

A)government
B)pollution
C)property
D)inefficient
E)private

Question 72

If a producer must pay the cost of his or her pollution because property rights have been assigned, then

A)pollution will be completely eliminated.
B)the supply curve will shift rightward as the new costs are added.
C)the supply curve will shift leftward as the new costs are added.
D)consumers will now consume more of the good because the external costs are reduced.
E)there is no longer any marginal benefit from the good or service being produced.

Question 73

The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.It also illustrates the marginal benefit.There is no external benefit.If the city of Seattle puts on 5 concerts per year, then the marginal benefit will

A)exceed the marginal social cost.
B)equal the marginal private cost.
C)be less than the marginal social cost.
D)will equal the marginal social cost.
E)None of the above answers is correct.

Question 74

The figure above shows the costs and benefits associated with producing paper.What is the marginal external cost when output is 6 tons?

A)$1,600
B)$1,200
C)$1,000
D)$600
E)$400

Question 75

The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city.If the marginal external cost is $10 per ton at every quantity of steel produced, the equilibrium quantity when the steel industry is unregulated is ________ tons per week.

A)5
B)15
C)20
D)25
E)10

Question 76

The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal external cost when 200 billion kilowatt hours are produced is

A)0¢ per kilowatt.
B)10¢ per kilowatt.
C)20¢ per kilowatt.
D)15¢ per kilowatt.
E)5¢ per kilowatt.

Question 77

The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.It also illustrates the marginal private benefit.There is no external benefit.The efficient number of concerts in Seattle is

A)0.
B)5.
C)10.
D)20.
E)15.

Question 78

The Coase theorem states that

A)the level of pollution should be equal to zero to maximize social net benefit.
B)profit making producers pollute because they are forced to.
C)the efficient level of output is where marginal external cost equals marginal external benefit.
D)if property rights exist and transactions costs are low, private transactions are efficient.
E)the best way to limit pollution is by taxing producers who pollute.

Question 79

The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal external cost when 100 billion kilowatt hours are produced is

A)0¢ per kilowatt.
B)5¢ per kilowatt.
C)10¢ per kilowatt.
D)15¢ per kilowatt.
E)20¢ per kilowatt.

Question 80

One reason why property rights help achieve an efficient level of pollution is because property rights

A)force the marginal private cost to equal the marginal social cost.
B)force the marginal social cost to zero.
C)force the marginal external cost to a lower level than marginal private cost.
D)eliminate marginal private costs.
E)change the marginal external cost so that they are equal to the marginal social benefit.