Deck 20: Externalities and Public Goods

Question 1

Pigouvian taxation

A) Involves the use of taxes or fees to remedy negative externalities
B) Involves the use of subsidies to remedy negative externalities
C) Is a legal principles requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
D) Requires that victims of an externality pay a tax to the producers of the externality

Answer 1

Involves the use of taxes or fees to remedy negative externalities

Question 2

Activities that create water pollution are considered

A) Inferior goods
B) Positive externalities
C) Negative externalities
D) Normal goods

Answer 2

Negative externalities

Question 3

The economic gain that a positive externality provides to others is called

A) An internal benefit
B) An external benefit
C) An external cost
D) An internal cost

Answer 3

An external benefit

Question 4

A negative externality is created if

A) An action harms someone not involved in the market transaction
B) An action benefits someone not involved in the market transaction
C) Neither helps nor hurts someone not involved in the market transaction
D) An action benefits someone involved in the market transaction

Question 5

Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula ,where Q^mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula Finally,annual market demand (in thousands of tons)is given by the formula Find the efficient quantity that involves no externalities.

A) 34,286
B) 60,000
C) 1,200
D) 90,000

Question 6

The marginal social cost of production is

A) The sum of the total cost to the producer and the total external cost
B) The sum of the marginal cost to the producer and the total external cost
C) The sum of the total cost to the producer and the marginal external cost
D) The sum of the marginal cost to the producer and the marginal external cost

Question 7

Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula ,where Q^mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula Finally,annual market demand (in thousands of tons)is given by the formula Find the competitive price that would prevail without externalities.

A) $1,400
B) $1657.14
C) $685.71
D) $1,200

Question 8

A positive externality is created if

A) An action harms someone not involved in the market transaction
B) An action benefits someone not involved in the market transaction
C) Neither helps nor hurts someone not involved in the market transaction
D) An action harms someone involved in the market transaction

Question 9

An action creates an externality if it

A) Does not affect someone with whom the decision-maker has not engaged in a related market transaction
B) Affects someone with whom the decision-maker has not engaged in a related market transaction
C) Affects only those individuals engaged in the market transaction
D) Affects only those individuals not in the market transaction

Question 10

Limitations of bargaining include

A) Its impracticality
B) Ambiguity in the assignment of property rights
C) Difficulties associated with enforcing contracts
D) All of these

Question 11

When a firm ignores external costs

A) It is not willing to produce too much of the good at the given price
B) It is not willing to produce too little of the good at the given price
C) The good is priced too cheaply in equilibrium
D) It is willing to produce too much of the good at the given price

Question 12

Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula ,where Q^mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula Finally,annual market demand (in thousands of tons)is given by the formula Find the competitive price.

A) $1,400
B) $920
C) $7,000
D) $1995

Question 13

The Coase Theorem states that

A) If bargaining is difficult, then regardless of how property rights are assigned, voluntary agreements between parties will remedy the market failures associated with externalities and restore economic efficiency
B) If bargaining is frictionless, then the initial assignment of property rights determines the market failures associated by externalities and voluntary agreements between private parties are useless
C) If bargaining is frictionless, then regardless of how property rights are assigned, voluntary agreements between private parties will remedy the market failures associated with externalities and restore economic efficiency
D) If bargaining is frictionless, market failures must be remedied by government intervention

Question 14

The economist who won the Nobel Prize in Economics for his path-breaking analysis of the ways in which property rights,transaction costs and institutions affect the allocation of economic resources is

A) John Nash
B) Arthur Cecil Pigou
C) Ronald Coase
D) Theodore Groves

Question 15

An external cost is

A) The cost of a warehouse
B) A cost of production in some other market
C) The economic harm that a positive externality imposes on others
D) The economic harm that a negative externality imposes on others

Question 16

Pigouvian subsidization

A) Involves the use of taxes or fees to remedy negative externalities
B) Involves the use of subsidies to remedy negative externalities
C) Is a legal principles requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
D) Requires that victims of an externality pay a tax to the producers of the externality

Question 17

Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula ,where Q^mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula Finally,annual market demand (in thousands of tons)is given by the formula Find the function for the marginal social cost.

A)

B)

C)

D)

Question 18

Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula ,where Q^mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula Finally,annual market demand (in thousands of tons)is given by the formula Find the competitive quantity.

A) 108,000
B) 60,000
C) 500
D) 0

Question 19

A beautiful garden that increases the value of the homes in the neighborhood is considered

A) An inferior good
B) A positive externality
C) A negative externality
D) A normal good

Question 20

Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula ,where Q^mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula Finally,annual market demand (in thousands of tons)is given by the formula Find the market supply curve.

A)

B)

C)

D)

Question 21

A good is nonexcludable if

A) There is no way to prevent a person from consuming or using it
B) More than one person can consume it at the same time without affecting its value to others
C) Consumption of it involves perfect rivalry
D) Consumption is completely excludable

Question 22

A good is nonrival if

A) There is no way to prevent a person from consuming or using it
B) More than one person can consume it at the same time without affecting its value to others
C) Consumption of it involves perfect rivalry
D) Consumption is completely excludable

Question 23

A free rider

A) Contributes everything to a public good
B) Causes a market failure with private goods
C) Contributes little or nothing to a public good, but also does not benefit from others' contributions
D) Contributes little or nothing to a public good while benefiting from others' contributions

Question 24

A public good

A) Is a good that is nonrival
B) Is a good that is nonexcludable
C) Is often provided by the government
D) All of these

Question 25

Your neighbor likes to blast 1970's rock music and the louder the better.The loud music imposes a cost on you because it disrupts your study of economics.Let D stand for the volume of his music in decibels,B for his benefits and C for your costs,where B and C are in dollars.For any given volume,D,your neighbor's benefit is and your cost is What is your marginal cost at the socially efficient noise level?

A) $0.75
B) $0.29
C) $0.24
D) $0.25

Question 26

A common property resource is

A) A resource that only one person can use
B) A resource that anyone can use for a fixed fee
C) A resource that more than one person is free to use without payment
D) A resource that only one person can use free of charge

Question 27

Your neighbor likes to blast 1970's rock music and the louder the better.The loud music imposes a cost on you because it disrupts your study of economics.Let D stand for the volume of his music in decibels,B for his benefits and C for your costs,where B and C are in dollars.For any given volume,D,your neighbor's benefit is and your cost is With an efficient Pigouvian tax,how much will your neighbor pay in taxes in total?

A) $22.50
B) $23.75
C) $28.75
D) $71.25

Question 28

Four stores have a problem with theft and security is a public good.Let S stand for the number of person-hours of security patrols per week.The marginal benefit of security patrols to each of the stores is given by the formula Patrols cost $25 per hour.What is the socially efficient level of security?

A) 15 person-hours of patrols per week
B) 7 person-hours of patrols per week
C) 8 person-hours of patrols per week
D) 16 person-hours of patrols per week

Question 29

A liability rule

A) Involves the use of taxes or fees to remedy negative externalities
B) Involves the use of subsidies to remedy negative externalities
C) Is a legal principle requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
D) Requires that victims of an externality pay a tax to the producers of the externality

Question 30

Your neighbor likes to blast 1970's rock music and the louder the better.The loud music imposes a cost on you because it disrupts your study of economics.Let D stand for the volume of his music in decibels,B for his benefits and C for your costs,where B and C are in dollars.For any given volume,D,your neighbor's benefit is and your cost is Find the efficient volume,D.

A) 90
B) 95
C) 115
D) 345

Question 31

Common property resources include

A) University courses
B) Fast food
C) Oceans
D) Lakes and Movies

Question 32

The economist that originated the idea that government can correct externalities through taxes and subsidization is

A) John Nash
B) Arthur Cecil Pigou
C) Ronald Coase
D) Theodore Groves

Question 33

A private good

A) Is a good for which consumption involves perfect rivalry
B) Is nonexcludable
C) Is often provided by the government
D) Is often not provided by the government

Question 34

A tradable emissions permit

A) Entitles a firm to generate a specified amount of a given pollutant
B) Is transferable
C) Can be used to promote least-cost abatement
D) All of these

Question 35

Your neighbor likes to blast 1970's rock music and the louder the better.The loud music imposes a cost on you because it disrupts your study of economics.Let D stand for the volume of his music in decibels,B for his benefits and C for your costs,where B and C are in dollars.For any given volume,D,your neighbor's benefit is and your cost is With an efficient Pigouvian tax,what noise level will your neighbor choose?

A) 90 decibels
B) 95 decibels
C) 115 decibels
D) 345 decibels

Question 36

Common property resources include

A) Movies
B) Fast food
C) Oceans
D) Professional baseball games

Question 37

Four stores have a problem with theft and security is a public good.Let S stand for the number of person-hours of security patrols per week.The marginal benefit of security patrols to each of the stores is given by the formula Patrols cost $25 per hour.If each store provided security independently,how much would each store purchase?

A) 15 person-hours of patrols per week
B) 7 person-hours of patrols per week
C) 8 person-hours of patrols per week
D) 16 person-hours of patrols per week

Question 38

Your neighbor likes to blast 1970's rock music and the louder the better.The loud music imposes a cost on you because it disrupts your study of economics.Let D stand for the volume of his music in decibels,B for his benefits and C for your costs,where B and C are in dollars.For any given volume,D,your neighbor's benefit is and your cost is What is the efficient Pigouvian tax?

A) $0.75 per decibel
B) $0.29 per decibel
C) $0.24 per decibel
D) $0.25 per decibel

Question 39

Four stores have a problem with theft and security is a public good.Let S stand for the number of person-hours of security patrols per week.The marginal benefit of security patrols to each of the stores is given by the formula Patrols cost $25 per hour.Find the marginal social benefit function.

A)

B)

C)

D)

Question 40

A private good

A) Is a good for which consumption involves perfect rivalry
B) Is completely excludable
C) Is often provided by the government
D) A and B

Question 41

The field of political economy

A) Examines the economic consequences of free markets
B) Examines the economic consequences of public sector decision making
C) Examines the economic consequences of private sector decision making
D) Examines the labor market

Question 42

Four stores have a problem with theft and security is a public good.Let S stand for the number of person-hours of security patrols per week.The marginal benefit of security patrols to each of the stores is given by the formula Patrols cost $25 per hour.What is the socially efficient level of security (rounded to the nearest whole number)?

A) 88 person-hours of patrols per week
B) 168 person-hours of patrols per week
C) 22 person-hours of patrols per week
D) 97 person-hours of patrols per week

Question 43

If voters have single-peaked preferences

A) A majority of them prefer the median ideal policy to all other policies
B) Majority rule leads to the selection of the median ideal policy
C) Majority rule cannot lead to the selection of the median ideal policy
D) A and B

Question 44

Explain ways in which the government can remedy an externality.

Question 45

A voter's preferences are single-peaked if

A) Her net benefit from an activity increases with the activity's level until her ideal is reached and declines thereafter
B) Her total benefit from an activity increases with the activity's level until her ideal is reached and declines thereafter
C) Her net benefit from an activity decreases with the activity's level until her ideal is reached and declines thereafter
D) Her total benefit from an activity decreases with the activity's level until her ideal is reached and declines thereafter

Question 46

The median voter theorem states that

A) If voters have multi-peaked preferences, all of them prefer the median ideal policy
B) If voters have single-peaked preferences, none of them prefer the median ideal policy
C) If voters have single-peaked preferences, a majority of them prefer the median ideal policy to all other policies
D) If voters have multi-peaked preferences, a majority of them prefer the median of those preferences

Question 47

A Groves mechanism

A) Is a procedure for setting the level of the private good that induces everyone to report their preferences correctly
B) Produces a socially inefficient outcome
C) Is a procedure for setting the level of the public good that induces everyone to report their preferences incorrectly
D) Is a procedure for setting the level of the public good that induces everyone to report their preferences correctly

Question 48

The median voter is

A) The voter who has the median income policy among all voters
B) The voter who has the median policy among all voters
C) The voter who has the average policy among all voters
D) The voter who has the mean policy among all voters

Question 49

Four stores have a problem with theft and security is a public good.Let S stand for the number of person-hours of security patrols per week.The marginal benefit of security patrols to each of the stores is given by the formula Patrols cost $25 per hour.Find the marginal social benefit function.

A)

B)

C)

D)

Question 50

Why might bargaining break down when parties negotiate to remedy a market failure and its associated externality?

Question 51

The economist that devised a method for setting the level of a public good efficiently is

A) John Nash
B) Arthur Cecil Pigou
C) Ronald Coase
D) Theodore Groves

Question 52

Four stores have a problem with theft and security is a public good.Let S stand for the number of person-hours of security patrols per week.The marginal benefit of security patrols to each of the stores is given by the formula Patrols cost $25 per hour.If each store provided security independently,how much would each store provide (rounded to the nearest whole number)?

A) 88 person-hours of patrols per week
B) 168 person-hours of patrols per week
C) 22 person-hours of patrols per week
D) 97 person-hours of patrols per week