Question 1

The marginal social cost of a chemical is $45 per ton and its marginal private cost is $30 per ton. What is the marginal external cost of the chemical?&#10;A) $75 per ton&#10;B) $30 per ton&#10;C) $15 per ton&#10;D) zero

Accepted Answer

The marginal external cost of the chemical is the difference between the marginal social cost and the marginal private cost. Therefore, it is ($45 - $30) = $15 per ton.

Question 2

A crowded freeway during the rush hour is a ________ and so it is ________.&#10;A) common resource; overutilized&#10;B) private good; efficiently utilized&#10;C) public good; overutilized&#10;D) natural monopoly; underutilized

Accepted Answer

A crowded freeway during the rush hour is a common resource that is available to many users, but not infinite. As a result, it tends to be overutilized during peak hours, leading to traffic congestion and delays.

Question 3

Compare the inefficient market equilibriums for the case of an external benefit and the case of an external cost. Which of the following is true?&#10;A) Both result in a deadweight loss.&#10;B) Both result in too much production.&#10;C) Both result in too little production.&#10;D) The market with the negative externality is the only one with a deadweight loss.

Accepted Answer

Both external benefits and external costs result in deadweight loss because the market fails to allocate resources efficiently, leading to either overproduction or underproduction relative to the socially optimal level.

Question 4

At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $20 per ton. The market for paper is competitive and unregulated. This means that at the current level of production,

A) the market for paper is in equilibrium.
B) the efficient quantity of paper is produced.
C) there is a shortage of paper.
D) the quantity of paper produced is less than the efficient level of output.

Accepted Answer

The answer of At the current level of output, the...

Question 5

The marginal private cost of a chemical is $80 per ton and its marginal external cost is $10 per ton. What is the marginal social cost of the chemical?&#10;A) $70 per ton&#10;B) $85 per ton&#10;C) $90 per ton&#10;D) $45 per ton

Accepted Answer

The marginal social cost is the sum of the marginal private cost and the marginal external cost, which is $80 + $10 = $90 per ton.

Question 6

Street lights are a public good. If street lights were provided by the private market, at the equilibrium quantity, it would be the case that&#10;A) MSB = MSC&#10;B) MSC > MC&#10;C) MSB > MSC&#10;D) MSB > MB

Accepted Answer

Street lights provide benefits to everyone in the community, regardless of whether or not they directly pay for them. Therefore, the marginal social benefit (MSB) of street lights is greater than the marginal private benefit (MB) that an individual consumer would receive. If the private market provided street lights, they would only consider the private costs of production (MC) and the private benefits (MB) received by their customers. This would lead to a market quantity that is lower than the socially optimal quantity, causing a deadweight loss. The socially optimal quantity is where MSB = MSC, meaning that the benefits to society as a whole are equal to the costs of providing street lights.

Question 7

An unregulated market produces too ________ of a good with an external cost and too ________ of a good with an external benefit.&#10;A) much; much&#10;B) little; much&#10;C) much; little&#10;D) little; little

Accepted Answer

In an unregulated market, producers will produce goods without considering the external costs or benefits, leading to overproduction of goods with negative externalities, such as pollution or environmental damage, and underproduction of goods with positive externalities, such as education or healthcare. Therefore, the answer is C, which means too much of a good with an external cost and too little of a good with an external benefit.

Question 8

A non-crowded freeway is&#10;A) rival and nonexcludable.&#10;B) nonrival and excludable.&#10;C) nonrival and nonexcludable.&#10;D) rival and excludable.

Accepted Answer

A non-crowded freeway is nonrival because one person's use of the freeway does not prevent another person from using it. It is nonexcludable because it is difficult to prevent people from using the freeway.

Question 9

At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $30 per ton. This means that the current level of production is

A) greater than the efficient level.
B) efficient.
C) less than the efficient level.
D) the equilibrium quantity attained in an unregulated perfectly competitive market.

Accepted Answer

The answer of At the current level of output, the...

Question 10

To increase efficiency,&#10;A) taxes can be used to overcome the problems created by both external benefits and external costs.&#10;B) subsidies can be used to overcome problems created by both external benefits and external costs.&#10;C) taxes can be used to overcome the problems created by external benefits, and subsidies can be used to overcome the problems created by external costs.&#10;D) subsidies can be used to overcome the problems created by external benefits, and taxes can be used to overcome the problems created by external costs.

Accepted Answer

Subsidies can encourage activities with external benefits, while taxes can discourage activities with external costs, thus increasing efficiency.

Question 11

A crowded freeway during the rush hour is&#10;A) rival and nonexcludable.&#10;B) nonrival and excludable.&#10;C) nonrival and nonexcludable.&#10;D) rival and excludable.

Accepted Answer

The answer of A crowded freeway during the rush hour...

Deck 25: Extension E: Review