Question 1

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If a constant per unit tax is imposed that generates an efficient allocation of resources,then producers receive a per unit price of A)P₃-P₁. B)P₄. C)P₃. D)P₂. E)P₁.

Accepted Answer

E

Question 2

An example of an activity that creates a negative consumption externality is
A)logging,which pollutes rivers.
B)locating beehives next to an orange orchard.
C)smoking,which harms the health of a bystander.
D)a flu vaccination.
E)a sales tax.

Accepted Answer

Smoking creates negative consumption externality as it harms the health of a bystander who is not directly involved in the consumption of the good. The other options do not necessarily create negative consumption externality. Logging may harm the environment, locating beehives next to an orange orchard can actually benefit both parties through pollination, a flu vaccination is a positive externality as it not only benefits the individual who receives it, but also reduces the chance of transmission to others, and a sales tax is a government policy that does not necessarily create a direct externality.

Question 3

A person driving while talking on a smartphone creates a negative ________ externality.A beautiful sunset creates ________ externality.
A)production;a positive consumption
B)production;no
C)consumption;a positive consumption
D)consumption;no
E)consumption;a positive production

Accepted Answer

D

Question 4

Smoking tobacco creates ________ externality.
A)a negative consumption
B)a negative production
C)a positive consumption
D)a positive production
E)no

Accepted Answer

Smoking tobacco creates a negative consumption externality because it imposes health risks and costs not only on the smoker but also on others around them through secondhand smoke, leading to societal costs such as increased healthcare expenses.

Question 5

Air pollution generated by a paper mill factory is an example of
A)a positive production externality.
B)a positive consumption externality.
C)a negative consumption externality.
D)diminishing returns.
E)a negative production externality.

Accepted Answer

A negative production externality occurs when a producer's actions have a negative impact on the environment or society, such as air or water pollution. In this case, the paper mill factory is producing air pollution, which is a negative externality imposed on the surrounding community.

Question 6

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.To promote an efficient allocation of resources,the government could impose a constant per unit tax equal to A)P₄. B)P₁. C)P₃ - P₁. D)P₄ - P₁. E)P₃ - P₂.

Accepted Answer

The answer of Use the figure below to answer the...

Question 7

An example of an activity that creates a positive consumption externality is
A)logging,which pollutes rivers.
B)locating beehives next to an orange orchard.
C)smoking,which harms the health of a bystander.
D)a flu vaccination.
E)a noisy party.

Accepted Answer

A flu vaccination creates a positive consumption externality by reducing the spread of the flu virus to others. When one person gets a flu vaccination, they are not only protecting themselves, but also those around them who may not have received the vaccination. This results in a social benefit that extends beyond the individual receiving the vaccination.

Question 8

A private cost of production is a cost that is borne by the ________ of a good or service. A social cost of production is a cost that is ________.
A)consumer;borne by the producer and by everyone else on whom the cost falls
B)consumer;not borne by the producer but borne by other people
C)producer;not borne by the producer but borne by other people
D)producer;borne by the producer and by everyone else on whom the cost falls
E)producer;borne by the consumer

Accepted Answer

A private cost of production is a cost that is directly borne by the producer of a good or service. A social cost of production includes both the private cost and any additional costs (externalities) borne by others who were not involved in the transaction.

Question 9

If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the marginal social cost of each kilowatt equals nine cents,then the marginal external cost equals ________ per kilowatt.
A)five cents
B)nine cents
C)four cents
D)fourteen cents
E)forty-five cents

Accepted Answer

The marginal external cost is the difference between the marginal social cost and the marginal private cost, which is nine cents minus five cents, equaling four cents.

Question 10

An externality is
A)the amount by which price exceeds marginal private cost.
B)the amount by which price exceeds marginal social cost.
C)the effect of government regulation on market price and output.
D)someone who consumes a good without paying for it.
E)a cost or benefit that arises from an activity but affects people not part of the original activity.

Accepted Answer

An externality is a cost or benefit that arises from an activity but affects people not part of the original activity. It is an unintended (positive or negative) consequence of economic activity that affects someone who is not directly involved in the production or consumption of a good or service. Examples of negative externalities include pollution from a factory, while positive externalities include education, which benefits society as a whole.

Question 11

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If the market is unregulated,then the price is A)P₁. B)P₄. C)below P₁. D)P₂. E)P₃.

Accepted Answer

The answer of Use the figure below to answer the...

Question 12

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If a constant per unit tax is imposed that generates an efficient allocation of resources,then the quantity produced is A)zero. B)Q₁. C)Q₂. D)Q₃. E)greater than Q₃.

Accepted Answer

Imposing a constant per unit tax would shift the marginal private cost curve upward by the amount of the tax, to become the marginal social cost (MSC) curve. The new intersection of the MSC and market demand curves gives the efficient quantity of output, which is where MSC=MB. In this case, the efficient quantity is Q₂. This is because it is the quantity where the MSC curve intersects the demand curve. Therefore, C is the correct answer.

Question 13

An externality is
A)an additional cost imposed by the government on producers.
B)an additional gain received by consumers from decisions made by the government.
C)a cost or a benefit from an action that falls on someone other than the person or firm choosing the action.
D)a marginal social cost.
E)the additional amount consumers have to pay to consume an additional amount of a good or service.

Accepted Answer

An externality is a cost or a benefit from an action that falls on someone other than the person or firm choosing the action. It is a consequence of an economic activity that is experienced by unrelated third parties. Examples of externalities include pollution from production, noise from transportation, and education or vaccination leading to external benefits.

Question 14

Use the figure below to answer the following questions.  Figure 15.2.1
-Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If the market is unregulated,then
A)the quantity produced is efficient but price is too low.
B)the quantity produced is less than the efficient quantity.
C)the quantity produced is greater than the efficient quantity.
D)the quantity produced is efficient but the price is too high.
E)the externality is eliminated.

Accepted Answer

If the market is unregulated, the equilibrium quantity produced will be where the marginal private cost equals the market demand, which is Q1 in the figure. However, the efficient quantity is where the marginal social cost equals the market demand, which is Q2 in the figure. Therefore, the quantity produced is greater than the efficient quantity, resulting in overproduction and a deadweight loss.

Question 15

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If the market is unregulated,then the quantity produced is A)zero. B)Q₁. C)Q₂. D)Q₃. E)between Q₂and Q₃.

Accepted Answer

The answer of Use the figure below to answer the...

Question 16

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If a constant per unit tax is imposed that generates an efficient allocation of resources,then consumers pay a per unit price of A)P₃-P₁. B)P₁. C)P₂. D)P₃. E)P₄.

Accepted Answer

In an efficient allocation of resources, the per unit tax should be equal to the difference between marginal social cost (MSC) and marginal private cost (MPC) at the efficient level of output. In this case, the efficient level of output is where the MSC curve intersects the market demand curve, which is at point A (S1U1B13). At this point, the MPC is at point B (S1U1B0). Therefore, the per unit tax should be equal to S1U1B13 - S1U1B0, which is PS1U1B13S1U1B0.

The per unit price paid by consumers after the tax is the sum of the per unit price paid to the firm (which is equal to the MPC plus the per unit tax) and the per unit tax. At the efficient level of output, the firm will produce where the MPC plus the per unit tax equals the per unit price paid by consumers. This occurs at point C (S1U1B11). Therefore, consumers will pay a per unit price of PS1U1B13S1U1B0 + PS1U1B11S1U1B0, which simplifies to PS1U1B13S1U1B0.

Question 17

A well-maintained waterfront property that is enjoyed by other property owners is an example of
A)an inefficient allocation of resources.
B)a negative consumption externality.
C)a positive consumption externality.
D)a negative production externality.
E)a positive production externality.

Accepted Answer

A well-maintained waterfront property that is enjoyed by other property owners is an example of a positive consumption externality. This is because the enjoyment that the other property owners get from the well-maintained waterfront property is an external benefit to them, and the owner of the waterfront property does not receive any compensation for providing this benefit.

Question 18

Which of the following illustrates the concept of a negative externality?
A)Bad weather reduces the size of the wheat crop.
B)A reduction in the size of the wheat crop causes income of wheat farmers to fall.
C)Smoking harms the health of the smoker.
D)Smoking harms the health of nearby nonsmokers.
E)Public health services reduce the transmission of disease.

Accepted Answer

A negative externality occurs when the production or consumption of a good or service results in a cost to a third party not involved in the transaction. In this case, smoking harms the health of nearby nonsmokers who are not directly involved in the decision to smoke.

Question 19

Use the figure below to answer the following questions.  Figure 15.2.1
-Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If the market is unregulated,then at the equilibrium output the marginal social cost of production is
A)less than the marginal benefit to consumers.
B)greater than the marginal benefit to consumers.
C)equal to the marginal benefit to consumers.
D)equal to the marginal private cost of production.
E)less than the marginal private cost of production.

Accepted Answer

At the equilibrium output, the marginal social cost curve intersects with the demand curve, which means the quantity produced generates a marginal social cost greater than the marginal private cost. As a result, the marginal social benefit to consumers is less than the marginal private benefit, indicating market failure. This implies that the optimal quantity for society is less than the equilibrium quantity. Therefore, the equilibrium produces too much output, and the marginal social cost is greater than the marginal benefit to consumers.

Question 20

A homeowner planting an attractive garden in front of his house creates ________. A bakery baking bread creates ________.
A)no externality;a positive production externality
B)a positive consumption externality;no externality
C)no externality;no externality
D)a positive consumption externality;a positive production externality
E)a positive production externality;no externality

Accepted Answer

A homeowner planting an attractive garden in front of his house creates a positive consumption externality as it benefits the entire neighbourhood or passerby. The bakery baking bread creates a positive production externality by improving the air quality of the surrounding area with the aroma of freshly baked bread.

Quiz 15: Externalities

An example of an activity that creates a negative consumption externality is

A person driving while talking on a smartphone creates a negative externality.A beautiful sunset creates externality.

Smoking tobacco creates ________ externality.

Air pollution generated by a paper mill factory is an example of

An example of an activity that creates a positive consumption externality is

A private cost of production is a cost that is borne by the of a good or service. A social cost of production is a cost that is .

If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the marginal social cost of each kilowatt equals nine cents,then the marginal external cost equals ________ per kilowatt.

An externality is

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If the market is unregulated,then the price is

An externality is

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If the market is unregulated,then

Use the figure below to answer the following questions. Figure 15.2.1 -Refer to Figure 15.2.1.The figure shows the marginal private cost curve,the marginal social cost curve and the market demand curve of a mining firm.If the market is unregulated,then the quantity produced is

A well-maintained waterfront property that is enjoyed by other property owners is an example of

Which of the following illustrates the concept of a negative externality?

A homeowner planting an attractive garden in front of his house creates . A bakery baking bread creates .