Question 1

Consider the production of pesticide that pollutes a lake used by a trout farmer.A marketable permit
A)creates an efficient outcome when the price of the permit is set equal to the external cost.
B)cannot result in the same outcome as when property rights are assigned to the pesticide producer.
C)cannot result in the same outcome as when property rights are assigned to the trout farm.
D)cannot result in the same outcome as when the government imposes a Pigovian tax.
E)creates an efficient outcome when the price of the permits is set equal to the external benefit.

Accepted Answer

Marketable permits internalize the external cost of pollution by assigning property rights to the pollution permits and allowing them to be bought and sold in a market. When the price of the permit is set equal to the external cost, the market will reach an efficient outcome where the marginal cost of polluting is equal to the marginal benefit of producing the pesticide.

Question 2

Use the figure below to answer the following questions.
  
Figure 16.3.1
-Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then at the equilibrium quantity the marginal social benefit from consumption is
A)less than the marginal cost to producers.
B)less than the marginal social cost of production.
C)equal to the marginal cost to producers.
D)equal to the marginal private benefit from consumption.
E)greater than the marginal cost to producers.

Accepted Answer

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

Question 3

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a voucher is given to consumers that generates an efficient outcome,then producers receive a price of A)zero. B)P₁ per unit. C)P₂ per unit. D)P₃ per unit. E)P₄ per unit.

Accepted Answer

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

Question 4

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the price is A)P₁. B)P₃. C)P₂. D)greater than P₄. E)P₄.

Accepted Answer

The equilibrium price in a private market is where the market supply curve intersects the marginal private benefit curve, which is at point P₂.

Question 5

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 formula for marginal external cost is: Marginal social cost - Marginal private cost
In this case, the Marginal social cost is 9 cents and the Marginal private cost is 5 cents. 
So, the marginal external cost would be: 9 cents - 5 cents = 4 cents. Therefore, the best choice is C, which is 4 cents.

Question 6

Use the table below to answer the following questions.
Table 16.3.1
 
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.If production is left to the private market,the market price is
A)$70 a unit.
B)$60 a unit.
C)$50 a unit.
D)$40 a unit.
E)$30 a unit.

Accepted Answer

The market price is where marginal private benefit equals marginal private cost. At a production level of 4 units, the marginal private cost equals $50. At this level, the marginal private benefit also equals $50, which is the market price.

Question 7

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a voucher is given to consumers that generates an efficient outcome,then consumers pay A)zero. B)P₁ per unit. C)P₂ per unit. D)P₃ per unit. E)P₄ per unit.

Accepted Answer

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

Question 8

Use the table below to answer the following questions.
Table 16.3.1
 
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.Choose the correct statement.
A)The marginal external benefit is $20 per unit.
B)The marginal external cost is $10 per unit.
C)There are no externalities associated with this market.
D)The marginal external benefit is $10 per unit.
E)There is not enough information provided to determine whether or not there are externalities.

Accepted Answer

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

Question 9

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 10

Producing paper creates pollution.There is no externality in the consumption of paper.The efficient quantity of paper produced occurs when the
A)marginal social benefit from paper is equal to zero.
B)marginal social cost of the pollution from making paper is equal to zero.
C)marginal private cost of the pollution from making paper is equal to zero.
D)marginal private cost of paper equals the marginal private benefit from paper.
E)marginal social benefit from paper is equal to the marginal social cost of paper.

Accepted Answer

The efficient quantity of paper produced occurs when the marginal social benefit from paper is equal to the marginal social cost of paper. This takes into account both the private costs and benefits of paper production as well as any externalities such as pollution. Therefore, the correct answer is E.

Question 11

A chemical factory and a fishing club share a lake.Producing chemicals creates water pollution that harms the fish.Initially the lake is owned by no one.Keeping in mind the Coase theorem,suppose transactions costs are low and the chemical factory is given ownership of the lake.Compared to the situation with no property rights,the quantity of chemicals produced
A)decreases.
B)stays the same.
C)increases.
D)changes but the direction of the change is unknown.
E)decreases only if the marginal external benefit decreases.

Accepted Answer

With the ownership of the lake, the chemical factory now has to take into account the harm caused to the fishing club, as they now have a property right to the lake. They may decide to produce fewer chemicals to avoid harming the fish and damaging the resource they now have an ownership of. This demonstrates the Coase theorem, where if property rights are well-defined and transactions costs are low, parties can negotiate and come up with an efficient solution to maximize the value of the resource.

Question 12

The marginal private benefit curve (MB)is a negatively-sloped straight line.If marginal external benefit decreases as output increases,the marginal social benefit curve is a negatively-sloped straight line
A)parallel to and above the MB curve.
B)parallel to and below the MB curve.
C)above the MB curve and steeper than the MB curve.
D)above the MB curve and flatter than the MB curve.
E)below the MB curve and flatter than the MB curve.

Accepted Answer

If the marginal external benefit decreases as output increases, then the marginal social benefit curve will be below the MB curve. However, it will be steeper than the MB curve because it takes into account the additional benefits to society beyond the private benefits to the individual. Thus, choice C is the correct answer.

Question 13

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is A)zero. B)Q₁. C)Q₂. D)Q₃. E)between 0 and Q?.

Accepted Answer

If production is left to the private market, the quantity produced will be where the market supply curve intersects the marginal private benefit curve, which is at Q₂. At this level of production, the marginal private benefit equals the marginal private cost, but the marginal social benefit is higher than the marginal private benefit, indicating that there is a positive externality present. Therefore, Q₂ is not the socially optimal level of production, but it is where the market will naturally settle.

Question 14

All of the following statements about emission charges are correct except
A)the more pollution a firm creates, the more it pays in emission charges.
B)emission charges are frequently used in North America.
C)the government sets a price per unit of pollution.
D)to work out the emission charge that achieves efficiency, the government needs a lot of information about the polluting industry that is rarely available.
E)emission charges are frequently used in Europe.

Accepted Answer

Emission charges are not frequently used in North America; they are more commonly used in Europe.

Question 15

Use the figure below to answer the following questions.
  
Figure 16.3.1
-Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then
A)the quantity produced is less than the efficient quantity.
B)the quantity produced is greater than the efficient quantity.
C)price is greater than marginal social benefit quantity.
D)the marginal cost curve is horizontal.
E)none of the above.

Accepted Answer

The quantity produced by the private market is where the market supply curve intersects the marginal private benefit curve. This is less than the efficient quantity where the marginal social benefit curve intersects the marginal cost curve. Therefore, the private market produces less than the efficient quantity.

Question 16

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a subsidy is granted that generates an efficient quantity,then quantity produced is A)zero. B)Q₁. C)Q₂. D)Q₃. E)greater than Q₁.

Accepted Answer

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

Question 17

If the production of a good creates pollution,then the
A)marginal social benefit curve lies above the marginal private benefit curve.
B)marginal social cost curve lies above the marginal private cost curve.
C)marginal social benefit curve lies below the marginal private benefit curve.
D)marginal social cost curve lies below the marginal private cost curve.
E)marginal social benefit curve intersects the marginal private cost curve at the efficient quantity.

Accepted Answer

When the production of a good creates pollution, there is a cost to society beyond the private cost of the producer. This cost is known as the external cost or negative externality. The marginal social cost curve takes into account this external cost to society, while the marginal private cost curve only considers the cost to the producer. As a result, the marginal social cost curve lies above the marginal private cost curve. This creates a suboptimal outcome in which the quantity produced is higher and the price is lower than would be the case in a perfectly competitive market.

Question 18

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then
I.there is no pollution
II.resources are used efficiently
A)I only
B)II only
C)neither I nor II
D)both I and II
E)sometimes I and sometimes II, but never both simultaneously

Accepted Answer

When the marginal social cost of producing Good A equals the marginal social benefit from Good A, resources are used efficiently. This is because any additional unit of Good A produced would create a cost to society that is equal to the value society places on the additional unit. This implies that the production of any further unit of Good A would not be worthwhile, and as a result, resources would be used efficiently. However, producing Good A still entails pollution, and so there may still be pollution even if resources are used efficiently.

Question 19

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.To promote an efficient quantity the government could grant a subsidy equal to A)zero. B)P₁. C)P₃ - P₁. D)P₄ - P₁. E)P₂ - P₁.

Accepted Answer

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

Question 20

Use the table below to answer the following questions.
Table 16.3.1
 
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.If production is left to the private market,the quantity produced is
A)1 unit.
B)2 units.
C)3 units.
D)4 units.
E)5 units.

Accepted Answer

The private market only considers the marginal private benefit while overlooking the external costs imposed on society. The market equilibrium is where marginal private benefit equals marginal private cost, which is at Q = 2 units. However, this level of production results in an overallocation of resources because the marginal social cost of producing the third unit of fertilizer is greater than the marginal social benefit from consuming it. Therefore, the socially optimal level of production is where marginal social benefit equals marginal social cost, which is at Q = 3 units. As a result, the market will produce only 3 units of chemical fertilizers if it is left to the private market.

Quiz 16: Externalities

Consider the production of pesticide that pollutes a lake used by a trout farmer.A marketable permit

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the price 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.

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a voucher is given to consumers that generates an efficient outcome,then consumers pay

Use the table below to answer the following questions. Table 16.3.1 -Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.Choose the correct statement.

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 .

Producing paper creates pollution.There is no externality in the consumption of paper.The efficient quantity of paper produced occurs when the

The marginal private benefit curve (MB) is a negatively-sloped straight line.If marginal external benefit decreases as output increases,the marginal social benefit curve is a negatively-sloped straight line

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is

All of the following statements about emission charges are correct except

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a subsidy is granted that generates an efficient quantity,then quantity produced is

If the production of a good creates pollution,then the

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then I.there is no pollution II.resources are used efficiently

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.To promote an efficient quantity the government could grant a subsidy equal to

Quiz 16: Externalities

Consider the production of pesticide that pollutes a lake used by a trout farmer.A marketable permit

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the price 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.

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a voucher is given to consumers that generates an efficient outcome,then consumers pay

Use the table below to answer the following questions. Table 16.3.1 -Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.Choose the correct statement.

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 ________.

Producing paper creates pollution.There is no externality in the consumption of paper.The efficient quantity of paper produced occurs when the

The marginal private benefit curve (MB) is a negatively-sloped straight line.If marginal external benefit decreases as output increases,the marginal social benefit curve is a negatively-sloped straight line

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then the quantity produced is

All of the following statements about emission charges are correct except

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If a subsidy is granted that generates an efficient quantity,then quantity produced is

If the production of a good creates pollution,then the

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then I.there is no pollution II.resources are used efficiently

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.To promote an efficient quantity the government could grant a subsidy equal to

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 .