Question 1

A market supply curve reflects the

Accepted Answer

A market supply curve reflects the private costs of producing a good or service, which are the costs borne by the producers themselves. The external costs and social costs are not reflected in the market supply curve because they are costs incurred by third parties or society as a whole, not the producers. The external benefits would be reflected in the demand curve, not the supply curve.

Question 2

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Accepted Answer

Many economists criticize the "command-and-control" approach because they believe a market-based approach, such as emissions trading or a pollution tax, would reduce pollution more efficiently by creating incentives for firms to innovate and reduce emissions in the most cost-effective way. The "command-and-control" approach can also be costly and inflexible for firms, as they may have less room to choose their own means of reducing emissions.

Question 3

Which of the following conditions holds in an economically efficient competitive market equilibrium?

Accepted Answer

The answer of Which of the following conditions holds in...

Question 4

A positive externality results when

Accepted Answer

A positive externality occurs when the production or consumption of a good or service results in benefits to those who are not directly involved in its production or consumption. This is different from someone paying for a good or service they are not directly affected by, as in choice B, and from people in one country benefiting from the production of a good or service in another country, as in choice C. Choice A does not fully capture the idea of a positive externality, as economists may not always be sure of the benefits a good or service provides to consumers.

Question 5

Figure 5-2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The marginal benefit of the last unit produced is represented by the price

Accepted Answer

The best choice is represented by the intersection of the marginal social cost (MSC) curve and the demand (or marginal private benefit) curve, which is at point B. This is because at this point, the negative externality is fully reflected in the price and quantity, leading to an efficient outcome. Any other point along the MSC curve would lead to either overproduction or underproduction of the good, resulting in a deadweight loss. Therefore, choice B represents the socially optimal level of output.

Question 6

Figure 5-3
 
-Refer to Figure 5-3.At the competitive market equilibrium, for the last unit produced

Accepted Answer

The answer of Figure 5-3
 
-Refer to Figure 5-3.At the...

Question 7

Figure 5-3
 
-Refer to Figure 5-3.The private profit-maximizing output level is

Accepted Answer

The private profit-maximizing output level occurs where marginal revenue (MR) equals marginal cost (MC), which is at point E in the diagram. At this point, the firm produces output quantity Qm and charges a price of Pm, realizing a profit equal to the shaded rectangle. At any other output level, the firm could increase profit by producing more or less, so Qm is the optimal output level.

Question 8

Figure 5-2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The private profit-maximizing quantity for the firm is

Accepted Answer

The private profit-maximizing quantity for the firm is where the marginal cost intersects with the marginal private benefit, which is at point Qb. At this quantity, the firm is producing more than the socially optimal quantity (Qa) which leads to a negative externality represented by the vertical distance between the marginal private cost and the marginal social cost curves. The firm is not maximizing social welfare, as the cost to society of producing this quantity is greater than the benefit.

Question 9

Figure 5-3
 
-Refer to Figure 5-3.In the absence of any government intervention, the private market

Accepted Answer

In the absence of government intervention, the private market produces Q units, while the socially optimal level of production is Q_{. Therefore, the private market underproduces by Q_{- Q} units.}

Question 10

Figure 5-3
 
-Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Accepted Answer

The deadweight loss due to the externality is the triangle between the supply curve (mso) and the socially optimal quantity (n), which is represented by the points where the demand curve intersects the marginal social cost curve (msn). Therefore, the correct choice is B) msn.

Question 11

Figure 5-2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The size of marginal external costs can be determined by

Accepted Answer

The size of marginal external costs can be determined by calculating the difference between the supply curve S₂ (representing private costs) and the social cost curve S₁ at each output level, which is represented by S₂ - S₁. Therefore, choice B is the correct answer.

Question 12

A market demand curve reflects the

Accepted Answer

The answer of A market demand curve reflects the
...

Question 13

Pollution is an example of a

Accepted Answer

Pollution creates negative externalities, meaning that its costs are borne by society as a whole rather than the individual or company responsible for causing it. It can include health risks, environmental damage, and decreased property values, among other things.

Question 14

Which of the following would result in a positive externality?

Accepted Answer

Medical research resulting in a cure for malaria would result in a positive externality as it benefits not only the individuals who are cured but also the society as a whole by reducing the spread of the disease.

Question 15

Which of the following describes how a negative externality affects a competitive market?

Accepted Answer

A negative externality is a cost that affects a party who did not choose to incur it. This means that the private cost of production is lower than the social cost, which includes the cost incurred by the third party affected by the externality. In a competitive market, businesses only take into account the private cost of production when deciding how much to produce. As a result, they will produce more than the socially optimal amount, leading to an inefficient allocation of resources.

Question 16

Figure 5-2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The efficient output level is

Accepted Answer

The efficient output level is where the marginal social cost (MSC) intersects with the marginal social benefit (MSB) curve, which occurs at point Qₐ. At this level of output, the negative externality is fully accounted for and the optimal amount of the good is produced. Option A represents the quantity demanded without any consideration for the negative externality, while option B represents the quantity supplied without any consideration for the negative externality. Option D is not a valid choice as it represents the difference between quantity supplied and quantity demanded, which does not provide information on the efficient output level.

Question 17

Figure 5-2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The deadweight loss due to the externality is represented by the area

Accepted Answer

The deadweight loss due to the negative externality is represented by the difference between the socially optimal quantity and the quantity actually produced, multiplied by the difference between the social cost and private cost at that quantity. In Figure 5-2, the socially optimal quantity is Q1 and the quantity actually produced is Q2. The deadweight loss is therefore represented by the area abf, which is the triangle formed by the vertical distance between Q1 and Q2 (quantity) and the horizontal distance between the social cost and private cost at Q2 (price).

Question 18

Figure 5-3
 
-Refer to Figure 5-3.The efficient output level is

Accepted Answer

The efficient output level is where the marginal cost curve (MC) intersects with the marginal revenue curve (MR) and in this case, it occurs at point Qn. At Qn, the firm is producing the quantity where the additional cost of producing one more unit is equal to the additional revenue earned from selling one more unit. Therefore, Qn is the optimal output level for the firm to maximize profits.

Question 19

Figure 5-3
 
-Refer to Figure 5-3.The size of marginal external benefits can be determined by

Accepted Answer

The size of marginal external benefits can be determined by taking the difference between the demand curves for the entire market (D₂) and the demand curve for the private market (D₁) at each output level. This can be seen in Figure 5-3 as the vertical distance between D₂ and D₁ at various levels of output. Therefore, option C (D₂ - D₁ at each output level) is the correct choice.

Question 20

Figure 5-2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Accepted Answer

The true marginal cost of the last unit produced is represented by the supply curve, which in this case is Pf. This is because the supply curve represents the cost to society of producing an additional unit, including the negative externality. Therefore, the optimal quantity for society is where the true marginal cost (represented by the supply curve) equals the demand curve, which is at point E. At this quantity, the price is equal to Pc, which is higher than the price at point A or B where only private costs are considered.

Quiz 5: Externalities, Environmental Policy, and Public Goods

A market supply curve reflects the

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Which of the following conditions holds in an economically efficient competitive market equilibrium?

A positive externality results when

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The marginal benefit of the last unit produced is represented by the price

Figure 5-3 -Refer to Figure 5-3.At the competitive market equilibrium, for the last unit produced

Figure 5-3 -Refer to Figure 5-3.The private profit-maximizing output level is

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The private profit-maximizing quantity for the firm is

Figure 5-3 -Refer to Figure 5-3.In the absence of any government intervention, the private market

Figure 5-3 -Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The size of marginal external costs can be determined by

A market demand curve reflects the

Pollution is an example of a

Which of the following would result in a positive externality?

Which of the following describes how a negative externality affects a competitive market?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The efficient output level is

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The deadweight loss due to the externality is represented by the area

Figure 5-3 -Refer to Figure 5-3.The efficient output level is

Figure 5-3 -Refer to Figure 5-3.The size of marginal external benefits can be determined by

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price