Question 1

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

Accepted Answer

A negative externality is a cost that is imposed on a third party as a result of a market transaction between a buyer and a seller. In a competitive market, the private cost of production does not take into account the external cost that is imposed on others. As a result, the socially optimal production level is lower than the equilibrium level, causing a difference between the private cost of production and the social cost.

Question 2

A market supply curve reflects the

Accepted Answer

A market supply curve reflects the marginal private costs of producing a good or service. It shows the additional costs that firms incur as they produce additional units of output. The curve is upward sloping because as production increases, so do costs.

Question 3

Pollution is an example of a

Accepted Answer

Pollution causes harm to people and the environment, but the cost is borne by those who are affected by it, making it a negative externality.

Question 4

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

Accepted Answer

The efficient output level is where the marginal cost (MC) curve intersects with the marginal revenue (MR) curve. In this diagram, that intersection occurs at Qn, making it the most efficient output level.

Question 5

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 6

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 because it benefits society as a whole, not just the individuals directly involved.

Question 7

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

Economists argue that a market-based approach is more efficient in reducing pollution as it provides incentives for firms to reduce pollution while minimizing costs. In contrast, the command-and-control approach can be expensive and often results in firms simply complying with regulations rather than seeking innovative ways to reduce pollution.

Question 8

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 9

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 is the loss of economic efficiency that occurs when the market is not in equilibrium. In this case, the negative externality causes the socially optimal level of output to be reduced from Q* to Qs. The deadweight loss can be seen as the area of the triangle formed by the points where the supply and demand curves intersect with the horizontal line at the socially optimal quantity. This area is represented by the triangle abf. Therefore, the answer is B.

Question 10

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 the vertical distance between the supply curves (S2 - S1) at each output level. Therefore, the correct choice is B.

Question 11

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 would be to reduce the output to Qopt, where the marginal social cost (MSC) equals the marginal social benefit (MSB) and the efficient level of output is produced. At this level of output, the price is equal to Pb, which represents the marginal cost of production plus the cost of the negative externality. This would minimize the total cost, maximize the total surplus, and ensure that the negative externalities are internalized.

Question 12

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

Accepted Answer

The answer of Figure 5-3 
-Refer to Figure 5-3.The deadweight...

Question 13

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 a firm is typically where marginal cost equals marginal revenue, which is often represented by Qb in economic diagrams.

Question 14

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 calculating the difference between the demand curve that includes the external benefits (D2) and the demand curve that only reflects private benefits (D1). Therefore, the correct choice is C.

Question 15

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 intersection of the marginal cost curve and the demand curve, which is point F. Therefore, the price that represents the true marginal cost is Pf. The optimal choice would be to reduce the quantity produced to Qopt, which is where the marginal social cost (MSC) equals the marginal social benefit (MSB). At this point, the external cost is fully internalized and overall social welfare is maximized.

Question 16

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) equals the marginal social benefit (MSB), which is at point Qa in the diagram. This is because at this point, the MSC curve intersects with the demand curve (which represents the MSB) at the same level of output. Therefore, the best choice is to produce at Qa, which maximizes total social welfare. Producing at a higher or lower level of output would result in a deadweight loss and reduce social welfare.

Question 17

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

Accepted Answer

The private profit-maximizing output level is typically where marginal cost equals marginal revenue, which is often represented as Qm in economic diagrams.

Question 18

A market demand curve reflects the

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

A positive externality results when

Accepted Answer

A positive externality occurs when people who are not directly involved in producing or paying for a good or service benefit from it. This can happen, for example, when a homeowner installs solar panels on their house. Not only does the homeowner benefit from lower electricity bills, but the neighbors also benefit from reduced pollution and a decrease in overall energy demand. This benefit to the neighbors is a positive externality.

Quiz 5: Externalities, environmental Policy, and Public Goods

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

A market supply curve reflects the

Pollution is an example of a

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

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

Which of the following would result in a positive externality?

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

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

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

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.The deadweight loss due to the externality is represented by the area

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.The size of marginal external benefits can be determined by

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

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

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

A market demand curve reflects the

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

A positive externality results when