Question 1

When pollution (a negative externality)is created by firms,which of the following is NOT a valid way for the government to restore the social optimum?

Accepted Answer

Offering a subsidy to firms to reduce their production cost may encourage them to produce more, leading to more pollution and hence, further deviating from the social optimum.

Question 2

Refer to the accompanying figure to answer the questions that follow.
 
-The figure best illustrates what type of market?

Accepted Answer

The answer of Refer to the accompanying figure to answer...

Question 3

Which of the following is a cost of internalizing a negative externality?

Accepted Answer

Internalizing a negative externality means that the producer will bear the cost of the externality, which will increase their cost of production. This will lead to a decrease in output as the producer will want to reduce production in order to avoid bearing this cost.

Question 4

Refer to the accompanying figure to answer the questions that follow.
 
-At the market equilibrium,price is equal to __________ units of the good are produced.

Accepted Answer

At market equilibrium, the quantity supplied equals the quantity demanded. The correct choice, $14 and 70 units, represents a price and quantity where the supply and demand curves intersect, indicating market equilibrium.

Question 5

Your roommate is studying to be a drummer in a rock band.She practices in your apartment every evening for three hours and the noise makes it difficult for you to concentrate.This is an example of:

Accepted Answer

This is a classic example of the third-party problem, where the actions of one person (the roommate practicing drums) negatively affect another person (the other roommate's ability to concentrate).

Question 6

Consider a market where production of a good generates a negative externality.In the market equilibrium,

Accepted Answer

In a market with negative externality, the cost incurred by society is greater than the private cost incurred by the producers. Therefore, at the market equilibrium, the quantity produced is more than the socially optimal quantity. This means that too much of the good is being produced, which leads to an inefficient allocation of resources and a deadweight loss.

Question 7

Refer to the accompanying figure to answer the questions that follow.
 
-Refer to the accompanying table,where Q represents the quantity produced,internal cost and social cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities.  The social optimum occurs where price is __________ and quantity is __________.

Accepted Answer

The answer of Refer to the accompanying figure to answer...

Question 8

Which of the following is a benefit of internalizing a negative externality?

Accepted Answer

Internalizing a negative externality means that the cost of the externality is factored into the price of the good or service, which reduces the quantity supplied and consumed. This reduction in quantity leads to a reduction in deadweight loss, which is the loss of economic efficiency that occurs when the market is not producing at the socially optimal level. While all of the choices may be potential outcomes of internalizing a negative externality, only option C is a direct benefit.

Question 9

Your neighbor likes to mow his grass each Saturday at 7 A.M.and the noise invariably wakes you up.This is an example of:

Accepted Answer

This is an example of the third-party problem, where the actions of one person (the neighbor) affect another person (the sleeper) negatively without their consent.

Question 10

If government regulation forces firms in an industry to internalize the externality,then we can expect the equilibrium price of the good to __________ and the equilibrium quantity to __________.

Accepted Answer

When firms are forced to internalize an externality, it means they must bear the previously external costs themselves, such as pollution mitigation. This typically leads to higher production costs, resulting in an increase in the price of the good. However, the higher price tends to reduce demand, leading to a decrease in the equilibrium quantity.

Question 11

Consider the market for refined oil.In the market equilibrium,

Accepted Answer

In a market equilibrium, the internal supply, which represents the amount of refined oil that producers are willing and able to sell at a given price to the domestic market, is equal to the internal demand, which represents the amount of refined oil that consumers in the domestic market are willing and able to buy at a given price. Thus, choice A is the correct answer.

Question 12

Refer to the accompanying figure to answer the questions that follow.
 
-To achieve the social optimum,the government could set a tax equal to __________ per unit sold.

Accepted Answer

To achieve the social optimum, the government should set a tax equal to the external cost per unit sold. This tax internalizes the externality, making the private cost of production equal to the social cost. Without specific details on the external costs, it's impossible to provide a detailed explanation. However, if option A ($6) is the correct answer, it implies that the external cost per unit is $6.

Question 13

Refer to the accompanying figure.Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?

Accepted Answer

The answer of Refer to the accompanying figure.Which area represents...

Question 14

Consider a market where production of the good is creating a negative externality.In the market equilibrium,there is a deadweight loss because the:

Accepted Answer

The answer of Consider a market where production of the...

Question 15

Refer to the accompanying figure to answer the questions that follow.
 
-Refer to the accompanying figure.When a negative externality exists and the government does not intervene,which point best identifies the market equilibrium?

Accepted Answer

The answer of Refer to the accompanying figure to answer...

Question 16

Your neighbor is an avid gardener who changes his flower displays four times per year and who was given the "best yard on the block" award last year.While you personally enjoy these changing flower displays,some of your neighbors have said they do not like some of the flowers your neighbor chooses to plant.For you,this is an example of:

Accepted Answer

The answer of Your neighbor is an avid gardener who...

Question 17

Refer to the accompanying figure to answer the questions that follow.
 
-Refer to the accompanying table,where Q represents the quantity produced,internal cost and external cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities.  The market equilibrium occurs where price is __________ and quantity is __________.

Accepted Answer

The answer of Refer to the accompanying figure to answer...

Question 18

The third-party problem:

Accepted Answer

The third-party problem occurs when a market activity leads to either a negative or a positive externality, affecting individuals who are not directly involved in the transaction.

Question 19

If government regulation forces firms in an industry to internalize the externality,then the:

Accepted Answer

If government regulation forces firms to internalize the externality, they will have to take into account the true social cost of production. This will increase their costs, leading to a shift in the supply curve to the left.

Question 20

Refer to the accompanying figure to answer the questions that follow.
 
-Refer to the accompanying table,where Q represents the quantity produced,internal cost and social cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities.  The market equilibrium occurs where price is __________ and quantity is __________.

Accepted Answer

The market equilibrium occurs where the quantity demanded equals the quantity supplied. At a price of $60, both the internal cost and social cost are equal to the price consumers are willing to pay, so the quantity of 300 is produced and consumed. This is the only point where supply equals demand and the market is in equilibrium.

Quiz 7: Market Inefficiencies: Externalities and Public Goods

When pollution (a negative externality) is created by firms,which of the following is NOT a valid way for the government to restore the social optimum?

Refer to the accompanying figure to answer the questions that follow. -The figure best illustrates what type of market?

Which of the following is a cost of internalizing a negative externality?

Refer to the accompanying figure to answer the questions that follow. -At the market equilibrium,price is equal to __________ units of the good are produced.

Your roommate is studying to be a drummer in a rock band.She practices in your apartment every evening for three hours and the noise makes it difficult for you to concentrate.This is an example of:

Consider a market where production of a good generates a negative externality.In the market equilibrium,

Which of the following is a benefit of internalizing a negative externality?

Your neighbor likes to mow his grass each Saturday at 7 A.M.and the noise invariably wakes you up.This is an example of:

If government regulation forces firms in an industry to internalize the externality,then we can expect the equilibrium price of the good to and the equilibrium quantity to .

Consider the market for refined oil.In the market equilibrium,

Refer to the accompanying figure to answer the questions that follow. -To achieve the social optimum,the government could set a tax equal to __________ per unit sold.

Refer to the accompanying figure.Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?

Consider a market where production of the good is creating a negative externality.In the market equilibrium,there is a deadweight loss because the:

Refer to the accompanying figure to answer the questions that follow. -Refer to the accompanying figure.When a negative externality exists and the government does not intervene,which point best identifies the market equilibrium?

The third-party problem:

If government regulation forces firms in an industry to internalize the externality,then the: