Q&A Hero

Q: Consider a market with a positive externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision.a. overproduce; external benefit b. underproduce; internal benefit c. overproduce; external costd. underproduce; external coste. underproduce; external benefit

Q: Positive externalities have ________ for third parties.a. internal costs b. internal benefits c. external costsd. external benefitse. social costs

Q: When production of a good creates an external benefit a. there is a negative externality. b. too much of the good is being produced. c. there is a positive externality. d. it results in the tragedy of the commons. e. a club good is being produced.

Q: A positive externality exists whenever a. there are no internal costs. b. production of a good creates an external cost. c. production of a good creates an external benefit. d. production of a good has no social cost. e. production of a good has no social benefit.

Q: The government imposes a tax on the sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, we would expect a. the same amount to be sold and the price to be $4 higher. b. the same amount to be sold and the price to increase by less than $4. c. less to be sold and the price to increase by $4. d. less to be sold and the price to increase by less than $4. e. less to be sold and the price to increase by more than $4.

Q: Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at pointa. B. b. C. c. E.d. F.e. G.

Q: Congestion charges cause the price of driving to ________. Therefore, the number of cars on the road will ________.a. rise; rise b. rise; fall c. fall; falld. fall; risee. remain unchanged; remain unchanged

Q: Congestion charges effectively decrease the number of cars on the road. This is an example ofa. the law of supply. b. the public-good problem. c. the free-rider problem.d. the common-resource problem.e. internalizing the externality.

Q: The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the a. supply curve shifts to the left. b. supply curve shifts to the right. c. demand curve shifts to the left. d. demand curve shifts to the right. e. the supply curve and the demand curve shift to the left.

Q: If the government decides to adopt a carbon tax, the price of goods whose production generates carbon emissions will ________ and the quantity produced will ________.a. increase; increase b. increase; decrease c. increase; remain unchangedd. decrease; increasee. decrease; decrease

Q: The government identifies a situation where production of a good is generating a negative externality. A reasonable option for the government to consider is to a. impose a tax on the sale of this good. b. pass a law preventing the production of this good. c. subsidize the cost of producing the good. d. pass a law preventing the consumption of this good. e. ration the good.

Q: If the government imposes a tax on each aluminum can sold, payable by consumers when they purchase the item, then, in the market for goods sold in aluminum cans, the a. supply curve shifts to the left. b. supply curve shifts to the right. c. demand curve shifts to the left. d. demand curve shifts to the right. e. supply curve and the demand curve shift to the left.

Q: A government decision to impose a tax on the sale of plastic disposable water bottles is an example ofa. a positive externality. b. internalizing the externality. c. the third-party problem.d. an external cost.e. the Coase theorem.

Q: When a negative externality is not internalized, then the equilibrium price of the good produced is too ________ and the equilibrium quantity produced is too ________.a. high; high b. low; low c. low; highd. high; lowe. expensive; inefficient

Q: The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality a. in all such cases. b. if the benefits of doing so outweigh the costs. c. as long as it will not increase the price of the good being produced. d. as long as it will not create unemployment in this industry. e. as long as there are positive health benefits associated with this policy.

Q: 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 ________.a. increase; increase b. increase; decrease c. decrease; decreased. decrease; increasee. increase; remain unchanged

Q: Which of the following is a cost of internalizing a negative externality? a. Less output is produced. b. The deadweight loss is larger. c. The level of pollution rises. d. Taxes must increase to cover the external cost. e. The government must pay firms to encourage them to change production techniques.

Q: Which of the following is a benefit of internalizing a negative externality? a. All pollution is eliminated. b. More output is produced. c. The deadweight loss is eliminated. d. The good is sold for a lower price. e. Output increases and prices are lower.

Q: 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 to answer the following questions.QInternal CostExternal CostP1$2$4$142$4$4$123$6$4$104$8$4$85$10$4$66$12$4$4The social optimum occurs where price is ________ and quantity is ________.a. $4; 6 b. $8; 4 c. $10; 3d. $10; 5e. $12; 6

Q: Refer to the accompanying figure to answer the following questions.To achieve the social optimum, the government could set a tax equal to ________ per unit sold.a. $6 b. $4 c. $2d. $3e. $5

Q: Refer to the accompanying figure to answer the following questions.The figure best illustrates what type of market?a. The good produced creates a positive externality.b. The good produced creates a negative externality.c. The good produced is a club good.d. The good produced is a public good.e. Firms in this industry have been given a subsidy to encourage more production.

Q: Refer to the accompanying figure to answer the following questions.At the market equilibrium, price is equal to ________ units of the good are produced.a. $18 and 70 b. $14 and 70 c. $12 and 50d. $14 and 50e. $18 and 50

Q: Consider the market for refined oil. In the market equilibrium, a. the internal supply equals the internal demand. b. the internal supply equals the social supply. c. the social supply equals the internal demand. d. there is too little of the good being produced. e. there is no deadweight loss.

Q: Consider a market where production of a good generates a negative externality. In the market equilibrium, a. too much of the good is being produced. b. too little of the good is being produced. c. there is no deadweight loss. d. the external costs have been internalized. e. firms are not maximizing profit.

Q: 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? a. require firms to install pollution-abatement equipment b. require firms to change production techniques to reduce emissions c. levy a tax on the production of the good d. require firms to pay for the environmental damage they create e. offer a subsidy to firms to reduce their production costs

Q: Jacks roommate is studying to be a drummer in a rock band. She practices in Jacks apartment every evening for three hours and the noise makes it difficult for Jack to concentrate. This is an example ofa. the third-party problem. b. the tragedy of the commons. c. an internal cost.d. the free-rider problem.e. a positive externality.

Q: Siris 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 Siri personally enjoys these changing flower displays, some of her neighbors have said they do not like some of the flowers her neighbor chooses to plant. For Siri, this is an example ofa. a positive externality. b. the tragedy of the commons. c. an internal cost.d. internalizing the external cost.e. a negative externality.

Q: Elijahs neighbor likes to mow his grass each Saturday at 7 A.M. and the noise invariably wakes Elijah up. This is an example ofa. the third-party problem. b. the tragedy of the commons. c. an internal cost.d. the free-rider problem.e. a positive externality.

Q: The third-party problem a. occurs when a market activity leads to a negative externality. b. occurs when a market activity leads to a positive externality. c. occurs when a market activity leads to a negative or a positive externality. d. is the same as the free-rider problem. e. is associated with the production of private goods but not public goods.

Q: Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a deadweight loss because the a. internal cost of production is less than the social cost. b. internal cost of production is not equal to the internal benefit. c. internal benefit is not equal to the external benefit. d. social cost is greater than the internal benefit. e. internal benefit is less than the internal cost.

Q: Which of the following is true of a negative externality? a. Some costs are borne by a third party. b. The government can use subsidies to encourage firms to internalize the externality. c. The government must take over the production of this good so that the externality can be internalized. d. Some benefits accrue to a third party. e. Its existence always requires corrective measures by the government.

Q: Consider a market with a negative externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision.a. overproduce; external benefit b. underproduce; external benefit c. overproduce; external costd. underproduce; external coste. overproduce; internal benefit

Q: A negative externality exists whenever a. there are no internal costs. b. production of a good creates an external cost. c. production of a good creates an external benefit. d. production of a good has no social cost. e. production of a good has no social benefit.

Q: Negative externalities have ________ for third parties.a. internal costs b. internal benefits c. external costsd. external benefitse. social costs

Q: Lila shares a house with two other people. She is a concert pianist and often practices at home. One roommate enjoys listening to her practice, but the other does not. For the roommate who enjoys listening to Lila play, this is an example of ________; for the other roommate, it is an example of ________. a. the tragedy of the commons; the third-party problem b. a positive externality; a negative externality c. a positive externality; the free-rider problem d. the free-rider problem; the tragedy of the commons e. a negative externality; the tragedy of the commons

Q: The cost of an activity paid for by the individual and the third party is defined as a(n) ________ cost.a. internal b. social c. externald. third-partye. public-good

Q: The pollution emitted by a car is an example of a(n) ________ cost.a. internal b. social c. externald. productione. public-good

Q: External costs are the result of the actions of a. firms. b. consumers. c. firms and consumers. d. the government. e. firms, consumers, and the government.

Q: For a market to work efficiently a. the external costs must be paid. b. all external costs must be eliminated. c. all internal costs must be eliminated. d. the social costs must be equal to the internal costs. e. all pollution must be eliminated.

Q: An external cost is best defined as the cost of an activity paid for by a. the individual who is engaged in the activity. b. the government. c. a third party. d. a free-rider. e. the individual and the third party.

Q: The costs of a market activity paid for by an individual NOT engaged in the market activity are ________ costs.a. external b. internal c. free-riderd. sociale. common

Q: Suzanne drives to work each day. The best example of an internal cost is the a. amount of pollution emitted by Suzannes car. b. congestion created by Suzannes car being on the road. c. amount the government paid to build the road. d. amount Suzanne pays to maintain her car. e. amount of money Suzanne saves each day by avoiding the toll roads.

Q: The amount an individual pays for insurance on his or her car is an example of a(n) ________ cost.a. internal b. social c. externald. third-partye. public-good

Q: The amount an individual pays for gasoline for his or her car is an example of a(n) ________ cost.a. internal b. social c. externald. third-partye. public-good

Q: The personal decisions of consumers and firms are based on ________ cost(s).a. external b. social c. internald. third-partye. public-good

Q: An internal cost is best defined as the cost of an activity paid for by a. the individual who is engaged in the activity. b. the government. c. a third party. d. a free-rider. e. the individual and the third party.

Q: The costs of a market activity paid for by an individual engaged in the market activity are ________ costs.a. external b. internal c. free-riderd. sociale. common

Q: CHAPTER 7: Market Inefficiencies: Externalities and Public GoodsThe costs or benefits of a market activity that affect a third party are calleda. externalities. b. public goods. c. club goods.d. internal costs.e. common-resource goods.

Q: If emissions of this pollutant are not regulated, then the total emissions from the two firms equal _______ units.a. 12 b. 6 c. 0d. 10e. 9

Q: If the government implements a cap-and-trade system to reduce pollution in a particular industry, then the a. supply curve shifts to the left. b. supply curve shifts to the right. c. demand curve shifts to the left. d. demand curve shifts to the right. e. supply curve and the demand curve shift to the left.

Q: A cap-and-trade policy is an efficient method of reducing pollution because a. all firms will be forced to reduce pollution. b. only high-cost firms will be forced to reduce pollution. c. only low-cost firms will be forced to reduce pollution. d. those who can reduce pollution relatively more cheaply will have an incentive to buy permits. e. those who can reduce pollution relatively more cheaply will have an incentive to sell permits.

Q: To reduce the level of pollution emitted by firms in an industry, the government could use a cap-and-trade policy or a carbon tax (where the government taxes carbon producers based on the amount of carbon produced). Which of the following is true? a. The price of the good sold will rise with the carbon tax policy, but not with the cap-and-trade policy. b. The quantity of the good sold will fall with the carbon tax policy, but not with the cap-and-trade policy. c. The price of the good sold will rise under either policy, but there will be no change in the level of production. d. The quantity of the good sold will fall under either policy, but there will be no change in the price of the good. e. The price of the good sold will rise under either policy, and there will be a reduction in the level of production.

Q: A policy option for reducing emissions is cap and trade. Which of the following is true? a. The policy will result in lower prices for consumers. b. The policy will result in lower costs for firms. c. The policy will increase total emissions. d. The policy will discourage the development of greener technologies. e. The policy will not raise large amounts of revenue for the government.

Q: Which of the following is the best definition of a cap-and-trade policy for pollution? a. The government sets a cap on emissions. Firms are given permits by the government to emit pollutants and have the right to trade the permits with each other. b. Emissions of a pollutant are capped by the government at the current level, and the good being produced can still be traded in the market. c. Production of the good is capped by the government at the current level, but the good can still be traded in the market. d. The number of firms producing a good is capped by the government at the current level, but the good can still be traded in the market. e. Consumption of the good being produced is capped by the government at the current level, but the good can still be traded in the market.

Q: A cap-and-trade policy is most often used to solve problems associated with a. making free-riders pay for the goods they are consuming. b. the production of public goods. c. the production of goods that generate a negative externality. d. the production of goods that generate a positive externality. e. the production of club goods.

Q: Refer to the accompanying figure, which shows the market for fish, to answer the following questions. If the government sets a quota of 300 pounds of fish caught per day and issues a license that entitles the holder to catch 20 pounds of fish per day, then the value of the license isa. $20. b. $50. c. $400.d. $500.e. $200.

Q: Refer to the following scenario to answer the following questions.Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that when there are more of them out on the river fishing, they each catch fewer fish per month.BoatsFish Caught perBoat (pounds)12002190317541555130If four boats operate, then each boat will make a profit ofa. $775.00. b. $500.00. c. $275.00.d. $675.00.e. $68.75.

Q: Global warming is an example ofa. the tragedy of the commons. b. a public good. c. the club-good problem.d. a positive externality.e. a problem that has an easy solution.

Q: Which rule would NOT protect fish populations? a. limiting the length of the fishing season b. limiting the number of fish that can be caught c. not allowing female fish to be caught d. not allowing young fish to be caught e. catching any fish except males

Q: A carbon tax would be an efficient method of addressing the problem of global warming because a. carbon taxes are an external cost. b. it forces firms to internalize the external cost of emissions. c. it eliminates the positive externalities associated with global warming. d. firms are likely to prefer the carbon tax over the cap-and-trade policy. e. it is less likely than the cap-and-trade policy to result in rising prices.

Q: The tragedy of the commons a. gives rise to a negative externality. b. gives rise to a positive externality. c. occurs when club goods are produced. d. occurs when public goods are provided. e. leads to underutilized resources.

Q: The tragedy of the commons occurs because the good being produced isa. nonrival. b. rival and excludable. c. rival and nonexcludable.d. nonrival and nonexcludable.e. excludable.

Q: The tragedy of the commons occurs for goods that area. rival and excludable. b. rival and nonexcludable. c. nonrival and nonexcludable.d. nonrival and excludable.e. never produced by the government.

Q: The quantity produced of a common-resource good is likely to deviate from the socially optimal quantity because a. common-resource goods are nonrival. b. common-resource goods cannot be traded. c. there is an incentive to overproduce the good. d. of the free-rider problem. e. positive externalities are likely to exist.

Q: It is best to reduce the level of pollution a. until all negative externalities are internalized. b. to zero. c. as long as the benefit exceeds the cost of doing so. d. only in nonessential industries. e. until all external costs have been eliminated.

Q: The music you buy on the Internet isa. a club good. b. a private good. c. a common-resource good.d. a public good.e. rival and excludable.

Q: The ability to download music and movies from the Internet without paying is a. an example of a negative externality. b. an example of a club good. c. an illegal form of free-riding. d. an illustration of the tragedy of the commons. e. something that anyone who pays taxes should be allowed to do.

Q: Copyright laws exist toa. eliminate negative externalities. b. eliminate public goods.c. limit free-riding.d. solve the tragedy of the commons.e. protect consumers.

Q: To maximize social welfare, the optimal quantity of a public good to provide should be determined through the use ofa. private markets. b. the judicial system. c. public survey.d. cost-benefit analysis.e. the political process.

Q: How, in practice, is cost-benefit analysis of public goods, such as city-funded fireworks displays, usually carried out? a. through surveys of people attending fireworks displays b. through surveys of people who live near fireworks displays c. through public elections of local officials d. through debates at community forums e. through the passage of municipal regulations

Q: What is the purpose of a cost-benefit analysis of a public good? a. to document why the private sector is not supplying the good b. to lay down rules about who will be allowed to consume the good c. to establish whether the good is excludable d. to decide how much of the good the government should supply e. to determine how much consumers should pay for the good

Q: The challenge of cost-benefit analysis and the tragedy of the commons are two problems associated with which type of good?a. excludable b. rival c. nonexcludabled. nonrivale. private

Q: The air is a ________ good.a. private b. public c. clubd. common-resourcee. government

Q: Which of the following is the best example of a common-resource good?a. a fireworks display b. a lighthouse c. cable televisiond. fish in a lakee. the production of gasoline

Q: Common-resource goods tend to be offered at ________ market price and at ________ quantity than what society desires.a. a lower; a lower b. a higher; a higher c. a higher; a lowerd. a lower; a highere. the same; the same

Q: The market overproduces common-resource goods because private decision makers consider ________ costs but society experiences ________ costs.a. only internal; only external b. only internal; internal and external c. only external; only internald. only external; internal and externale. internal and external; only external

Q: A binding price ceiling will have which of the following consequences? a. There will be downward pressure on prices until quantity demanded equals quantity supplied. b. There will be upward pressure on prices until quantity demanded equals quantity supplied. c. There are no consequences to a binding price ceiling. d. The quantity demanded will always exceed the quantity supplied. e. The quantity demanded will always be smaller than the quantity supplied.

Q: If a store sells a good at the market price, even though the government authorities have set the minimum price that can be charged, the store is selling the good in a(n) a. black market for a market price that is higher. b. black market for a market price that is lower. c. effort to eliminate a surplus of the good. d. legal market for a market price that is higher. e. legal market for a market price that is lower.

Q: A consequence of either a price ceiling or a price floor is a. a nonbinding price control. b. a market surplus. c. a market shortage. d. waiting lines. e. Price floors and price ceilings cannot have an identical outcome.

Q: A market where exchanges occur despite price regulations is called a(n) ________ market.a. hidden b. noncompetitive c. blackd. prohibitede. outlaw