Question 1

How does a positive externality in consumption reduce economic efficiency?

Accepted Answer

If there is a positive externality in co...

Question 2

Which of the following is true of private costs?

Accepted Answer

A)  Are borne by consumers of a good while social costs are borne by government.
B)  Are borne by producers of a good while social costs are borne by government.
C)  Are borne by producers of a good while social costs are borne by society at large.
D)  Are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

Question 3

'A competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus.' This statement

Accepted Answer

A)  is true only if there are positive externalities in production in the market.
B)  is true only if there are no negative externalities in the market.
C)  is true only if there are no positive or negative externalities in the market.
D)  is true in theory, but economic efficiency cannot be achieved in a real market.

Question 4

When there is a negative externality, the competitive output is more than the economically efficient output level.

Accepted Answer

A) True 
 B)False

Question 5

Figure 15.6 1 B) Q2 C) Q1 + Q2 D) Q2 - Q1" class="answers-bank-image d-inline" rel="preload" > Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 15.6.What is the market equilibrium output level?

Accepted Answer

A)  Q1
B)  Q2
C)  Q1 + Q2
D)  Q2 - Q1

Question 6

What does a market demand curve reflect?

Accepted Answer

A)  Private benefits of consuming a product
B)  External benefits of consuming a product
C)  Social benefits of consuming a product
D)  The sum of private and social benefits of consuming a product

Question 7

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Accepted Answer

A) True 
 B)False

Question 8

Because producers do not bear the external cost of pollution,

Accepted Answer

A)  the economically efficient level of production is achieved.
B)  private production is below the economically efficient level.
C)  private production exceeds the economically efficient level.
D)  the market price is too high.

Question 9

Figure 15.9  Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 15.9 illustrates the situation in the toilet paper market.
-Refer to Figure 15.9.Suppose the government imposes a tax of $60 per ton of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Accepted Answer

A)  It rises by $60.
B)  It rises by more than $60.
C)  It rises by less than $60.
D)  It remains the same because the tax is imposed on producers who create the externality.

Question 10

The basic cause of deadweight losses from the existence of common resources and externalities is

Accepted Answer

A)  a lack of clearly defined and enforceable property rights.
B)  the self-interested rationality of human beings.
C)  the use of a market system to deal with scarcity.
D)  the absence of government intervention.

Question 11

Private producers have no incentive to provide public goods because

Accepted Answer

A)  the government subsidy granted is usually insufficient to enable private producers to make a profit.
B)  production of huge quantities of public goods entails huge fixed costs.
C)  they cannot avoid the tragedy of the commons.
D)  once produced, it will not be possible to exclude those who do not pay for the good.

Question 12

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

Accepted Answer

A)  equal to the marginal external cost at the economically efficient level of pollution.
B)  equal to the marginal private cost of production at the economically efficient level of pollution.
C)  equal to the amount of the deadweight loss created in the absence of a pollution tax.
D)  at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

Question 13

The 'tragedy of the commons' refers to the phenomenon where

Accepted Answer

A)  individuals are free riders.
B)  people overuse a common resource.
C)  people do not internalise an externality.
D)  there is rivalry in consumption.

Question 14

The efficient output level of a public good occurs where the

Accepted Answer

A)  greatest number of free riders occurs.
B)  marginal cost of producing the last unit is equal to the marginal benefit realised by consumers.
C)  total cost of production is affordable.
D)  marginal cost of production is at its lowest.

Question 15

Which of the following displays these two characteristics: non-rivalry and excludability?

Accepted Answer

A)  Public goods
B)  Private goods
C)  Quasi-public goods
D)  Common resources

Question 16

Figure 15.10 E B) (PE - PG)  C) (PE - PF)  D) (PF - PG) " class="answers-bank-image d-inline" rel="preload" > Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease.Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 15.10.
-Refer to Figure 15.10.One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidise these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalise the external benefits?

Accepted Answer

A)  PE
B)  (PE - PG) 
C)  (PE - PF) 
D)  (PF - PG)

Question 17

Economist A.C.Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

Accepted Answer

Pigou believed that, in the case of a po...

Question 18

Figure 15.3 o - Qm units. B) overproduces by Qo - Qm units. C) overproduces by Qn - Qm units. D) underproduces by Qn - Qm units." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15.3.In the absence of any government intervention, the private market

Accepted Answer

A)  underproduces by Qo - Qm units.
B)  overproduces by Qo - Qm units.
C)  overproduces by Qn - Qm units.
D)  underproduces by Qn - Qm units.

Question 19

Governments can increase the consumption of a product that creates positive externalities by

Accepted Answer

A)  subsidising the production of the product so that the supply is increased and market price is reduced.
B)  taxing the production and consumption of the product.
C)  convincing everyone to consume the good.
D)  assigning property rights to the producers of the product.

Question 20

Which of the following is an example of a non-excludable product?

Accepted Answer

A)  University education
B)  A public library
C)  Public transportation
D)  Internet service for your home computer

Exam 15: Externalities, Environmental Policy and Public Goods

How does a positive externality in consumption reduce economic efficiency?

Correct Answer
verified
If there is a positive externality in co...
View Answer

'A competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus.' This statement

Correct Answer
verified

Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What is the market equilibrium output level?

Correct Answer
verified

Which of the following is an example of a non-excludable product?

Correct Answer
verified

Correct Answer
verified

When there is a negative externality, the competitive output is more than the economically efficient output level.

Correct Answer
verified

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

Correct Answer
verified

Figure 15.3 -Refer to Figure 15.3.In the absence of any government intervention, the private market

Correct Answer
verified

The basic cause of deadweight losses from the existence of common resources and externalities is

Correct Answer
verified

The efficient output level of a public good occurs where the

Correct Answer
verified

Correct Answer
verified

Governments can increase the consumption of a product that creates positive externalities by

Correct Answer
verified

What does a market demand curve reflect?

Correct Answer
verified

Correct Answer
verified
Pigou believed that, in the case of a po...
View Answer

Private producers have no incentive to provide public goods because

Correct Answer
verified

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Correct Answer
verified

Which of the following is true of private costs?

Correct Answer
verified

The 'tragedy of the commons' refers to the phenomenon where

Correct Answer
verified

Because producers do not bear the external cost of pollution,

Correct Answer
verified

Which of the following displays these two characteristics: non-rivalry and excludability?

Correct Answer
verified

Exam 15: Externalities, Environmental Policy and Public Goods

How does a positive externality in consumption reduce economic efficiency?

Correct AnswerverifiedIf there is a positive externality in co...View AnswerShow Answer

'A competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus.' This statement

Correct AnswerverifiedShow Answer

Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What is the market equilibrium output level?

Correct AnswerverifiedShow Answer

Which of the following is an example of a non-excludable product?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When there is a negative externality, the competitive output is more than the economically efficient output level.

Correct AnswerverifiedShow Answer

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

Correct AnswerverifiedShow Answer

Figure 15.3 -Refer to Figure 15.3.In the absence of any government intervention, the private market

Correct AnswerverifiedShow Answer

The basic cause of deadweight losses from the existence of common resources and externalities is

Correct AnswerverifiedShow Answer

The efficient output level of a public good occurs where the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Governments can increase the consumption of a product that creates positive externalities by

Correct AnswerverifiedShow Answer

What does a market demand curve reflect?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPigou believed that, in the case of a po...View AnswerShow Answer

Private producers have no incentive to provide public goods because

Correct AnswerverifiedShow Answer

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Correct AnswerverifiedShow Answer

Which of the following is true of private costs?

Correct AnswerverifiedShow Answer

The 'tragedy of the commons' refers to the phenomenon where

Correct AnswerverifiedShow Answer

Because producers do not bear the external cost of pollution,

Correct AnswerverifiedShow Answer

Which of the following displays these two characteristics: non-rivalry and excludability?

Correct AnswerverifiedShow Answer

Correct Answer
verified
If there is a positive externality in co...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Pigou believed that, in the case of a po...
View Answer

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