Question 1

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then the quantity produced is A)zero. B)Q₁. C)Q_2. D)Q_3. E)too low.

Accepted Answer

D

Question 2

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If a constant per unit tax is imposed that generates an efficient allocation of resources,then the quantity produced is A)zero. B)Q₁. C)Q₂. D)Q₃ E)greater than Q_3.

Accepted Answer

With a constant per unit tax that generates an efficient allocation of resources, the market quantity will be where the social marginal cost curve intersects the market demand curve (point A). The quantity produced at this point is Q₂.

Question 3

Smoking tobacco creates a ________ externality.
A)negative consumption
B)negative production
C)positive consumption
D)positive production
E)none of the above

Accepted Answer

Smoking tobacco generates negative consumption externality since the consumption of tobacco negatively affects the well-being of non-smokers through passive smoking, public health expenditure, increased risk of diseases, and decreased productivity.

Question 4

Which of the following illustrates the concept of external cost?
A)Bad weather reduces the size of the wheat crop.
B)A reduction in the size of the wheat crop causes income of wheat farmers to fall.
C)Smoking harms the health of the smoker.
D)Smoking harms the health of nearby nonsmokers.
E)Public health services reduce the transmission of disease.

Accepted Answer

External cost is a cost that is imposed on a third party as a result of an economic transaction. In this case, smoking harms the health of nearby nonsmokers, who are not directly involved in the transaction of smoking. Therefore, the harm caused to nonsmokers is an external cost. The other options do not illustrate the concept of external cost.

Question 5

A well-maintained water-front property that is enjoyed by other property owners is an example of
A)an inefficient allocation of resources.
B)a negative consumption externality.
C)a positive consumption externality.
D)a negative production externality.
E)a positive production externality.

Accepted Answer

A positive consumption externality occurs when the consumption of a good or service benefits others who are not directly consuming it. In this case, the well-maintained water-front property provides enjoyment to other property owners, creating a positive externality.

Question 6

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If a constant per unit tax is imposed that generates an efficient allocation of resources,then consumers pay a per unit price of A)zero. B)P₁. C)P₂. D)P₃. E)P₄.

Accepted Answer

The efficient allocation occurs where the social marginal cost curve intersects the market demand curve. At this point, the price consumers pay is P₃.

Question 7

An externality is defined as
A)an additional cost imposed by the government on producers.
B)an additional gain received by consumers from decisions made by the government.
C)a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer.
D)a marginal social cost.
E)the additional amount consumers have to pay to consume an additional amount of a good or service.

Accepted Answer

An externality is a cost or benefit that is not reflected in the market price and falls on someone other than the producer or consumer. It can arise from production or consumption activities and affects individuals who are not directly involved in the transaction. Examples of negative externalities include pollution or noise, while positive externalities include education or vaccination programs.

Question 8

Sixty percent of our air pollution comes from
A)solid waste disposal.
B)electric utilities.
C)a growing world population.
D)road transportation and industrial processes.
E)none of the above.

Accepted Answer

The Environmental Protection Agency (EPA) states that 60% of our air pollution comes from road transportation and industrial processes, including manufacturing and energy production.

Question 9

Effective strategies for addressing the problem of negative externalities include
A)taxing the profit of polluting companies at twice the rate of non-polluting companies.
B)imposing taxes on the activity that generates the pollution.
C)stressing the use of renewable resources.
D)imposing recycling laws.
E)closing down a polluting industry.

Accepted Answer

By imposing taxes on the activity that generates negative externalities, such as pollution, companies will have to pay for the social cost of their actions. This can incentivize them to reduce their emissions or pollution levels. Additional revenue collected from these taxes could be used to mitigate the negative effects, such as funding pollution control technology or supporting clean energy initiatives. While the other options may also be effective, they may not address the problem in as targeted or efficient a manner as a tax on the activity generating the negative externality.

Question 10

An externality is a cost or benefit arising from an economic activity that falls on
A)consumers but not producers.
B)producers but not consumers.
C)consumers or producers.
D)someone other than consumers or producers.
E)none of the above.

Accepted Answer

An externality is a cost or benefit that falls on someone other than the consumers or producers involved in the economic activity.

Question 11

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.To promote an efficient allocation of resources,the government could impose a constant per unit tax equal to A)zero. B)P₁. C)P₃ - P₁. D)P₄ - P₁. E)P₃ - P₂.

Accepted Answer

The answer of Use the figure below to answer the...

Question 12

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If a constant per unit tax is imposed that generates an efficient allocation of resources,then producers receive a per unit price of A)zero. B)P₄. C)P₃. D)P₂. E)P₁.

Accepted Answer

The answer of Use the figure below to answer the...

Question 13

Use the figure below to answer the following questions.
  
Figure 16.2.1
-Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then
A)the quantity produced is efficient but price is too low.
B)the quantity produced is less than the efficient quantity.
C)the quantity produced is greater than the efficient quantity.
D)the quantity produced is efficient but the price is too high.
E)the externality is eliminated.

Accepted Answer

The unregulated market will produce at the intersection of market demand and private marginal cost (PMC) curves, which results in a quantity greater than the efficient quantity where social marginal cost (SMC) intersects with demand. Therefore, the quantity produced is greater than the efficient quantity.

Question 14

Use the table below to answer the following questions.
Table 16.2.1
 
-Refer to Table 16.2.1.Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer.Under these circumstances,
A)there are positive externalities in this market.
B)there are negative externalities in this market, equal to $10 per unit.
C)there are no externalities in this market.
D)not enough information is provided to determine whether or not there are externalities.
E)there are negative externalities in this market, equal to $20 per unit.

Accepted Answer

The answer of Use the table below to answer the...

Question 15

Use the figure below to answer the following questions.
  
Figure 16.2.1
-Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then at the equilibrium output the marginal social cost of production is
A)less than the marginal benefit to consumers.
B)greater than the marginal benefit to consumers.
C)equal to the marginal benefit to consumers.
D)equal to the marginal private cost of production.
E)less than the marginal private cost of production.

Accepted Answer

At the equilibrium output, the marginal social cost (MSC) is equal to the market demand curve. However, the marginal social cost curve (MSC) is above the marginal private cost curve (MPC). This means that the cost to society of producing one more unit of the good is higher than the cost to the individual firm producing the good. Therefore, the MSC is greater than the marginal private cost (MPC). Since the equilibrium output is where the MSC equals the market demand curve, this implies that the marginal social cost is greater than the marginal benefit to consumers, therefore, the answer is (B).

Question 16

Air pollution generated by a paper mill factory is an example of a
A)positive production externality.
B)positive consumption externality.
C)negative consumption externality.
D)marginal external benefit.
E)negative production externality.

Accepted Answer

The air pollution generated by the paper mill factory has negative effects on the environment and public health, which is a negative production externality.

Question 17

A homeowner planting an attractive garden in front of his house creates ________.
A bakery baking bread creates ________.
A)no externality;a positive production externality
B)a positive consumption externality;no externality
C)no externality;no externality
D)a positive consumption externality;a positive production externality
E)a positive production externality;no externality

Accepted Answer

A homeowner planting an attractive garden in front of his house creates a positive consumption externality because it enhances the beauty and value of the neighborhood, benefiting passersby and improving their quality of life. On the other hand, a bakery baking bread creates a positive production externality because it generates an aroma that attracts customers and creates a pleasant atmosphere, which benefits neighboring businesses by increasing foot traffic and potentially raising property values.

Question 18

An example of an activity that creates a negative consumption externality is
A)logging, which pollutes rivers.
B)locating beehives next to an orange orchard.
C)smoking, which harms the health of a bystander.
D)a flu vaccination.
E)none of the above.

Accepted Answer

Smoking creates a negative consumption externality because it harms the health of people who are not smokers and are exposed to secondhand smoke. The other options either do not involve a negative externality or have a positive externality (e.g. the flu vaccination, which can prevent the spread of disease to others).

Question 19

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then the price is A)P₁. B)P₄. C)below P₁. D)P₂. E)P₃.

Accepted Answer

In an unregulated market, the price is determined by the intersection of the private marginal cost curve and the market demand curve, which is at P₂.

Question 20

An example of an activity that creates a positive consumption externality is
A)logging, which pollutes rivers.
B)locating beehives next to an orange orchard.
C)smoking, which harms the health of a bystander.
D)a flu vaccination.
E)a noisy party.

Accepted Answer

The flu vaccination creates a positive consumption externality because it not only benefits the individual who gets vaccinated by reducing their chances of getting sick, but it also benefits the people around them by reducing the spread of the flu virus. This is an example of a positive externality because the benefit to others is not reflected in the cost of the vaccination to the individual.

Quiz 16: Externalities

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then the quantity produced is

Smoking tobacco creates a ________ externality.

Which of the following illustrates the concept of external cost?

A well-maintained water-front property that is enjoyed by other property owners is an example of

An externality is defined as

Sixty percent of our air pollution comes from

Effective strategies for addressing the problem of negative externalities include

An externality is a cost or benefit arising from an economic activity that falls on

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then

Air pollution generated by a paper mill factory is an example of a

A homeowner planting an attractive garden in front of his house creates . A bakery baking bread creates .

An example of an activity that creates a negative consumption externality is

Use the figure below to answer the following questions. Figure 16.2.1 -Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then the price is

An example of an activity that creates a positive consumption externality is