Question 1

Assume a country agrees to a free-trade act with another country. In the process, some individuals are displaced from their jobs, thus the free-trade act results in a negative externality.
A)False
B)True
C)Only if those who were displaced are not compensated with another job or income transfer.
D)Only if those who were displaced were compensated with another job or income transfer.

Accepted Answer

The free-trade act can result in a negative externality if the individuals who are displaced from their jobs are not compensated with another job or income transfer. Therefore, option C is the correct choice.

Question 2

-The above figure shows the market for steel ingots. If the market is competitive, then
A)the socially optimal quantity of steel is zero.
B)the socially optimal quantity of steel of 50 units is produced.
C)the socially optimal quantity of steel of 100 units is produced.
D)more than the socially optimal quantity of 50 units of steel is produced.

Accepted Answer

The answer of 
-The above figure shows the market for...

Question 3

-The above figure shows the market for steel ingots. At the social optimum level of output, the total welfare is
A)$1,875.
B)$1,575.
C)$2,500.
D)$3,000.

Accepted Answer

At the social optimum level of output, total welfare is maximized. This includes both consumer surplus and producer surplus. The area representing total welfare at the social optimum can be calculated as the area of a triangle with a base (quantity) and height (price) that correspond to the equilibrium point. Without the specific values from the figure, a common approach is to use the formula for the area of a triangle (1/2 * base * height). Assuming the equilibrium quantity and price are such that they form a right-angled triangle with the axes, and given the options provided, the correct answer is inferred based on typical outcomes in such market diagrams. Since the specific details of the figure are not provided, the correct answer is chosen based on common outcomes in market equilibrium scenarios where total welfare is often represented by a significant area under the demand curve and above the supply curve up to the equilibrium point.

Question 4

In the presence of a negative externality generated by producing a good, a competitive market will produce more of that good than is socially optimal.

Accepted Answer

Firms in that market only consider their private costs and produce a quantity that equates price with the private marginal cost. Producers ignore the external costs to others. As a result, p = MC^p instead of p = MC^s.

Question 5

-The above figure shows the market for steel ingots. If the market is competitive, then the private producer surplus is
A)$2,500.
B)$5,000.
C)$2,000.
D)$3,000.

Accepted Answer

Producer surplus is the area above the supply curve and below the equilibrium price. Without seeing the figure, the correct answer cannot be determined directly from the question. However, based on the options provided and typical market diagrams, the producer surplus is often represented by a triangular or trapezoidal area on such diagrams. The correct answer would depend on specific values given in the figure, such as the equilibrium price and quantity, and the cost of production as depicted by the supply curve.

Question 6

To maximize welfare in a competitive market that has a negative externality in production, government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.

Accepted Answer

The tax should equal the marginal harm of the pollution at the socially optimal quantity of the good.

Question 7

In a market with positive externalities,
A)the efficient level of production is less than what competition will obtain.
B)the efficient level of production is equal to what competition will obtain.
C)the efficient level of production is more than what competition will obtain.
D)there cannot be an efficient level of production.

Accepted Answer

In a market with positive externalities, there are benefits to society that are not captured by the producers. As a result, the social benefit is greater than the private benefit, and the efficient level of production will be higher than what competition will obtain. Without any intervention, the market will not produce enough to maximize total surplus. Therefore, to achieve efficiency, the government may need to intervene and subsidize production or consumption.

Question 8

If a market is subject to a positive externality,
A)the demand curve reflecting social benefit will be to the right of the demand curve representing private benefit.
B)there is only one demand curve.
C)the demand curve reflecting social benefit will be to the left of the demand curve representing private benefit.
D)private benefit will exceed social benefit.

Accepted Answer

The answer of If a market is subject to a...

Question 9

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the total external harm at the competitive market level of output? A)1350.5 B)2025 C)672.5 D)1012.5

Accepted Answer

To find the total external harm at the competitive market level of output, we first need to determine the competitive market level of output. In a competitive market without considering externalities, the market equilibrium is where demand equals private marginal cost (PMC). Given the demand function p = 100 - Q and the private marginal cost PMC = 10 + Q, we set them equal to find the equilibrium quantity: 100 - Q = 10 + Q, which simplifies to 90 = 2Q, so Q = 45. The external marginal harm (EMH) is given as Q, so at Q = 45, EMH = 45. To find the total external harm, we integrate the EMH over the quantity, which gives us the area under the EMH curve from 0 to 45. This is calculated as (1/2)*base*height = (1/2)*45*45 = 1012.5.

Question 10

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What specific tax would result in a competitive market producing the socially optimal quantity of paper?

Accepted Answer

The answer of Suppose that in the market for paper,...

Question 11

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the socially optimal level of output? A)20 B)25 C)30 D)45

Accepted Answer

To find the socially optimal level of output, we need to equate the private marginal cost (PMC) with the social marginal cost (SMC), which is the sum of the private marginal cost and the external marginal harm. 
So, SMC = PMC + external marginal harm 
SMC = 10 + Q + Q 
SMC = 10 + 2Q 
Equating SMC with the demand equation: 
10 + 2Q = 100 - Q 
3Q = 90 
Q = 30 
Therefore, the socially optimal level of output is 30.

Question 12

-The above figure shows the market for steel ingots. An externality can be seen because
A)the social marginal cost exceeds the private marginal cost.
B)the private marginal cost exceeds the social marginal cost.
C)the optimal quantity of steel is zero.
D)not enough steel gets produced by the competitive market.

Accepted Answer

An externality, particularly a negative externality, is present when the social marginal cost (SMC) of producing a good exceeds the private marginal cost (PMC) of producing that good. This indicates that there are additional costs to society not accounted for by the producers, such as environmental pollution or health impacts from steel production.

Question 13

A zero pollution level is NOT achievable because
A)corporations would lobby against it.
B)it implies no production and no consumption.
C)it implies an output level larger than that from a competitive market equilibrium.
D)consumption would be larger than production.

Accepted Answer

A zero pollution level implies no production and no consumption which is not practically achievable in modern society. Even if all corporations support a zero-pollution level, it would still not be achievable due to the inherent nature of production and consumption in our economy.

Question 14

In a competitive market, a negative externality creates a deadweight loss because
A)the cost of the externality is double counted.
B)a harm is generated.
C)price equals social marginal cost.
D)price equals private marginal cost.

Accepted Answer

The answer of In a competitive market, a negative externality...

Question 15

-The above figure shows the market for steel ingots. If the market is competitive, then the competitive market level of output is
A)100 units.
B)150 units.
C)50 units.
D)300 units.

Accepted Answer

The answer of 
-The above figure shows the market for...

Question 16

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is
A)0 units.
B)50 units.
C)100 units.
D)the amount produced if the market were competitive.

Accepted Answer

The socially optimal quantity of steel is where the marginal social benefit equals the marginal social cost. Without seeing the figure, the typical assumption in such scenarios is that the competitive market outcome (where supply equals demand) reflects this balance. Given the choices and assuming a standard supply and demand model, 50 units is a common placeholder for such an equilibrium in theoretical examples.

Question 17

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is
A)a.
B)b.
C)c.
D)zero.

Accepted Answer

The answer of 
-The above figure shows the market for...

Question 18

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the competitive market level of output? A)20 B)25 C)30 D)45

Accepted Answer

The answer of Suppose that in the market for paper,...

Question 19

-The above figure shows the market for steel ingots. At the social optimum level of output, the social producer surplus is
A)$1,875.
B)$1,575.
C)$2,500.
D)$3,000.

Accepted Answer

The answer of 
-The above figure shows the market for...

Question 20

-The above figure shows the market for steel ingots. The optimal quantity of pollution
A)is 0 units.
B)is 50 units.
C)is 100 units.
D)cannot be determined from the information provided.

Accepted Answer

The optimal quantity of pollution cannot be determined without additional information such as the costs and benefits associated with pollution levels, environmental regulations, and the demand and supply curves for steel ingots.

Quiz 18: Externalities, Open-Access, and Public Goods

Assume a country agrees to a free-trade act with another country. In the process, some individuals are displaced from their jobs, thus the free-trade act results in a negative externality.

-The above figure shows the market for steel ingots. If the market is competitive, then

-The above figure shows the market for steel ingots. At the social optimum level of output, the total welfare is

In the presence of a negative externality generated by producing a good, a competitive market will produce more of that good than is socially optimal.

-The above figure shows the market for steel ingots. If the market is competitive, then the private producer surplus is

To maximize welfare in a competitive market that has a negative externality in production, government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.

In a market with positive externalities,

If a market is subject to a positive externality,

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. What is the total external harm at the competitive market level of output?

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. What is the socially optimal level of output?

-The above figure shows the market for steel ingots. An externality can be seen because

A zero pollution level is NOT achievable because

In a competitive market, a negative externality creates a deadweight loss because

-The above figure shows the market for steel ingots. If the market is competitive, then the competitive market level of output is

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. What is the competitive market level of output?

-The above figure shows the market for steel ingots. At the social optimum level of output, the social producer surplus is

-The above figure shows the market for steel ingots. The optimal quantity of pollution

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the total external harm at the competitive market level of output?

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the socially optimal level of output?

Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MC^p = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MC^e = Q. What is the competitive market level of output?