Econ Chapter 31

70 Questions | Total Attempts: 1192

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Econ Chapter 31

Questions and Answers
  • 1. 
         1.   Market failure is a situation in which
    • A. 

      The market does not provide the ideal or optimal amount of a particular good.

    • B. 

      There are too many buyers but not enough sellers.

    • C. 

      Prices are too high for "average" people to buy necessities.

    • D. 

      There is a question over the quality of a product for sale.

  • 2. 
         2.   Sometimes, when goods are produced and consumed, side effects are felt by people who are not directly involved in the market exchanges. In general, these side effects are called
    • A. 

      Coase effects.

    • B. 

      Externalities.

    • C. 

      Public goods.

    • D. 

      Internalities.

    • E. 

      None of the above

  • 3. 
         3.   A side effect of an action that adversely affects the well-being of others is called a
    • A. 

      Complement

    • B. 

      Supplement

    • C. 

      Negative externality.

    • D. 

      Marginal cost.

  • 4. 
         4.   A negative externality is
    • A. 

      A type of tax.

    • B. 

      A type of subsidy.

    • C. 

      A type of money price.

    • D. 

      Linked to external costs.

    • E. 

      Linked to external benefits.

  • 5. 
         5.   Negative externalities that arise from the production of a good
    • A. 

      Cause an increase in the demand for the good.

    • B. 

      Cause a decrease in the demand for the good.

    • C. 

      Impose costs on third parties.

    • D. 

      Bring private costs into equality with social costs.

  • 6. 
       10.   A consequence of a negative externality is that social costs __________ private costs, and the socially optimal level of output __________.
    • A. 

      Equal; is not equal to social costs or private costs

    • B. 

      Do not equal; is obtained

    • C. 

      Do not equal; is not obtained

    • D. 

      Equal; is obtained

    • E. 

      Equal; is not obtained

  • 7. 
       15.   If society is experiencing a net social cost from the production of a good, this implies that
    • A. 

      The socially optimal level of output is being produced and society is willing to accept the costs that result.

    • B. 

      Producers would rather produce the output at which marginal social cost equals the demand for the good.

    • C. 

      Negative externalities are involved in the production of this good.

    • D. 

      None of the above

  • 8. 
       16.   Refer to Exhibit 31-1. This graph represents a negative externality situation. Given this, which of the two curves, X or Y, represents marginal social costs and why?
    • A. 

      Curve X, because if there is a negative externality, external costs are associated with it: social costs = external costs + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve.

    • B. 

      Curve Y, because if there is a negative externality, negative external costs are associated with it: social costs = negative external costs + private costs, therefore the marginal social cost curve must lie below the marginal private cost curve.

    • C. 

      Curve X, because if there is a negative externality, external benefits are associated with it: social costs = external benefits + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve.

    • D. 

      Curve Y, because if there is a negative externality, negative external benefits are associated with it: social costs = negative external benefits + private costs, therefore the marginal social cost curve must lie below the marginal private cost curve.

  • 9. 
       17.   Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, then what is Q1?
    • A. 

      It is the quantity of output at which marginal social costs (MSC) equal marginal private costs (MPC).

    • B. 

      It is the quantity of output at which MPC > MSC.

    • C. 

      It is the market output; it is the quantity of output that exists if the external costs associated with the negative externality are not taken into account.

    • D. 

      It is the socially optimal output; it is the quantity of output that exists if the external costs associated with the negative externality are taken into account.

    • E. 

      None of the above

  • 10. 
       18.   Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, the triangle ABC is representative of
    • A. 

      Social failure.

    • B. 

      Optimal failure.

    • C. 

      Market failure.

    • D. 

      Socially optimal output.

    • E. 

      None of the above

  • 11. 
       19.   Refer to Exhibit 31-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q2 to Q1 is the area of
    • A. 

      ABC.

    • B. 

      Q2BCQ1.

    • C. 

      Q2BAQ1.

    • D. 

      Q2EAQ1

  • 12. 
       20.   Refer to Exhibit 31-l. If the exhibit represents a negative externality situation, the private cost of expanding output from Q2 to Q1 is the area of
    • A. 

      ABC

    • B. 

      Q2BCQ1.

    • C. 

      Q2BAQ1.

    • D. 

      Q2EAQ1.

  • 13. 
       21.   Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, the social cost of expanding output from Q2 to Q1 is the area of
    • A. 

      ABC

    • B. 

      Q2BCQ1.

    • C. 

      Q2BAQ1.

    • D. 

      Q2EAQ1.

  • 14. 
       22.   Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, the net social cost of expanding output from Q2 to Q1 is the area of
    • A. 

      ABC

    • B. 

      BEA

    • C. 

      Q2BAQ1.

    • D. 

      Q2EAQ1.

  • 15. 
       25.   Samantha is given a flu shot by her doctor. This reduces the probability that she will get the flu and it also reduces the probability that others will get the flu, too. The latter is an example of a
    • A. 

      Negative externality.

    • B. 

      Positive externality.

    • C. 

      Substitute good.

    • D. 

      Complementary good.

  • 16. 
       30.   Suppose the production of a good results in positive externalities. If output occurs at the intersection of the marginal social benefits curve and the supply curve, then
    • A. 

      Output will be at the socially optimal level.

    • B. 

      The price of the product will be the same as it was when all benefits were not taken into account.

    • C. 

      More output will be produced than if all benefits were not taken into account.

    • D. 

      A and c

    • E. 

      A, b, and c

  • 17. 
       32.   Refer to Exhibit 31-2. This graph represents a positive externality situation. Given this, which of the two curves, X or Y, represents marginal social benefits and why?
    • A. 

      Curve X, because if there is a positive externality, negative external benefits are associated with it: social costs external benefits - private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve.

    • B. 

      Curve X, because if there is a positive externality, external benefits are associated with it: social benefits = external benefits + private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve.

    • C. 

      Curve Y, because if there is a positive externality, external costs are associated with it: social benefits = external costs + private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit cost curve.

    • D. 

      Curve Y, because if there is a positive externality, external benefits are associated with it: social benefits = external benefits + private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit curve.

  • 18. 
       33.   Refer to Exhibit 31-2. If Exhibit 30-2 exhibits a positive externality situation, then what is Q2?
    • A. 

      It is the quantity of output at which marginal social benefits (MSB) equal marginal private benefits (MPB).

    • B. 

      It is the quantity of output at which MPB > MSB.

    • C. 

      It is the market output-the quantity of output that exists if the external benefits associated with the positive externality are not taken into account.

    • D. 

      It is the socially optimal output-the quantity of output that exists if the external benefits associated with the positive externality are taken into account.

    • E. 

      None of the above

  • 19. 
       34.   Refer to Exhibit 31-2. If the exhibit represents a positive externality situation, the private benefit of expanding output from Q1 to Q2 is the area of
    • A. 

      Q1ABQ2.

    • B. 

      Q1AEQ2.

    • C. 

      Q1CBQ2

    • D. 

      ABE.

  • 20. 
       35.   Refer to Exhibit 31-2. If the exhibit represents a positive externality situation, the social benefit of expanding output from Q1 to Q2 is the area of
    • A. 

      Q1ABQ2

    • B. 

      Q1AEQ2.

    • C. 

      Q1CBQ2.

    • D. 

      ABE

  • 21. 
       36.   Refer to Exhibit 31-2. If the exhibit represents a positive externality situation, the private cost of expanding output from Q1 to Q2 is the area of
    • A. 

      Q1ABQ2.

    • B. 

      Q1AEQ2.

    • C. 

      Q1CBQ2

    • D. 

      ABE

  • 22. 
        37.    Refer to Exhibit 31-2. If the exhibit represents a positive externality situation, the net social benefit of expanding output from Q1 to Q2 is the area of
    • A. 

      Q1ABQ2

    • B. 

      Q1AEQ2.

    • C. 

      CBA

    • D. 

      ABE.

  • 23. 
       40.   Which of the following statements is false?
    • A. 

      A positive externality is internalized if the person that generated the externality incorporates into his or her own private cost-benefit calculations the external benefits that third parties receive.

    • B. 

      Internalizing externalities is not the same as adjusting for externalities.

    • C. 

      An externality has been completely internalized if the socially optimal output emerges.

    • D. 

      Assigning property rights is one way to internalize externalities.

  • 24. 
       44.   If private property rights were established in the oceans, there would probably be
    • A. 

      More ocean pollution.

    • B. 

      Less ocean pollution.

    • C. 

      The same amount of ocean pollution that exists without private property rights in the ocean.

    • D. 

      More ocean voyages on cruise ships.

  • 25. 
       45.   Which of the following is not a method to internalize or adjust for externalities?
    • A. 

      Persuasion

    • B. 

      Assignment of property rights

    • C. 

      Unilateral transfers

    • D. 

      Voluntary agreements