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Microeconomics-Testbank1(Hubbard/O'Brien)Chapter5Exernalities,EnvironmentalPolicy,andPublicGoods1)Anexternalityis:A)abenefitrealizedbythepurchaserofagoodorservice.B)acostpaidforbytheproducerofagoodorservice.C)abenefitorcostfeltbysomeonewhoisnotaproducerorconsumerofagoodorservice.D)anythingthatisexternalornotrelevanttotheproductionofagoodorservice.2)Ifyourneighborburnsautotiresintheyardandyoucansmellthemandcannotseesunlightbecauseoftheblacksmoke,youareexperiencing:A)apositiveexternality.B)anegativeexternality.C)aprivatecost.D)aprivatebenefit.3)Externalities:A)shouldbebanned.B)shouldbesubsidized.C)caneitherbepositiveornegative.D)arewhattheprivateconsumerandproducerinanexchangerealize.4)Ifyoubuyasweatertokeepyouwarminthewinter,youareexperiencinga:A)privatebenefit.B)externalbenefit.C)socialcostbecauseitcostyousomemoney.D)lossofconsumersurplus.5)Ifanegativeexrternalitiyexistsinreality,itwillbeexperiencedby:A)somepeoplenotdirectlyinvolvedintheproductionorconsumptionofthegoodorservice.B)theproducerofthegoodorservice.C)theconsumersofthegoodorservice.D)thegovernment.6)Anexampleofapositiveexternalitywouldbe:A)cleaningupthesidewalkonyourblock.B)graduatingfromcollege.C)repaintingthehouseyoulivein.D)alloftheabove.7)Whichofthefollowingiscorrect?A)Privatecostequalsexternalcost.B)Privatebenefitplusexternalbenefitequalssocialbenefit.C)Externalcostminusprivatecostequalssocialcost.D)Privatebenefitequalsexternalbenefitminussocialbenefit.8)Whymightevenwell-meaningproducersinamarketeconomypollute?A)ToavoidtheexternalcostsofproductionB)Bypolluting,supplyisreducedandmarketpriceincreases.C)Pollutingproducersarebeingirrational.D)Thereisnogoodreasonwhysomeproducerspollute.9)Ifthereispollutioninproducingagoodandservice,then:A)equilibriumpriceistoohighandequilibriumquantityistoolow.B)equilibriumpriceandequilibriumquantityaretoolow.C)equilibriumpriceandequilibriumquantityaretoohigh.D)equilibriumpriceistoolowandequilibriumquantityistoohigh.10)Becauseproducersdonotbeartheexternalcostofpollution:A)theeconomicallyefficientlevelofproductionisachieved.B)productionisbelowtheeconomicallyefficientlevel.C)productionisbeyondtheeconomicallyefficientlevel.D)themarketpriceistoohigh.RefertoFigure5.1forthequestionsbelow.Figure5.111)Figure5.1shows:A)apositiveexternality.B)anegativeexternality.C)commonproperty.D)apublicgood.12)Infigure5.1thefirmwantstoproduce:A)Q1.B)Q2.C)Q3.D)Q4.13)Infigure5.1theefficientoutputis:A)Q1.B)Q2.C)Q3.D)Q4.14)Whenacompetitivemarketequilibriumiseconomicallyefficient:A)thereisapositivedeadweightloss.B)producerandconsumersurplusareexactlyequalinsize.C)therearenopositiveandnonegativeexternaleffectsfromconsumptionandproduction.D)Allofthesemustbecorrect.15)Whichofthefollowingistruewhenanegativeexternaleffectcreatesadeadweightloss?A)Themarginalbenefittoconsumersisequaltothemarginalcosttosocietyofthelastunitsproduced.B)Themarginalbenefittoconsumersisabovethemarginalcosttosocietyofthelastunitsproduced.C)Themarginalbenefittoconsumersisbelowthemarginalcosttosocietyofthelastunitsproduced.D)Noneofthesearetrue.16)Whenthereisapositiveexternalityinafreemarket,thereis:A)toomuchofthegoodproducedandconsumed.B)toolittleofthegoodproducedandconsumed.C)therightamountofthegoodproducedandconsumed.D)aneconomicallyefficientlevelofproductionandconsumption.17)Whenthereisapositiveexternality,then:A)themarginalprivatebenefitislessthanthemarginalsocialbenefitatequilibrium.B)themarginalprivatebenefitisgreaterthanthemarginalsocialbenefitatequilibrium.C)themarginalprivatebenefitisequaltothemarginalsocialbenefitatequilibrium.D)themarginalprivatecostsaredeclining.RefertoFigure5.2forthequestionsbelow.Figure5.218)Iffigure5.2,thefirmwantstoproduce:A)Q1.B)Q2.C)Q3.D)Q4.19)Iffigure5.2,theefficientoutputis:A)Q1.B)Q2.C)Q3.D)Q4.20)Iffigure5.2,thedeadweightlossduetotheexternalityis:A)F+JB)H+LC)T+UD)A+B+C+E+F21)Thelevelofpollutioninrealityshouldbe:A)reducedcompletelytozerobecausebydefinition,itisanegativeexternaleffect.B)ignoredbecauseithasalwaysbeenpresentsincethebeginningofhistory.C)reducedtothepointwherethemarginalbenefitisequaltothemarginalcosttosociety.D)leftalonebecausetheoptimalleveliscontroversial.22)Thebestlevelofpollutionforsocietyis:A)zero.B)wheretotalbenefitfromreducingthepollutionisthegreatest.C)wheremarginalbenefitfromreducingthepollutionisthegreatest.D)wherenetbenefitfromreducingthepollutionisthegreatest.23)TheCoasetheoremisthat:A)governmentinterventionisalwaysneededifexternalitiesarepresent.B)assigningpropertyrightsistheonlythingthegovernmentshoulddoinamarketeconomy.C)iftransactionscostsarelow,privatebargainingwillresultinanefficientsolutiontotheproblemofexternalities.D)afreemarketequilibriumisalwaysthebestsolution.24)Ifgovernmentdecidestocontrolpollutionbyplacingataxontheproductthatisassociatedwiththepollution,thesizeofthetaxshouldbe:A)thatwillforcethemarketpricesohighthatnobuyercanaffordtheproduct.B)equaltothesocialcostoftheproduct.C)equaltotheprivatecostoftheproduct.D)equaltotheexternalcostoftheproduct.25)Governmentcanincreasetheconsumptionofagoodorservice