Question_Doc14_15Dec_10th

Question_Doc14_15Dec_10th

Question

83) An externality occurs whenever

A) private costs are the same as social costs.

B) private costs are the same as internal costs.

C) private costs diverge from social costs.

D) private costs plus internal costs equal social costs.

84) A good that has external benefits associated with its
production will be

A) produced at the optimal level.

B) underproduced.

C) overproduced.

D) not produced.

85) A large farm uses fertilizer that nearby landowners
complain may contaminate their water.

Tests are conducted and contaminants are found. The costs
resulting from this decision are

referred to as

A) implicit costs.

B) factor costs.

C) external costs.

D) opportunity costs.

86) All of the following are examples of goods for which
external costs commonly exist

EXCEPT

A) cigarettes.

B) automobiles.

C) vaccinations.

D) oil transportation.

87) Which of the following is the main reason for
externalities?

A) The full cost of a transaction is not borne by the
buyer/seller of the product.

B) Police enforcement of scalping is not uniformly enforced.

C) the lack of organized exchanges for all goods and
services

D) The production of public goods uses up scarce resources.

88) Which one of the following is an example of an external
cost?

A) the cost to attend college

B) labor costs to a firm

C) emissions from a factory

D) a house payment owed by a friend

89) You enter a classroom, which is littered with
newspapers. This is because

A) students are too lazy to clean up.

B) maintenance people only clean once a day.

C) it is a way to protest against the tuition rates.

D) students do not pay for littering.

.

90) Social costs of a good are equal to

A) external costs minus private costs.

B) private costs minus external costs.

C) private costs plus external costs.

D) external costs divided by the private costs.

91) There is an externality present only when

A) private costs diverge from social costs.

B) private benefits diverge from social benefits.

C) private costs or benefits diverge from social costs or benefits.

D) private costs equal social costs.

92) An externality exists when

A) there are private costs.

B) there are internal costs.

C) there are external costs.

D) there are opportunity costs.

93) A situation in which a private cost diverges from a social
cost is

A) internal costs.

B) an externality.

C) an internality.

D) a transactions cost.

94) A situation in where the costs of an action are not
fully borne by the two parties engaged in

exchange is

A) an externality.

B) an internality.

C) internal costs.

D) a transactions cost.

95) An externality is a situation in which

A) private costs diverge from social costs.

B) internal costs diverge from private costs.

C) there are no social costs.

D) the cost borne by the consumer is greater than the monetary
price.

96) Refer to the above figure. S1 is the supply curve that
includes only private costs. S2 is the

supply curve that includes social costs. If the firm sets
output by focusing on private costs, the

per-unit external cost will equal

A) P2.

B) P4 – P2.

C) P4 – P1.

D) P2 – P1.

97) Refer to the above figure. S1 is the supply curve that
includes only private costs. S2 is the

supply curve that includes social costs. The free market
rate of output is ________ and the

corrected, socially optimal amount of output is ________.

A) Q4; Q1

B) Q2; Q1

C) Q4; Q2

D) Q2; Q4

.

98) Refer to the above figure. S1 is the supply curve that
includes only private costs. S2 is the

supply curve that includes social costs. From this figure we
know that

A) an external benefit exists.

B) private costs are less than social costs.

C) private costs equal social costs.

D) private costs are greater than social costs.

99) The marginal cost curve of a firm measures

A) external costs.

B) pollution costs.

C) private costs.

D) social costs.

100) A good which has social costs that exceed private costs
has a price

A) equal to marginal social cost.

B) that is too low.

C) that is too high.

D) that is inefficient because price exceeds marginal social
cost.

101) A good that has social costs that exceed private costs
has a quantity that is

A) too high.

B) too low.

C) just right.

D) the best society can do.

102) A good that has social costs that are equal to private
costs has a price that is

A) too high.

B) too low.

C) just right.

D) equal to marginal cost.

103) A good that has social costs that are less than private
costs has a quantity that is

A) too high.

B) too low.

C) just right.

D) equal to zero.

104) The inclusion of external costs in the decision making
process determining equilibrium

price and quantity leads to

A) lower priced items and increased quantity.

B) lower priced items and a decline in quantity.

C) higher priced items and increased quantity.

D) higher priced items and a decline in quantity.

105) The inclusion of external benefits in the decision
making process determining equilibrium

price and quantity leads to

A) lower priced items and increased quantity.

B) lower priced items and a decline in quantity.

C) higher priced items and increased quantity.

D) higher priced items and a decline in quantity.

106) What are social costs? How do they differ from private
costs?

107) What is an externality?

108) Why don’t people take into consideration the external
costs of their actions and reduce the

amount of externalities?

109) What are the private costs of driving an automobile?
What are the external costs?

110) “Private costs are borne by individuals while
social costs are borne by society.” Do you

agree or disagree? Why?

1) Which of the following is NOT a possible solution to the
problem of pollution?

A) Subsidizing the costs of production of activities that
generate pollution

B) Converting a resource that is communally owned into a
privately owned resource

C) Regulating the quantity of pollution that can be
generated

D) Imposing a pollution tax on producers

2) If external costs are included and added to a firm’s
private costs, then

A) the demand curve will shift to the right.

B) the demand curve will shift to the left.

C) the supply curve will shift to the right.

D) the supply curve will shift to the left.

3) A method of forcing a company to internalize the total
cost of production is

A) to impose a tax on the company to reduce production.

B) to provide a subsidy to encourage production.

C) for government not to interfere in the company’s
activities.

D) to force the company to reduce the wages it pays to its
employees.

4) If a firm is forced to take external costs into account,
it will

A) reduce production and charge a higher market price.

B) increase production and charge a lower market price.

C) reduce prices and hire more workers.

D) reduce prices and hire fewer workers.

5) If a firm is not forced to pay for external costs, it
will

A) continue to overproduce the good.

B) continue to under produce the good.

C) request a subsidy from the government.

D) raise prices.

6) Economists typically suggest three choices that allow a
polluter to decide how to absorb most,

or perhaps all, of the social costs of its actions, which
are

A) continuing to overproduce the good, lowering the price of
the good, or cutting output.

B) reducing the pollution-causing activity, changing
production techniques, or paying a price to

pollute.

C) installing pollution abatement equipment, paying to
pollute, or just ignoring the issue.

D) paying a pollution tax, continuing to use existing
production techniques, or continuing the

polluting behavior without regard to the social
implications.

7) Which of the following statements about pollution or
pollution control is TRUE?

A) A nationwide uniform tax on emissions is the appropriate
way to reduce pollution levels.

B) A tax to reduce pollution levels should be based on the
economic damages rather than on the

absolute amount of pollution.

C) Private costs of pollution usually exceed social costs.

D) The optimum amount of pollution abatement is where the
total benefits of pollution

abatement equal the total costs of pollution abatement.

8) There are two coal-burning electrical utilitiesone in
tiny, rural Wanunu, Montana, and

another in metropolitan Detroit, Michiganand each produces
the same amount of pollution per

unit of output. If a permit tax is going to be used to force
these firms to internalize pollution

costs, the tax levied should be

A) the same in each city.

B) higher in Wanunu than in Detroit.

C) higher in Detroit than in Wanunu.

D) less than zero in

9) A difficulty with using a uniform per-unit tax to address
a negative externality is that

A) the tax will reduce output.

B) the tax will increase price.

C) the social cost of pollution might vary across geographic
regions.

D) the social cost of pollution should not be assessed on
the consumers, but should be assessed

on the firms.

10) In order to internalize the externality due to
pollution, the government should impose a tax

based on

A) the economic damage associated with the pollution.

B) the physical amount of pollution.

C) the size of the firm causing the pollution.

D) the value of the pollution-causing business activity.

11) To totally internalize an externality, a government can
levy a tax related only to the physical

quantity of pollution if

A) the economic damages associated with the pollution are
different across different locations.

B) the economic damages are too large to be determined.

C) the economic damages associated with the pollution are
the same across different locations.

D) the economic damages are zero.

12) To correct for a negative externality, a government
might impose a uniform tax related only

to the physical quantity of pollution if

A) the administrative costs are high.

B) the cost of ascertaining the actual economic costs are
relatively small.

C) the economic damages are zero.

D) the economic damages associated with the pollution are
different across different locations.

Question_Doc14_15Dec_10th


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