Question_Doc14_15Dec_2nd

Question_Doc14_15Dec_2nd

Question

41) Refer to the above figure. It represents supply and
demand for The Black Ash Steel

Company’s output. The firm’s plant belches large quantities
of smelly fumes and black ash into

the air. Residents in the surrounding area have higher
medical bills as a result. If the firm is

forced to pay the full social cost of its production, what
will occur?

A) Black Ash’s supply curve will shift from SA to SB.

B) Demand for the firm’s steel will shift to the left.

C) The company’s supply curve will shift from SB to SA.

D) Black Ash will increase its own output to cover the cost
increase.

42) Private costs are

A) external costs borne by private firms.

B) explicit costs rather than implicit costs.

C) costs borne by private members of society rather than
governmental bodies.

D) costs borne solely by the individuals who incur them.

43) Costs borne solely by the individuals who incur them are

A) private costs.

B) social costs.

C) internality.

D) common property.

44) Which of the following is not a private cost?

A) The health insurance costs a firm must pay for its
employees.

B) The pollution caused by a firm dumping its wastes into the
river.

C) The coffee pot that Jan dropped and broke this morning.

D) The amount that a firm must pay for raw materials to make
its product.

45) John raises bees to pollinate his apple trees. One of
the bees just stung him. This is a(n)

A) private cost.

B) social cost.

C) internality.

D) common property.

46) John raises bees to pollinate his orchard. A couple of
bees which escaped ended up

pollinating his neighbor’s orchard, so

A) John’s neighbor has received an internal cost of John’s
bee-keeping.

B) John’s neighbor has received an external cost of John’s
bee-keeping.

C) John’s neighbor has received an external benefit of
John’s bee-keeping.

D) None of the above is correct.

47) External costs are

A) borne by individuals other than those who incurred them.

B) another term for implicit costs.

C) borne by the public but incurred by the government.

D) borne by the government but incurred by the public.

48) The sum of internal and external costs is

A) private costs.

B) social costs.

C) internality.

D) common property.

49) Social costs are

A) costs that are borne by the government.

B) the full cost borne by society whenever a resource use
occurs.

C) borne by individuals who incur them.

D) another term for external costs.

50) The total costs of using a resource are made up of

A) private costs only.

B) external costs only.

C) social costs only.

D) internal and private costs only.

51) The sum of internal and external costs is

A) externalities.

B) social costs.

C) internalities.

D) private costs.

52) When a person drives an automobile, that individual is
creating

A) internal costs only.

B) private costs only because the individual pays for the
insurance, gas etc.

C) external costs only.

D) social costs.

53) Which of the following statements is true about the
relationship among external, internal and

social costs?

A) Social costs will always be higher than external costs.

B) Social costs will always be higher than internal costs.

C) Internal costs will always be higher than external costs.

D) Internal costs will never equal external costs.

54) Which of the following statements is true about the
relationship among external, internal and

social costs?

A) External cost is the difference between social and
internal costs.

B) Internal cost is the sum of social and external costs.

C) Social cost is the difference between internal and
external costs.

D) None of the above.

55) The social costs of an activity are greater than the
private costs of the activity when

A) a person does not pay all costs associated with a particular
resource-using activity.

B) the internal costs of the resource-using activity are
less than the external costs of the activity.

C) the internal costs of the resource-using activity are
positive.

D) the external costs of the resource-using activity are
zero.

56) When social costs of an activity exceed private costs

A) there is a tendency for resources to be under-utilized.

B) this means that resources are being efficiently used.

C) there is a tendency for resources to be over-utilized.

D) None of the above is correct.

57) When social costs of an activity exceed private costs

A) a market failure exists.

B) there is a tendency for resources to be under-utilized.

C) this means that resources are being efficiently used.

D) the actual price is above the efficient price.

58) If the social costs of driving an automobile are greater
than the private costs of driving an

automobile, then

A) the external costs of auto driving exceed the social
costs of auto driving.

B) the external costs of auto driving exceed the internal
costs.

C) the price of automobile driving is too high.

D) either people drive their autos too much or more funds
should be spent on reducing air

pollution.

59) An example of a situation in which the social costs are
greater than the private costs would

be

A) a new restaurant takes business away from an established
restaurant.

B) hand-held calculators putting slide rule manufacturers
out of business.

C) when a member of a rock band’s ability to hear
deteriorates from performing in so many loud

concerts.

D) a physician who cannot examine patients with a
stethoscope in an examination room adjacent

to an airport.

60) Suppose there are two identical factories on a river.
Both require clean water for their

production processes. The upstream firm gets clean water
from the river and dumps dirty water

into the river. The downstream firm must clean the water it
gets from the river before it can use

the water and later it dumps dirty water into the river. In
this situation

A) the private costs of the two firms are the same since
both dump dirty water into the river.

B) the upstream factory’s private costs are lower than its
social costs since it passes the costs of

the dirty water on to the downstream firm. For the
downstream firms, private costs equal social

costs.

C) the private costs of the downstream firm are greater than
the private costs of the upstream

firm and the social costs are less than the private costs
for both firms.

D) the private costs of the upstream firm are less than its
social costs while the social costs of the

downstream firm are less than its private costs.

61) Suppose there are two firms on a river and the
production processes of both require clean

water. The upstream firm’s process dirties the water, which
it dumps back into the river. The

downstream firm must clean the water before using it in its
production process. If the two firms

would merge,

A) the external costs of the merged firm would equal the
external costs of the upstream firm,

which would then be passed on to its customers.

B) the total costs of production fall since the external
costs disappear.

C) the external costs of the upstream firm are private costs
after the merger.

D) the internal costs of the downstream firm become external
costs of the merged firm.

62) An example of the external costs due to automobile
driving is

A) wear and tear on toll roads.

B) the opportunity cost of the driver’s time.

C) air pollution due to exhaust fumes.

D) the cost of washing dirty cars.

63) When a person can pass some of her costs of using a
resource on to someone else,

A) the use of the resource is not affected by her actions.

B) the internal costs of using the resource exceed the
private costs.

C) she uses too much of the resource.

D) she uses too little of the resource.

64) A person removes the anti-pollution devices on his
automobile. An external cost associated

with this is

A) the feeling of guilt the person feels for violating the
law.

B) the ticket he gets when a highway patrol officer pulls
him over.

C) the man’s neighbor washes his car more often because of
increasing smog.

D) the man buys less gasoline, reducing the income of local
gas stations.

65) Air pollution is a problem because

A) people are greedy.

B) people are not environmentally conscious.

C) people make use of air without having to bear all the
costs of their actions.

D) a market economy does not provide as strong an incentive
for environmental cleanup as a

socialist economy.

.

66) If pollutants from smoke stacks in a city such as Newark
causes people to paint their homes

and cars more frequently, this implies

A) external benefits to the home and car owners.

B) external costs on home and car owners.

C) internal cost to home and car owners.

D) none of the above

67) By adding internal costs to external costs, we determine
the total

A) private cost.

B) social cost.

C) psychological cost.

D) marginal cost.

68) Another name for internal cost is

A) private cost.

B) social cost.

C) psychological cost.

D) marginal cost.

69) Which of the following constitutes an external cost of
driving an automobile?

A) insurance

B) fuel

C) pollution

D) wear and tear

70) In a situation in which internal costs differ from
social costs, we say that there exists a(n)

A) welfare loss.

B) welfare benefit.

C) internality.

D) externality.

71) When a person smokes a cigarette in his car and throws
the butt out of the window, this is

a(n)

A) marginal cost.

B) external cost.

C) average total cost.

D) public cost.

72) Costs that are borne solely by the individuals who incur
them are

A) private costs.

B) social costs.

C) external costs.

D) transaction costs.

73) To find social costs,

A) internal and private costs have to be added together.

B) internal and external costs have to be added together.

C) internal and implicit costs have to be added together.

D) internal and production costs have to be added together.

74) When the total external and internal costs of a
transaction are taken into consideration, this is

known as

A) public costs.

B) average total costs.

C) social costs.

D) marginal costs.

75) When there are no externalities,

A) social costs are greater than private costs.

B) social costs are less than private costs.

C) private costs are greater than social costs.

D) private costs equal social costs.

76) Which of the following is FALSE?

A) Social costs do not include private costs.

B) Private costs do not include external costs.

C) If social costs are greater than private costs, “too
much” of a good is being produced.

D) Pollution is a social cost.

77) An externality

A) may be positive or negative.

B) means a rapidly rising cost borne by consumers.

C) is the cost of producing a good outside the United
States.

D) is the indirect cost, the overhead, of producing a
product.

78) Which of the following statements is true for the U.S.
economy?

A) Supply of services always reflects all social costs.

B) Demand for services always reflects all social costs.

C) Private costs are not always equal to social costs.

D) Social benefits are always emphasized in advertising.

79) When the private costs and the social costs are NOT the
same, there is a(n)

A) externality.

B) internality.

C) public good.

D) monopoly.

80) A good that has external costs associated with its
production will be

A) produced at the optimal level.

B) underproduced.

C) overproduced.

D) not produced.

Question_Doc14_15Dec_2nd


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Question_Doc14_15Dec_2nd_-_Answer.docx (14.73 KB)

Preview: water xxx their xxxxxxxxxx processes The xxxxxxxx firm gets xxxxx water xxxx xxx river xxx dumps dirty xxxxx into the xxxxx The xxxxxxxxxx xxxx must xxxxx the water xx gets from xxx river xxxxxx xx can xxx the water xxx later it xxxxx dirty xxxxx xxxx the xxxxx In this xxxxxxxxxxx the private xxxxx of xxx xxx firms xxx the same xxxxx both dump xxxxx water xxxx xxx river xx the upstream xxxxxxxxx private costs xxx lower xxxx xxx social xxxxx since it xxxxxx the costs xx the xxxxx xxxxx on xx the downstream xxxx For the xxxxxxxxxx firms, xxxxxxx xxxxx equal xxxxxx costs C) xxx private costs xx the xxxxxxxxxx xxxx are xxxxxxx than the xxxxxxx costs of xxx upstream xxxx xxx the xxxxxx costs are xxxx than the xxxxxxx costs xxx xxxx firms xx the private xxxxx of the xxxxxxxx firm xxx xxxx than xxx social costs xxxxx the social xxxxx of xxx xxxxxxxxxx firm xxx less than xxx private costs xxxxxxx B61) xxxxxxx xxxxx are xxx firms on x river and xxx production xxxxxxxxx xx both xxxxxxx clean water xxx upstream firm’s xxxxxxx dirties xxx xxxxxx which xx dumps back xxxx the river xxx downstream xxxx xxxx clean xxx water before xxxxx it in xxx production xxxxxxx xx the xxx firms would xxxxxxxx the external xxxxx of xxx xxxxxx firm xxxxx equal the xxxxxxxx costs of xxx upstream xxxxx xxxxx would xxxx be passed xx to its xxxxxxxxx B) xxx xxxxx costs xx production fall xxxxx the external xxxxx disappear xx xxx external xxxxx of the xxxxxxxx firm are xxxxxxx costs xxxxx xxx merger xx the internal xxxxx of the xxxxxxxxxx firm xxxxxx xxxxxxxx costs xx the merged xxxx Answer: C62) xx example xx xxx external xxxxx due to xxxxxxxxxx driving isA) xxxx and xxxx xx toll xxxxx B) the xxxxxxxxxxx cost of xxx driver’s xxxx xx air xxxxxxxxx due to xxxxxxx fumes D) xxx cost xx xxxxxxx dirty xxxx Answer: C63) xxxx a person xxx pass xxxx xx her xxxxx of using x resource on xx someone xxxxxxx xxx use xx the resource xx not affected xx her xxxxxxx xx the xxxxxxxx costs of xxxxx the resource xxxxxx the xxxxxxx xxxxx C) xxx uses too xxxx