Question 1

Which of the following "externalities" does not distort the allocation of resources?
I.An individual's unwillingness to cut his or her own lawn in an otherwise immaculately kept neighborhood.
II.Smoke produced by a new firm in an area that raises the costs of other firms.
III.A new firm's bidding up skilled wages in an area,thus raising costs of other firms.
IV.An individual's unwillingness to obtain job training,thereby lowering the total GNP.

Accepted Answer

A)  I,III,and IV.
B)  III and IV.
C)  III only.
D)  IV only.E) B) and C)
F) A) and D)

Question 2

If preferences are one-dimensional and preferences are single peaked,majority rule will result in selection of the project most favored by

Accepted Answer

A)  no one.
B)  the median voter.
C)  the average voter.
D)  everyone.E) A) and C)
F) A) and B)

Question 3

Special interest groups often

Accepted Answer

A)  represent broad questions of public interest.
B)  pursue rent-seeking behavior.
C)  do not use lobbying techniques.
D)  have no effect on the political process.E) A) and B)
F) None of the above B

Question 4

Bargaining costs are generally high in cases involving environmental externalities because

Accepted Answer

A)  there are strong incentives to be a free rider.
B)  many individuals may be affected by the externalities.
C)  it is difficult to measure the costs of the externalities.
D)  all of the above.E) C) and D)
F) A) and D)

Question 5

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A) people who value flood control more than the 1000 (type B) people.Type A Demand QD = 100 - P
Type B Demand QD = 50 - P
Where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop did not work together the amount of flood control purchased would be

Accepted Answer

A)  0
B)  10
C)  25
D)  70E) A) and B)
F) None of the above

Question 6

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A) people who value flood control more than the 1000 (type B) people. Type A Demand QD = 100 - P
Type B Demand QD = 50 - P
Where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop gather for a townhall meeting to find the socially optimal level of flood control,and they are successful,how much will type B individuals contribute per unit of flood control?

Accepted Answer

A)  25
B)  50
C)  75
D)  100E) None of the above
F) B) and C)

Question 7

Perfectly competitive markets will tend to under-allocate resources to nonexclusive public goods because

Accepted Answer

A)  these goods are produced under conditions of increasing returns to scale.
B)  no single individual can appropriate the total benefits provided by the purchase of such goods.
C)  these goods are best produced under conditions of monopoly.
D)  no private producer can provide the capital necessary to produce such goods.E) B) and D)
F) All of the above B

Question 8

Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A) people who value flood control more than the 1000 (type B) people. Type A Demand QD = 100 - P
Type B Demand QD = 50 - P
Where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop gather for a townhall meeting to find the socially optimal level of flood control,and they are successful,how much will each type B individual contribute in total?

Accepted Answer

A)  1875
B)  1500
C)  875
D)  625E) All of the above
F) C) and D)

Question 9

To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be

Accepted Answer

A)  the firm's marginal cost.
B)  the social marginal cost.
C)  the difference between the social marginal cost and the firm's marginal cost.
D)  the sum of the social marginal cost and the firm's marginal cost.E) C) and D)
F) A) and C)

Question 10

Externalities between two firms can be "internalized" if: Which statement(s) correctly complete(s) the sentence?
I.The two firms merge.
II.Bargaining costs are zero.
III.The externalities affect each firm equally.
IV.Marginal costs for both firms are constant.

Accepted Answer

A)  Only II.
B)  All except III.
C)  I and II,but not III and IV.
D)  I and IV,but not II and IIIE) All of the above
F) C) and D)

Question 11

In the case of a positive externality,social marginal cost will

Accepted Answer

A)  exceed private marginal cost.
B)  be equal to private marginal cost.
C)  fall short of private marginal cost.
D)  have no specific relation to private marginal cost.E) C) and D)
F) B) and D)

Question 12

A nonrival good is a good that

Accepted Answer

A)  is produced by a monopoly.
B)  is produced by a cartel.
C)  can provide benefits to additional users at a zero marginal cost.
D)  is sold in a single market.E) None of the above
F) B) and C)

Question 13

The opportunity cost doctrine suggests that which of the following are not costs of government educational programs?

Accepted Answer

A)  The wages of teachers.
B)  The foregone earnings of participants.
C)  Stipends paid to participants.
D)  Materials used by students.E) All of the above
F) B) and C)

Question 14

The "free-rider problem" of public goods refers to

Accepted Answer

A)  individuals' refusal to pay taxes.
B)  individuals' attempts to hide their preferences for collective goods and to avoid paying for them.
C)  individuals' overuse of collective goods.
D)  the inelasticity of individuals' demands for public goods.E) All of the above
F) A) and D)

Question 15

If bargaining is costless,the assignment of property rights for an externality

Accepted Answer

A)  has no impact on the possibility of an efficient outcome and no distributional impact.
B)  has no impact on the possibility of an efficient outcome but does have a distributional impact.
C)  does have an impact on the possibility of an efficient outcome but has no distributional impact.
D)  does have an impact on the possibility of an efficient outcome and does have a distributional impact.E) C) and D)
F) A) and B)

Question 16

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose QD= 1000 - 100P and QS = -100 + 100P.The price consumers would have to pay for the market to achieve the socially optimal level of production is

Accepted Answer

A)  5
B)  5.5
C)  6
D)  6.5E) A) and D)
F) B) and D)

Question 17

Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose QD = 1000 - 100P and QS = -100 + 100P.If regulators limited production to 200 bushels,the deadweight loss relative to the option of setting the optimal tax would be would be

Accepted Answer

A)  $0
B)  $200
C)  $500
D)  $1000E) C) and D)
F) None of the above

Question 18

Efficient production of a public good requires

Accepted Answer

A)  that individuals pay for such goods according to benefits received.
B)  that each individual's MRS be equal to the RPT of public goods for private goods.
C)  that the sum of individuals' MRSs be equal to the RPT of public goods for private goods.
D)  that governments produce at the low point of the average cost curve for the public good.E) None of the above
F) A) and C) C

Question 19

Each of the following provides incentives to reduce a negative externality except:

Accepted Answer

A)  a merger with affected firms.
B)  subsidizing consumption of the good being produced.
C)  bargaining among firms.
D)  taxation of the externality.E) A) and C)
F) A) and B)

Question 20

Common property

Accepted Answer

A)  is owned by specific people.
B)  is inexhaustible.
C)  refers strictly to land resource.
D)  refers to goods "owned" by society at large and freely usable by anyone.E) A) and B)
F) None of the above

Exam 16: Externalities and Public Goods

Correct Answer
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If preferences are one-dimensional and preferences are single peaked,majority rule will result in selection of the project most favored by

Correct Answer
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Special interest groups often

Correct Answer
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B

Bargaining costs are generally high in cases involving environmental externalities because

Correct Answer
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Correct Answer
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Perfectly competitive markets will tend to under-allocate resources to nonexclusive public goods because

Correct Answer
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B

Correct Answer
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To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be

Correct Answer
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Externalities between two firms can be "internalized" if: Which statement(s) correctly complete(s) the sentence? I.The two firms merge. II.Bargaining costs are zero. III.The externalities affect each firm equally. IV.Marginal costs for both firms are constant.

Correct Answer
verified

In the case of a positive externality,social marginal cost will

Correct Answer
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A nonrival good is a good that

Correct Answer
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The opportunity cost doctrine suggests that which of the following are not costs of government educational programs?

Correct Answer
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The "free-rider problem" of public goods refers to

Correct Answer
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If bargaining is costless,the assignment of property rights for an externality

Correct Answer
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Correct Answer
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Efficient production of a public good requires

Correct Answer
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C

Each of the following provides incentives to reduce a negative externality except:

Correct Answer
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Common property

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Exam 16: Externalities and Public Goods

Correct AnswerverifiedShow Answer

If preferences are one-dimensional and preferences are single peaked,majority rule will result in selection of the project most favored by

Correct AnswerverifiedShow Answer

Special interest groups often

Correct AnswerverifiedB

Bargaining costs are generally high in cases involving environmental externalities because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Perfectly competitive markets will tend to under-allocate resources to nonexclusive public goods because

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be

Correct AnswerverifiedShow Answer

Externalities between two firms can be "internalized" if: Which statement(s) correctly complete(s) the sentence? I.The two firms merge. II.Bargaining costs are zero. III.The externalities affect each firm equally. IV.Marginal costs for both firms are constant.

Correct AnswerverifiedShow Answer

In the case of a positive externality,social marginal cost will

Correct AnswerverifiedShow Answer

A nonrival good is a good that

Correct AnswerverifiedShow Answer

The opportunity cost doctrine suggests that which of the following are not costs of government educational programs?

Correct AnswerverifiedShow Answer

The "free-rider problem" of public goods refers to

Correct AnswerverifiedShow Answer

If bargaining is costless,the assignment of property rights for an externality

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Efficient production of a public good requires

Correct AnswerverifiedC

Each of the following provides incentives to reduce a negative externality except:

Correct AnswerverifiedShow Answer

Common property

Correct AnswerverifiedShow Answer

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B

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B

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C

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