CH 18 FINAL Flashcards
Positive externalities are created when
A) other consumers reduce their demand for coffee and price thereby declines.
B) farmers spray pesticide in their fields and it washes into the local river after the first
rainstorm.
C) your neighbor plants beautiful trees and flowers in her yard.
D) you purchase the “Mona Lisa” and lock it in a vault.
C) your neighbor plants beautiful trees and flowers in her yard.
Consider a housing development built near an existing airport. After the houses are occupied,
homeowners complain that the airport imposes a negative externality on them and it should be
moved or otherwise limited. Is the airport a negative externality?
A) No, the airport was there first.
B) No, if the original property values reflect the costs imposed by the airport.
C) No, airports are government entities and therefore don’t impose costs on individuals.
D) Yes, the airport’s noise should be curtailed for the well-being of the homeowners.
B) No, if the original property values reflect the costs imposed by the airport.
If a production process creates pollution, a competitive market produces excessive pollution
because
A) the firms do not include the social cost of the pollution in their profit-maximizing decisions.
B) the firms place too high a price on society’s cost of inflation.
C) people are not injured by the pollution.
D) zero pollution is optimal.
A) the firms do not include the social cost of the pollution in their profit-maximizing decisions.
) Which of the following statements about private and social costs is TRUE?
A) Social costs include externalities.
B) Private cost do not include externalities.
C) Social costs are never smaller than private costs.
D) All of the above.
D) All of the above.
In the presence of no externalities,
A) social marginal cost exceeds private marginal cost.
B) social marginal cost is less than private marginal cost.
C) social marginal cost equals private marginal cost.
D) social marginal cost and private marginal cost cannot be compared.
C) social marginal cost equals private marginal cost.
In the presence of a negative externality, a specific tax can achieve the social optimum
because
A) output is reduced to zero as a result.
B) it internalizes the external cost.
C) it directly charges the producer for polluting.
D) the price of the good rises by the full amount of the tax.
C) it directly charges the producer for polluting.
Which of the following policies addresses the problem posed by positive externalities?
A) a subsidy to the agent that generates the positive externality
B) a tax on the agent that generates the positive externality
C) limit the activity that generates the positive externality
D) a subsidy to the agents that benefit from the positive externality
A) a subsidy to the agent that generates the positive externality
Because a monopoly ignores external costs, it is possible that it will
A) produce the socially optimal quantity of a good.
B) produce more than the socially optimal quantity of a good.
C) produce less than the socially optimal quantity of a good.
D) All of the above.
D) All of the above.
A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if
A) the demand curve is relatively inelastic.
B) the demand curve is relatively elastic.
C) less than the socially optimum is produced before the tax.
D) more than the socially optimum is produced before the tax.
C) less than the socially optimum is produced before the tax.
The result that, under certain circumstances, no government action is needed to control an
externality because it can be eliminated by bargaining between the affected parties is called
A) a Nash Equilibrium.
B) Coase Theorem.
C) Bargaining Theorem.
D) English Bargaining.
B) Coase Theorem.
Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers
the other neighbor, Bert. According to Coase’s Theorem, the optimal level of trash in the park
can be achieved if
A) Al is fined by the government.
B) Al has the right to leave trash and Bert cannot do anything about it.
C) Al has the right to leave trash and Bert can pay him to limit his dumping.
D) Bert moves.
C) Al has the right to leave trash and Bert can pay him to limit his dumping.
In which of the following situations would the Coase Theorem more likely be applied?
A) Two neighbors: a farmer and a beekeeper.
B) Highway drivers and the dwellers of neighborhoods crossed by the highway.
C) A railroad and its adjacent land owners.
D) None of the above.
A) Two neighbors: a farmer and a beekeeper.
A common resource is best described as a resource where
A) there is a positive externality in consumption.
B) there is a negative externality in consumption.
C) there is a positive externality in production.
D) there is a negative externality in production.
B) there is a negative externality in consumption.
A commodity or service whose consumption by one person does not preclude others from also
consuming it is called a
A) private good.
B) public good.
C) Giffen good.
D) Coase good.
B) public good.
Markets tend to produce too little of an excludable public good because
A) transaction costs are high.
B) of the lack of rivalry.
C) these goods are depletable.
D) All of the above
B) of the lack of rivalry.
