Chapter 11 MCQ

Question 1

Social costs are sometimes ignored because decision makers do not have to pay for external costs or benefits. T  F

Answer 1

True. Individuals only consider private costs and benefits.

Question 2

Drivers impose a negative externality on non-drivers. T  F

Answer 2

True. Pollution, noise and traffic congestion.

Question 3

Smokers impose a positive externality on non-smokers. T  F

Answer 3

False. Smokers impose a negative externality on non-smokers.

Question 4

Markets underproduce products and services with negative externalities. T  F

Answer 4

False. Markets overproduce products and services that have negative externalities and underproduce those that have positive externalities.

Question 5

Economists believe the efficient amount of pollution is zero. T  F

Answer 5

False. Zero pollution means eliminating all cars and airplanes, outlawing all power except solar and hydroelectric power, and shutting down most factories. Therefore, some level of pollution is desirable.

Question 6

Small reductions in pollution come at a higher opportunity cost than large reductions in pollution. T  F

Answer 6

False. It becomes increasingly difficult and costly to reduce pollution levels.

Question 7

The marginal external cost in the pulp market is the cost of preventing or cleaning up the damage from the pollution. T  F

Answer 7

True. Definition

Question 8

Marginal social cost is the same as marginal private cost if there are no positive externalities. T  F

Answer 8

False. Marginal social cost equals marginal private cost if there are no negative externalities; if there are no positive externalities, marginal social benefit equal marginal private benefit.

Question 9

With carbon taxes the government sets the quantity of emissions; with cap-and-trade systems the government sets the price. T  F

Answer 9

False. With carbon taxes the governments sets price, and with cap-and-trade systems the government sets quantity.

Question 10

Smart carbon taxes lead individuals and businesses to voluntarily choose the quantity of output where marginal private benefit equals marginal private cost. T  F

Answer 10

False. Smart taxes lead individuals and businesses to choose the outcomes that are best for society as a whole, where marginal social benefit equals marginal social cost.

Question 11

A carbon tax on fossil fuels raises their relative price and encourages alternatives. T  F

Answer 11

True. The higher price is why carbon taxes are unpopular.

Question 12

Lighthouses are a public good. T  F

Answer 12

True. Provide external benefits consumed by everyone; no one can be excluded.

Question 13

It is not profitable for businesses to provide public goods. T  F

Answer 13

13. True. Because of free-rider problem.

Question 14

A post-secondary education is an example of public provision. T  F

Answer 14

False. Post-secondary education is not directly provided by the

Question 15

A college education is an example of a subsidy. T  F

Answer 15

True. Government subsidizes costs of colleges and universities.

Question 16

Which of the following is not a negative externality?

Jimbo blasts hip-hop music from his souped-up Honda as he cruises through his neighbourhood late at night.

Jericho sings along to hip-hop music on the bus (and everyone on the bus thinks he is horrible).

Jeremiah listens to hip-hop music in his room with his headphones on and his door closed.

Jerry blasts hip-hop music in the common area while his roommate is studying for a test.

Answer 16

c) No cost to others.

Question 17

All the following statements are true, except:

there is too much pollution in the world.

there are too many cars on the road during rush hour.

there are too many people smoking.

there are too many people getting vaccinations.

Answer 17

d) Markets underproduce services like vaccinations with positive externalities.

Question 18

The opportunity cost of reducing pollution includes the costs of

taking shorter showers.

taking public transit rather than your car.

shutting down factories.

all of the above.

Answer 18

d) Opportunity costs of reduced living standards.

Question 19

If there is a negative externality and no positive externality, marginal private cost

equals marginal social cost, and marginal private benefit equals marginal social benefit.

is less than marginal social cost, and marginal private benefit is less than marginal social benefit.

is less than marginal social cost, and marginal private benefit equals marginal social benefit.

equals marginal social cost, and marginal private benefit is less than marginal social benefit.

Answer 19

c) Use rule for smart social choices.

Question 20

If there is a positive externality and no negative externality, marginal private cost

equals marginal social cost, and marginal private benefit equals marginal social benefit.

is less than marginal social cost, and marginal private benefit is less than marginal social benefit.

is less than marginal social cost, and marginal private benefit equals marginal social benefit.

equals marginal social cost, and marginal private benefit is less than marginal social benefit.

Answer 20

d) Use rule for smart social choices.

Question 21

If there is a positive externality and a negative externality, marginal private cost

equals marginal social cost, and marginal private benefit equals marginal social benefit.

is less than marginal social cost, and marginal private benefit is less than marginal social benefit.

is less than marginal social cost, and marginal private benefit equals marginal social benefit.

equals marginal social cost, and marginal private benefit is less than marginal social benefit.

Answer 21

b) Use rule for smart social choices.

Question 22

Smart cap-and-trade systems

internalize the fraternity.

internalize the externality.

externalize the majority.

externalize the externality.

Answer 22

b) General policy rule for achieving best social outcome.

Question 23

Smart carbon taxes

equal the marginal external cost.

equal the damage of the negative externality.

lead to prices and pollution levels that are best for society.

all of the above.

Answer 23

d) Internalize the negative externality.

Question 24

Carbon taxes are inequitable if

lower-income consumers are affected more than higher-income consumers.

higher-income consumers are affected more than lower-income consumers.

lower-income consumers receive a tax break.

energy-sensitive businesses like trucking, taxis, air travel, or automobile production receive a tax break.

Answer 24

a) Make fuel more expensive for those who cannot afford to pay more.

Question 25

Free riding occurs when there are

negative externalities.
positive externalities.
horses.
unicorns.

Answer 25

b) Cause markets to underproduce products and services with positive externalities.

Question 26

Public goods are

for the public.
free.
underproduced.
all of the above.

Answer 26

d) Underproduced because of positive externalities.

Question 27

Which of the following is not a public good?

parks
national defence
clothes
vaccinations

Answer 27

c) No positive externalities to clothes.

Question 28

Smart subsidies for public goods equal the amount of the

marginal social cost.

marginal social benefit.

marginal external cost.

marginal external benefit.

Answer 28

d) Smart subsidy internalizes the positive externality.

Question 29

Subsidies are

the opposite of taxes.

paid by the government.

rewards for those creating positive externalities for others.

all of the above.

Answer 29

d) Definition.

Question 30

All of the following are examples of public provision by the government, except

Canadian education up to grade 12.

Canadian post-secondary education.

streetlights.

public transit.

Answer 30

b) Governments in Canada mostly use subsidies to help supply post-secondary education.