Content quiz 4

Question 1

In the case of a negative externality, the

Answer 1

producer ignores social costs

Question 2

In making their consumption decisions, individuals consider

Answer 2

private costs and private benefits

Question 3

One of the limitations of the Coase theorem is that it

Answer 3

breaks down when transactions costs are higher

Question 4

When a positive externality occurs in the consumption of a good,

Answer 4

Social marginal benefit exceeds private marginal benefit.

Question 5

All of the following except one are problems associated with using government regulation to combat negative externalities such as pollution. Which is not?
a. Regulation requires more information than the government can reasonably expect to obtain.

b. Regulation applies a uniform standard regardless of individual firm differences in costs and responses.
c. The government does not have the authority to impose regulatory standards.
d. Firms are likely to spend more time fighting the government regulation than trying to reduce the externality.
e. Regulation requires more government involvement that can be efficiently provided

Answer 5

The government does not have the authority to impose regulatory standards.

Question 6

In the case of a negative externality

Answer 6

market price reflects only the private costs of production.

Question 7

In the case of a positive externality, market price is ____ and output is ____.

Answer 7

too high; too low

Question 8

Inappropriately assigned property rights typically occur in cases of

Answer 8

property that all citizens have the right to use

Question 9

The argument that once property rights are assigned, the market will produce a socially efficient outcome, is known as

Answer 9

The Coase theorem.

Question 10

If the social marginal cost of a good exceeds the private marginal cost,

Answer 10

society should reduce production of the good