Module 4 Quiz Flashcards
Consider the figure above. The location of the Social Marginal Benefit Curve illustrates ________?
a) A positive consumption externality
b) A negative consumption externality
c) A positive production externality
d) A negative production externality
b) A negative consumption externality
The social marginal benefit curve is below the demand curve indicating that the true benefits of consumption are less than the private benefits of consumption. This implies a negative consumption externality.
Which of the following would likely lead to a positive consumption externality?
a) Playing music in the park
b) Planting a garden
c) Pollution from a factory
d) Job creation from a new hospital
b) planting a garden
Planting a garden benefits yourself (can get food, looks nice,…) but also other people since gardens are pleasant to look at and provide habitat for animals.
Playing music might be a positive externality but only of other people in the park like your choice of music.
Which of the following would likely lead to a negative consumption externality?
a) Playing music in the park
b) Planting a garden
c) Pollution from a factory
d) Job creation from a new hospital
a) playing music in the park
Pollution from a factory comes from the supply side so not related to consumption. A new job is not a consumption externality either.
Consider the figure above. The market equilibrium occurs at point ___ .
a) E
b) A
c) B
d) G
c) B
Market equilibrium is where demand equals supply. This is at point B
Consider the figure above. At the market equilibrium, Consumer Surplus is identified by the area_______.
a) A B F
b) E D B
c) A H G
d) A B C
d) A B C
Consumer surplus is the area under the demand curve but above the price. This is area A B C
Consider the figure above. The Social Optimum occurs at ________?
a) G
b) B
c) E
d) A
a) G
Social optimum occurs where the true marginal cost to society equals the true marginal benefit to society. Since we only have a consumption externality, the true marginal cost is identified by the supply curve. So the intersection of the supply with the social marginal benefit curve is the optimum
Consider the figure above. The deadweight loss (DWL) is identified by the triangle ___ .
a) B G F
b) A B D
c) B E G
d) B H G
a) B G F
The deadweight loss is the excess costs of being at the market equilibrium (B) rather than at social optimum (G). this excess cost is B G F.
Consider the figure above. At the market equilibrium, Social Surplus is identified by the area ___ .
a) A B D – G B F
b) A G D – G B F
c) A B J
d) A B G E
b) A G D - G B F
Social surplus is CS + PS – DAMAGES. Consumer surplus is ABC, producer surplus is C B D, and damages are A B F. The social surplus is then only A G D but with excess costs B G F.
Consider the figure above. We can get to social optimum, given we are at the market equilibrium, by ___ .
a) Banning the consumption of the good
b) Educating consumers about the externality
c) Taxing consumption
d) Subsidizing production
c) taxing consumption
We want to reduce consumption from B to G. So a tax on consumption will reduce consumption. Think about a tax on gasoline. The bigger the tax, the lower the consumption.
Consider the figure above. At the market equilibrium, Total damages, given we are at the market equilibrium, is
identified by the area ___.
a) H B G
b) A B F
c) H B F G
d) A G D
b) A B F
Damages are the costs of consumption. This is the area under the demand curve but above the social marginal benefit curve up to point B. this is the shaded area.
Consider the figure above. The location of the Social Marginal Cost Curve illustrates ________?
a) A negative production externality
b) A positive consumption externality
c) A positive production externality
d) A negative consumption externality
a) A negative production externality
Since the social marginal cost curve is above the supply curve, we are showing that the true marginal cost to society exceeds the marginal cost to the producers.
Which of the following would likely lead to a negative production externality?
a) Planting a garden
b) Pollution from a factory
c) Playing music in the park
d) Job creation from a new hospital
b) Pollution from a factory
The other choices relate to consumption or to a pecuniary externality.
Consider the figure above. The Social Optimum occurs at ________?
a) A
b) E
c) B
d) D
b) E
Social optimum occurs where the true marginal cost to society equals the true marginal benefit to society. Since we only have a production externality, the true marginal benefit is identified by the demand curve. So the intersection of the demand with the social marginal cost curve is the optimum.
Consider the figure above. The deadweight loss (DWL) caused by the externality is identified by the triangle __.
a) D E B
b) B E F
c) A E C
d) B D G H
b) B E F
The deadweight loss is the excess costs of being at the market equilibrium (B) rather than at social optimum (G). This excess cost is B E F.
Consider the figure above. At the market equilibrium, Total damages, given we are at the market equilibrium, is
identified by the area ___.
a) C F B
b) D E B
c) B D G H
d) E F B
a) C F B
Damages are the extra costs associated with production. This is the area above the supply curve but below the social marginal cost curve up to point B. this is the entire shaded area.
