Question 1

Which of the following best describes a negative externality in production?

Accepted Answer

A cost imposed on others who are not directly involved in the production of a good or service.

Question 2

Suppose a factory produces widgets and emits pollution as a by-product. If the marginal social cost of production exceeds the marginal private cost, what is the likely market outcome?

Accepted Answer

The market will overproduce widgets relative to the efficient quantity.

Question 3

Which equation correctly represents the relationship between social cost, private cost, and external cost?

Accepted Answer

$$Social\ Cost = Private\ Cost + External\ Cost$$

Question 4

Education is often cited as an example of a positive externality in consumption. Why?

Accepted Answer

Because the private benefit of education is less than the social benefit.

Question 5

According to the Coase Theorem, under what conditions can private bargaining lead to an efficient outcome in the presence of externalities?

Accepted Answer

When property rights are assigned and enforceable, and transaction costs are low.

Question 6

A government imposes a tax equal to the external cost of pollution. What is the effect on the supply curve and market equilibrium?

Accepted Answer

The supply curve shifts up, and equilibrium quantity decreases to the efficient level.

Question 7

Which of the following is an example of a Pigovian tax?

Accepted Answer

A tax on carbon dioxide emissions to reduce pollution.

Question 8

Why might command-and-control policies be less efficient than market-based policies for reducing pollution?

Accepted Answer

Because they require all firms to reduce pollution by the same amount, regardless of cost differences.

Question 9

Which of the following best describes a tradable emissions allowance (cap-and-trade) system?

Accepted Answer

A system where the government sets a cap on total emissions and allows firms to buy and sell permits to emit.

Question 10

Which of the following is NOT a reason why common resources tend to be overused?

Accepted Answer

There are clearly defined and enforced property rights.

Question 11

Suppose the marginal benefit of pollution reduction is $$MB = 100 - 2Q$$ and the marginal cost is $$MC = 20 + Q. $$What is the efficient quantity of pollution reduction?

Accepted Answer

$$Q = 26.67$$

Question 12

Which of the following goods is both nonrival and nonexcludable?

Accepted Answer

National defense

Question 13

What is the main source of market failure when externalities are present?

Accepted Answer

Incomplete or unenforced property rights.

Question 14

If a subsidy is provided to consumers in a market with a positive externality, what happens to the demand curve and equilibrium quantity?

Accepted Answer

The demand curve shifts up, and equilibrium quantity increases to the efficient level.

Question 15

Which of the following best explains the 'tragedy of the commons'?

Accepted Answer

Overuse of a common resource due to lack of exclusion and rivalry.

Question 16

Which formula is used to construct the market demand curve for a private good?

Accepted Answer

Add the quantity demanded by each consumer at each price (horizontal summation).

Question 17

Which of the following policies is most likely to address the overconsumption of common resources?

Accepted Answer

Imposing quotas or tradable permits on access to the resource.

Question 18

If the marginal social cost of carbon dioxide emissions is estimated at $49 per metric ton, what is the rationale for a carbon tax set at this level?

Accepted Answer

It internalizes the external cost, leading to an efficient level of emissions.

Question 19

Which of the following is a quasi-public good?

Accepted Answer

Cable TV

Externalities, Environmental Policy, and Public Goods – Microeconomics Chapter 5 Study Notes

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학습 가이드 - 플래시카드