Download Sample Exam Questions/Chapter 16 1. Suppose the production of

Sample Exam Questions/Chapter 16
1. Suppose the production of DVDs generates sulfur dioxide, an air pollutant. Then the
equilibrium market quantity of DVDs produced and consumed:
A) is less than the socially optimal quantity.
B) is more than the socially optimal quantity.
C) equals the socially optimal quantity.
D) may be more than, less than, or equal to the socially optimal quantity.
2. If drivers decide to make phone calls without considering the costs imposed on others,
the:
A) number of phone calls made while driving will be above the socially optimal
quantity.
B) number of phone calls made while driving will be below the socially optimal
quantity.
C) marginal social cost curve will lie below the marginal cost of production curve.
D) marginal social benefit curve will lie below the marginal social cost curve.
3. Suppose the production of roses generates a positive externality in that travelers enjoy
the scenic rural vistas. Then an appropriate government policy yielding the efficient
outcome would be a:
A) Pigouvian tax.
B) Pigouvian subsidy.
C) system of rose production permits.
D) reduction in transaction costs.
4. The difference between the marginal social benefit curve and the market demand curve
is the:
A) additional cost of producing an additional good.
B) marginal external cost.
C) marginal benefit to the consumers of the good.
D) marginal external benefit.
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Use the following to answer question 5:
Table: The Marginal Social Cost of Batteries
Price (P)
$20
26
28
32
36
38
Quantity supplied
(QS)
5.00
7.00
7.67
9.00
10.33
11.00
MSC1
$2.00
2.60
2.80
3.20
3.60
3.80
MSC2
$10
16
18
22
26
28
MSC3
$30
36
38
42
46
48
MSC4
$20
26
28
32
36
38
5. (Table: The Marginal Social Cost of Batteries) The accompanying table lists several
price (P) and quantity (QS) values along the market supply curve for batteries. Because
batteries generate toxic wastes, there is an external cost associated with their
production. The marginal external cost is estimated to be $10. The marginal social cost
would then be indicated by the values in the column labeled:
A) MSC1.
B) MSC2.
C) MSC3.
D) MSC4.
6. The socially optimal quantity of pollution occurs where:
A) the marginal social benefit of pollution is equal to the marginal social cost of
pollution.
B) the marginal social benefit of pollution is greater than the marginal social cost of
pollution.
C) the marginal social benefit of pollution is less than the marginal social cost of
pollution.
D) there is no pollution.
7. When an activity like education generates a positive externality, the:
A) market demand curve is below the marginal social benefit curve.
B) market demand curve is above the marginal social benefit curve.
C) marginal cost of production is below the market demand curve.
D) market will produce more than the efficient level of output.
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8. Assume there are external benefits associated with the production of good X. Without
government regulation, the market will:
A) produce too much of good X.
B) price good X less than the marginal social cost.
C) price good X less than the marginal social benefit.
D) price good X greater than the marginal cost.
Use the following to answer question 9:
Suppose that a paper factory dumps garbage into a nearby river, creating negative externalities
for those living downstream from the factory. Producing an additional ton of paper imposes a
constant external cost of $350 per ton. There is no external benefit from paper production, so
marginal private benefit equals marginal social benefit (MB). MPC refers to the marginal
private cost of production and MSC refers to the marginal social cost of production. The
relevant information is depicted in the graph below.
$
MSC
MPC
800
600
400
250
D = MB
0
1
2
3
4
Quantity (tons of paper)
9. To create an incentive for the firm to produce the socially optimal level of paper, the
government can impose a Pigouvian _______________.
A) tax of $350 per ton of garbage
B) tax of $500 per ton of garbage
C) subsidy of $350 per ton of garbage
D) subsidy of $650 per ton of garbage
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Use the following to answer question 10:
The graph depicts the Supply (S), Demand (D), and Marginal Social Cost (MSC) curves for an
industry that emits a toxic substance as a by-product of its production process.
10. What is the equilibrium price and quantity in this market in the absence of any
governmental intervention?
A) P = $13, Q = 11 million tons
B) P = $15, Q = 9 million tons
C) P = $17, Q = 7 million tons
D) P = $13, Q = 7 million tons
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Use the following to answer question 11:
The market for steel is depicted in the graph below. The quantity axis is stated in millions of
tons of steel. Steel production generates pollution, a negative externality, as a by-product.
11. The marginal social cost of steel production reflects
A) both the private cost and the external cost of steel production.
B) only the private cost of steel production.
C) only the external cost of steel production.
D) the private cost minus the external cost of steel production.
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12. An example of an activity that generates positive externalities for society is
A) education.
B) pollution.
C) texting while driving.
D) discount pricing at the local shopping mall.
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Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
B
A
B
D
C
A
A
C
A
A
A
A
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