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.
Use the following to answer question 3:
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
3. (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.
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4. 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.
Use the following to answer question 5:
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. S is the paper company's supply curve and MSC refers to
the marginal social cost of paper production. The relevant information is depicted in the graph
below.
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5. 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 paper
B) tax of $500 per ton of paper
C) subsidy of $350 per ton of paper
D) subsidy of $650 per ton of paper
Use the following to answer question 6:
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.
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6. 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
Use the following to answer question 7:
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.
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7. 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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Answer Key
1.
2.
3.
4.
5.
6.
7.
B
A
C
A
A
A
A
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