Chapter 15 HW Multiple Choice !

1.A negative externality occurs when

A.social costs < 0.

B.social costs > private costs.

C.social costs < private costs

2.A cost-benefit analysis of a public good involves evaluating the

A.average cost and average benefit of the service.

B.price minus the average cost of the service.

C.total cost and total benefit of the service.

D.marginal cost and marginal benefit of the service.

3.The Coase theorem works to provide efficient resolution of externalities if (Check all correct answers.)

A.both parties are not willing to negotiate.

B.property rights are well defined.

C.transaction costs of an agreement are low relative to the cost of the externality.

D.the costs of an externality are low relative to the transactions costs of an agreement.

4.Reducing pollution by regulating what firms can produce is an example of

A.command and control.

B.private remedies.

C.free-riding.

D.transactions costs.

5.Which of the following is an outcome in which people vote on multiple issues with a single vote, and voting patterns do not consistently reflect citizens' preferences?

A.Voting paradox

B.Arrow possibilities curve

C.Government failure

D.Convergence of positions

6.A good that is characterized by nonrivalry in consumption and nonexcludability is called a

A.free good.

B.public good.

C.private good.

D.noneconomic good.

7.The difference between marginal social cost and marginal external cost is

A.marginal private cost.

B.marginal profit.

C.marginal internal cost.

D.marginal private benefit.

8.A tradable permit gives a firm an incentive to

A.lower its emissions.

B.increase its emissions.

C.find more costly forms of pollution control.

D.shift the costs of pollution to somebody else.

9.When a negative externality exists in the production of a good, the appropriate policy is to

A.subsidize production of that good in an amount equal to the external cost.

B.tax production of that good in an amount equal to the external cost.

C.shift the supply curve to the right.

D.shift the demand curve to the left.

10.The costs to society equal total production costs to private firms when

A.third parties bear some of the costs of production

B.no externalities occur as firms produce their products.

C.negative externalities occur in the market.

D.positive externalities occur in the market.

11.As a result of a positive externality,

A.marginal benefit is above marginal cost.

B.marginal social cost is above marginal private cost.

C.marginal social benefit is above marginal private benefit.

D.marginal private benefit is above marginal social benefit.

12.Most public goods face a

A.principal agent problem.

B.free-rider problem.

C.adverse selection problem.

D.asymmetric information problem.

13.If a positive externality occurs in a competitive market, firms produce an

A.amount and quality of output most desired by the market.

B.efficient amount of output.

C.amount more than the efficient quantity.

D.amount less than the efficient quantity.

14.Evaluating the costs and benefits of a good or service is called

A.opportunity-threat analysis.

B.cost-benefit analysis.

C.marginal revenue analysis.

D.profit maximization.

15.A fee charged for the use of a good typically provided by the government is called a

A.sales tax.

B.tariff.

C.User Fee.

D.Tax.

16.Government can internalize externalities by

A.taxing goods with negative externalities and subsidizing goods with positive externalities.

B.taxing goods with positive externalities and subsidizing goods with negative externalities.

C.subsidizing goods with either positive or negative externalities.

D.taxing goods with either positive or negative externalities.

17.A positive externality occurs when the consumption of a product

A.increases market competition.

B.benefits individuals outside of the market.

C.causes a lower market price.

D.causes the government to gain tax revenues.

18.A free-rider problem occurs when

A.people who do not pay for a good benefit from the good.

B.people who pay for a good do not benefit from the good.

C.no one benefits from the good.

D.no firm produces the good.