Parkin Ch16

Parkin/Bade, Economics: Canada Canada in the Global Global Environment Environment

Chapter 16 Externalities

16.1 Externalities in Our Lives 1) An externality is defined as A) an additional cost imosed !y t"e #overnment on roducers. B) an additional #ain received !y consumers from decisions made !y t"e #overnment. $) a cost or !enefit t"at arises from roduction and falls on someone ot"er t"an t"e roducer, or a cost or !enefit t"at arises from consumtion and falls on someone ot"er t"an t"e consumer. %) a mar#inal social cost. E) t"e additional amount consumers "ave to ay to consume an additional amount of a #ood or service. Ans&er' $ %iff' 1 (ye' $ (oic' Externalities in in Our Lives *) An externality is a cost or !enefit arisin# from an economic activity t"at falls on A) consumers !ut not roducers. B) roducers !ut not consumers. $) consumers or roducers. %) someone ot"er t"an consumers or roducers. E) none of t"e a!ove. Ans&er' % %iff' * (ye' $ (oic' Externalities in in Our Lives +ource' +tudy uide -) "ic" of t"e follo&in# illustrates t"e concet of external cost A) Bad &eat"er reduces t"e si0e of t"e &"eat cro. B) A reduction in t"e si0e of t"e &"eat cro causes income of &"eat farmers to fall. $) +mokin# "arms t"e "ealt" of t"e smoker. %) +mokin# "arms t"e "ealt" of near!y nonsmokers. E) Pu!lic "ealt" services reduce t"e transmission of disease. Ans&er' % %iff' * (ye' $ (oic' Externalities in in Our Lives +ource' +tudy uide

Pearson $anada nc.

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2) Air ollution #enerated !y a aer mill factory is an examle of a A) ositive roduction externality. externality. B) ositive consumtion externality. $) ne#ative consumtion externality. %) mar#inal external !enefit. E) ne#ative roduction externality. Ans&er' E %iff' 1 (ye' $ (oic' Externalities in in Our Lives 3) +ixty ercent of our air ollution comes c omes from A) solid &aste disosal. B) electric utilities. $) a #ro&in# &orld oulation. %) road transortation and industrial rocesses. E) none of t"e a!ove. Ans&er' % %iff' 1 (ye' $ (oic' Externalities in in Our Lives 6) A &ell4maintained &ater4front roerty t"at is en5oyed !y ot"er roerty o&ners o &ners is an examle of A) an inefficient allocation of resources. B) a ne#ative consumtion externality. $) a ositive consumtion externality. %) a ne#ative roduction externality. externality. E) a ositive roduction externality ex ternality.. Ans&er' $ %iff' * (ye' $ (oic' Externalities in in Our Lives ) An examle of an activity t"at creates a ne#ative consumtion externality is A) lo##in#, &"ic" ollutes rivers. B) locatin# !ee"ives next to an oran#e orc"ard. $) smokin#, &"ic" "arms t"e "ealt" of a !ystander. %) a flu vaccination. E) none of t"e a!ove. Ans&er' $ (ye' $ (oic' Externalities in in Our Lives +kill' $oncetual AA$+B' 7eflective ("inkin#


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2) Air ollution #enerated !y a aer mill factory is an examle of a A) ositive roduction externality. externality. B) ositive consumtion externality. $) ne#ative consumtion externality. %) mar#inal external !enefit. E) ne#ative roduction externality. Ans&er' E %iff' 1 (ye' $ (oic' Externalities in in Our Lives 3) +ixty ercent of our air ollution comes c omes from A) solid &aste disosal. B) electric utilities. $) a #ro&in# &orld oulation. %) road transortation and industrial rocesses. E) none of t"e a!ove. Ans&er' % %iff' 1 (ye' $ (oic' Externalities in in Our Lives 6) A &ell4maintained &ater4front roerty t"at is en5oyed !y ot"er roerty o&ners o &ners is an examle of A) an inefficient allocation of resources. B) a ne#ative consumtion externality. $) a ositive consumtion externality. %) a ne#ative roduction externality. externality. E) a ositive roduction externality ex ternality.. Ans&er' $ %iff' * (ye' $ (oic' Externalities in in Our Lives ) An examle of an activity t"at creates a ne#ative consumtion externality is A) lo##in#, &"ic" ollutes rivers. B) locatin# !ee"ives next to an oran#e orc"ard. $) smokin#, &"ic" "arms t"e "ealt" of a !ystander. %) a flu vaccination. E) none of t"e a!ove. Ans&er' $ (ye' $ (oic' Externalities in in Our Lives +kill' $oncetual AA$+B' 7eflective ("inkin#


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8) +mokin# to!acco creates a 99999999 externality. A) ne#ative consumtion B) ne#ative roduction $) ositive consumtion %) ositive roduction E) none of t"e a!ove Ans&er' A %iff' 1 (ye' $ (oic' Externalities in in Our Lives +kill' $oncetual AA$+B' 7eflective ("inkin# :) An examle of an activity t"at creates a ositive consumtion externality is A) lo##in#, &"ic" ollutes rivers. B) locatin# !ee"ives next to an oran#e orc"ard. $) smokin#, &"ic" "arms t"e "ealt" of a !ystander. %) a flu vaccination. E) a noisy arty. Ans&er' % (ye' $ (oic' Externalities in in Our Lives +kill' $oncetual AA$+B' 7eflective ("inkin# 1;) A "omeo&ner lantin# an attractive #arden in front of "is "ouse creates 99999999. A !akery !akin# !read creates 99999999. A) no externality< a ositive roduction externality B) a ositive consumtion externality< no externality $) no externality< no externality %) a ositive consumtion externality< a ositive roduction externality E) a ositive roduction externality< no externality Ans&er' % (ye' $ (oic' Externalities in in Our Lives +ource' yEconLa!


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Parkin/Bade, Economics: Canada in the Global Environment

16.* =e#ative Externality' Pollution Use the figure below to answer the following questions.

Figure 16.2.1

1) 7efer to >i#ure 16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. f t"e market is unre#ulated, t"en t"e ?uantity roduced is A) 0ero. B) Q1. $) Q*. %) Q-. E) too lo&. Ans&er' % %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution *) 7efer to >i#ure 16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. f t"e market is unre#ulated, t"en t"e rice is A) P 1. B) P 2. $) !elo& P 1. %) P *. E) P -. Ans&er' % %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution


12


-) 7efer to >i#ure 16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. f t"e market is unre#ulated, t"en at t"e e?uili!rium outut t"e mar#inal social cost of roduction is A) less t"an t"e mar#inal !enefit to consumers. B) #reater t"an t"e mar#inal !enefit to consumers. $) e?ual to t"e mar#inal !enefit to consumers. %) e?ual to t"e mar#inal rivate cost of roduction. E) less t"an t"e mar#inal rivate cost of roduction. Ans&er' B %iff' * (ye' $ (oic' =e#ative Externality' Pollution 2) 7efer to >i#ure 16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. f t"e market is unre#ulated, t"en A) t"e ?uantity roduced is efficient !ut rice is too lo&. B) t"e ?uantity roduced is less t"an t"e efficient ?uantity. $) t"e ?uantity roduced is #reater t"an t"e efficient ?uantity. %) t"e ?uantity roduced is efficient !ut t"e rice is too "i#". E) t"e externality is eliminated. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution 3) 7efer to >i#ure16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. (o romote an efficient allocation of resources, t"e #overnment could imose a constant er unit tax e?ual to A) 0ero. B) P 1. $) P - 4 P 1. %) P 2 4 P 1. E) P - 4 P *. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution 6) 7efer to >i#ure 16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. f a constant er unit tax is imosed t"at #enerates an efficient allocation of resources, t"en t"e ?uantity roduced is A) 0ero. B) Q1. $) Q*. %) Q-. E) #reater t"an Q-. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution Pearson $anada nc.

128


) 7efer to >i#ure 16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. f a constant er unit tax is imosed t"at #enerates an efficient allocation of resources, t"en consumers ay a er unit rice of A) 0ero. B) P 1. $) P *. %) P -. E) P 2. Ans&er' % %iff' * (ye' $ (oic' =e#ative Externality' Pollution 8) 7efer to >i#ure 16.*.1. ("e fi#ure s"o&s t"e rivate mar#inal cost curve, t"e social mar#inal cost curve and t"e market demand curve. f a constant er unit tax is imosed t"at #enerates an efficient allocation of resources, t"en roducers receive a er unit rice of A) 0ero. B) P 2. $) P -. %) P *. E) P 1. Ans&er' E %iff' * (ye' $ (oic' =e#ative Externality' Pollution :) Effective strate#ies for addressin# t"e ro!lem of ne#ative externalities include A) taxin# t"e rofit of ollutin# comanies at t&ice t"e rate of non4ollutin# comanies. B) imosin# taxes on t"e activity t"at #enerates t"e ollution. $) stressin# t"e use of rene&a!le resources. %) imosin# recyclin# la&s. E) closin# do&n a ollutin# industry. Ans&er' B %iff' * (ye' $ (oic' =e#ative Externality' Pollution


12:


Use the table below to answer the following questions. Table 16.2.1

1;) 7efer to (a!le 16.*.1. iven in t"e ta!le are t"e mar#inal rivate cost and t"e mar#inal social cost of t"e roduction of c"emical fertili0er and t"e mar#inal social !enefit from t"e consumtion of fertili0er. @nder t"ese circumstances, A) t"ere are ositive externalities in t"is market. B) t"ere are ne#ative externalities in t"is market, e?ual to 1; er unit. $) t"ere are no externalities in t"is market. %) not enou#" information is rovided to determine &"et"er or not t"ere are externalities. E) t"ere are ne#ative externalities in t"is market, e?ual to *; er unit. Ans&er' E %iff' * (ye' $ (oic' =e#ative Externality' Pollution 11) 7efer to (a!le 16.*.1. iven in t"e ta!le are t"e mar#inal rivate cost and t"e mar#inal social cost of t"e roduction of c"emical fertili0er and t"e mar#inal social !enefit from t"e consumtion of fertili0er. f t"e market is unre#ulated, t"e ?uantity roduced is A) 1 unit. B) * units. $) - units. %) 2 units. E) 3 units. Ans&er' % %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution


13;


1*) 7efer to (a!le 16.*.1. iven in t"e ta!le are t"e mar#inal rivate cost and t"e mar#inal social cost of t"e roduction of c"emical fertili0er and t"e mar#inal social !enefit from t"e consumtion of fertili0er. f t"e market is unre#ulated, t"e market rice is A) 1; a unit. B) *; a unit. $) -; a unit. %) 2; a unit. E) 3; a unit. Ans&er' % %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution 1-) 7efer to (a!le 16.*.1. iven in t"e ta!le are t"e mar#inal rivate cost and t"e mar#inal social cost of t"e roduction of c"emical fertili0er and t"e mar#inal social !enefit from t"e consumtion of fertili0er. Assume t"e market is erfectly cometitive. f t"e market is unre#ulated, t"e mar#inal A) social cost e?uals t"e mar#inal rivate !enefit. B) rivate cost is less t"an t"e mar#inal social !enefit. $) rivate cost e?uals t"e mar#inal social !enefit. %) social cost e?uals t"e mar#inal rivate cost. E) rivate cost is #reater t"an t"e mar#inal social !enefit. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution 12) 7efer to (a!le 16.*.1. iven in t"e ta!le are t"e mar#inal rivate cost and t"e mar#inal social cost of t"e roduction of c"emical fertili0er and t"e mar#inal social !enefit from t"e consumtion of fertili0er. f t"e market is unre#ulated A) t"e ?uantity roduced is t"e efficient ?uantity. B) t"e ?uantity roduced is #reater t"an t"e efficient ?uantity. $) t"e ?uantity roduced is less t"an t"e efficient ?uantity. %) mar#inal external cost is maximi0ed. E) roduction is tec"nolo#ically inefficient. Ans&er' B %iff' * (ye' $ (oic' =e#ative Externality' Pollution


131


13) 7efer to (a!le 16.*.1. iven in t"e ta!le are t"e mar#inal rivate cost and t"e mar#inal social cost of t"e roduction of c"emical fertili0er and t"e mar#inal social !enefit from t"e consumtion of fertili0er. f t"e #overnment decides to correct t"e externality ro!lem, it could A) su!sidi0e roduction !y *; er unit. B) su!sidi0e roduction !y 1; er unit. $) rovide t"e #ood itself. %) tax roduction !y 1; er unit. E) tax roduction !y *; er unit. Ans&er' E %iff' - (ye' $ (oic' =e#ative Externality' Pollution Use the figure below to answer the following questions.

Figure 16.2.2

16) 7efer to >i#ure 16.*.*. ("is fi#ure s"o&s t"e demand curve, t"e mar#inal rivate cost curve and t"e mar#inal social cost curve of #ood A. Production of t"e 6t" unit of outut #enerates a mar#inal external A) cost of 1.3;. B) cost of -. $) cost of 6. %) !enefit of -. E) !enefit of 6. Ans&er' B %iff' * (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide


13*


1) 7efer to >i#ure 16.*.*. ("is fi#ure s"o&s t"e demand curve, t"e mar#inal rivate cost curve and t"e mar#inal social cost curve of #ood A. o& many units of #ood A are roduced in an unre#ulated market A) ; units B) 3 units $) 6 units %) 8 units E) : units Ans&er' % %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide 18) 7efer to >i#ure 16.*.*. ("is fi#ure s"o&s t"e demand curve, t"e mar#inal rivate cost curve and t"e mar#inal social cost curve of #ood A. "at is t"e efficient ?uantity of #ood A A) ; units B) 3 units $) 6 units %) 8 units E) imossi!le to determine &it"out additional information Ans&er' B %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide 1:) 7efer to >i#ure 16.*.*. ("is fi#ure s"o&s t"e demand curve, t"e mar#inal rivate cost curve and t"e mar#inal social cost curve of #ood A. f t"e #overnment &anted to ac"ieve t"e efficient ?uantity of #ood A, it could issue marketa!le ermits. f t"e marketa!le ermits result in t"e efficient ?uantity of #ood A, t"en t"e ?uantity of #ood A roduced is A) ; units. B) 3 units. $) 6 units. %) 8 units. E) a level imossi!le to determine &it"out more information. Ans&er' B %iff' - (ye' $ (oic' =e#ative Externality' Pollution


13-


*;) n t"e a!sence of #overnment intervention, a rofit4maximi0in# firm roducin# a #ood &it" an external cost &ill roduce a ?uantity at &"ic" A) rice is #reater t"an mar#inal rivate cost. B) rice is less t"an mar#inal revenue. $) rice is less t"an mar#inal rivate cost. %) rice e?uals mar#inal rivate cost. E) mar#inal revenue e?uals mar#inal social cost. Ans&er' % %iff' * (ye' $ (oic' =e#ative Externality' Pollution *1) "en an additional unit of outut is roduced, t"e extra cost to society is t"e A) avera#e total cost. B) mar#inal social cost. $) mar#inal rivate cost. %) mar#inal external cost. E) mar#inal dama#e. Ans&er' B %iff' * (ye' $ (oic' =e#ative Externality' Pollution **) eans of coin# &it" ne#ative externalities include all of t"e follo&in# excet A) emission c"ar#es. B) atents. $) roerty ri#"ts. %) Pi#ovian taxes. E) marketa!le ermits. Ans&er' B %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution *-) "ic" one of t"e follo&in# is a means of coin# &it" a ne#ative externality A) emission su!sidies B) atents $) vouc"ers %) Pi#ovian taxes E) coyri#"ts Ans&er' % %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution


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*2) A !attery acid roducer ollutes t"e &ater ustream from t"e Polar Bear $lu!, a s&immin# clu!. f transactions costs are lo&, t"e ?uantity of ollution &ill !e efficient A) only if 7onald $oase is a mem!er of t"e Polar Bear $lu!. B) only if 7onald $oase is not a mem!er of t"e Polar Bear $lu!. $) only if &ater roerty ri#"ts are assi#ned to t"e roducer. %) only if &ater roerty ri#"ts are assi#ned to t"e Polar Bear $lu!. E) if &ater roerty ri#"ts are assi#ned eit"er to t"e roducer or to t"e Polar Bear $lu!. Ans&er' E %iff' - (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide *3) ("e $oase t"eorem states t"at A) atents and coyri#"ts &ill solve t"e ro!lem of external costs. B) taxes &ill solve t"e ro!lem of external costs. $) #lo!al &armin# is "ard to solve due to t"e risonersC dilemma asect of t"e ro!lem. %) roerty ri#"ts are social arran#ements #overnin# o&ners"i, use and disosal of factors of roduction and #oods and services. E) if roerty ri#"ts are esta!lis"ed, and if only a small num!er of arties are involved, and if transactions costs are lo&, t"en rivate transactions are efficient. Ans&er' E %iff' * (ye' $ (oic' =e#ative Externality' Pollution


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Use the table below to answer the following questions. Table 16.2.2 $"emical >ertili0er arket

*6) 7efer to (a!le 16.*.*. f t"e fertili0er market is erfectly cometitive and unre#ulated, outut Din tonnes) is A) 1. B) *. $) -. %) 2. E) 3. Ans&er' % %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide *) 7efer to (a!le 16.*.*. >ertili0er "as a mar#inal A) external cost of 1;; a tonne. B) social cost of 1;; a tonne. $) external cost of -; a tonne. %) rivate cost of -; a tonne. E) external cost of ;. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution *8) 7efer to (a!le 16.*.*. ("e efficient outut of fertili0er is A) 1 tonne. B) * tonnes. $) - tonnes. %) 2 tonnes. E) 3 tonnes. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide


136


*:) 7efer to (a!le 16.*.*. ("e Pi#ovian tax t"at ac"ieves t"e efficient ?uantity of outut is A) ;. B) 1; a tonne. $) *; a tonne. %) -; a tonne. E) 2; a tonne. Ans&er' % %iff' * (ye' $ (oic' =e#ative Externality' Pollution Use the figure below to answer the following questions.

Figure 16.2.3

-;) 7efer to >i#ure 16.*.-. ("e unre#ulated outcome in t"e aer market is A) a ?uantity of 2; tonnes and a rice of 11 a tonne. B) a ?uantity of 2; tonnes and a rice of 1- a tonne. $) a ?uantity of 3; tonnes and a rice of 1* a tonne. %) a ?uantity of 3; tonnes and a rice of 12 a tonne. E) a ?uantity of 6; tonnes and a rice of 1- a tonne. Ans&er' $ %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution


13


-1) 7efer to >i#ure 16.*.-. n t"is market t"ere is a mar#inal external A) cost of 12 a tonne. B) cost of 1* a tonne. $) cost of * a tonne. %) !enefit of * a tonne. E) !enefit of 1* a tonne. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution -*) 7efer to >i#ure 16.*.-. A tax of 99999999 er tonne is necessary to ac"ieve t"e efficient outut of 99999999 tonnes of aer. A) 12< 3; B) 12< -; $) 1-< 2; %) *< 3; E) *< 2; Ans&er' E %iff' * (ye' $ (oic' =e#ative Externality' Pollution --) f ne#ative externalities exist, t"en in a market &it" no roerty ri#"ts, A) !"C  !"#. B) !"C F !"#. $) !"C G !"#. %) !"C  mar#inal external cost. E) none of t"e a!ove. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution -2) $ool@ "as solved its smokin# ro!lem !y allocatin# eac" student 3 smokin# ermits a day, and allo&in# tradin#. ("is is an examle of A) marketa!le ermits. B) emission c"ar#es. $) t"e $oase t"eorem. %) a ollution tax. E) a vouc"er. Ans&er' A %iff' 1 (ye' $ (oic' =e#ative Externality' Pollution


138


-3) $onsider t"e ro!lem of car!on dioxide ollution due to t"e use of coal in electric o&er roduction. ("e discovery of very c"ea solar o&er &ould lead to A) less car!on dioxide ollution. B) more car!on dioxide ollution. $) no c"an#e in t"e amount of car!on dioxide ollution. %) eit"er more or less car!on dioxide ollution, deendin# on t"e amount of solar o&er ollution. E) eit"er no c"an#e or more car!on dioxide ollution. Ans&er' A %iff' * (ye' $ (oic' =e#ative Externality' Pollution -6) A system of marketa!le ermits is used to reduce acid rain caused !y emissions from electric o&er utilities. "ic" of t"e follo&in# statements is true A) arket forces determine !ot" t"e demand for marketa!le ermits and t"eir suly. B) Pu!lic c"oice determines !ot" t"e demand for marketa!le ermits and t"eir suly. $) arket forces determine t"e demand for marketa!le ermits, and roerty ri#"ts determine t"eir suly. %) Proerty ri#"ts determine t"e demand for marketa!le ermits, and t"e #overnment determines t"eir suly. E) arket forces determine t"e demand for marketa!le ermits, and t"e #overnment determines t"eir suly. Ans&er' E %iff' - (ye' $ (oic' =e#ative Externality' Pollution -) ("e $oase t"eorem tells us t"at in t"e resence of external costs in roduction, A) t"e #overnment must intervene in t"e market to assure t"at t"e efficient level of outut is roduced. B) rivate arties can ne#otiate to roduce t"e #ood at a level &"ere mar#inal &illin#ness to ay for t"e #ood !y consumers is 0ero. $) rivate arties can never arrive at t"e efficient solution. %) t"en under certain conditions, rivate arties can arrive at t"e efficient solution &it"out #overnment involvement. E) and if transactions costs are "i#", t"en only t"e rivate sector &ill !e a!le to roduce t"e efficient amount of t"e #ood. Ans&er' % %iff' * (ye' $ (oic' =e#ative Externality' Pollution


13:


-8) Accordin# to t"e $oase t"eorem, if transactions costs are lo& and roerty ri#"ts exist, A) ne#ative externalities cause dead&ei#"t losses. B) ositive externalities cause dead&ei#"t losses. $) rivate transactions are efficient. %) u!lic transactions are efficient. E) t"e efficient level of ollution &ill !e 0ero. Ans&er' $ %iff' - (ye' $ (oic' =e#ative Externality' Pollution -:) ("e $oase t"eorem &ill aly only if A) an individual &"o is not affected !y t"e externality can ne#otiate a settlement !et&een t"e arties imosin# t"e externality and t"e arties t"at are "armed !y t"e externality. B) t"e small num!er of eole are involved. $) t"e market is erfectly cometitive. %) t"e courts can !e used to determine t"e amount of comensation t"at must !e made to t"e dama#ed arty. E) t"e amount of comensation t"at must !e made to t"e dama#ed arty is small. Ans&er' B %iff' - (ye' $ (oic' =e#ative Externality' Pollution 2;) ("e $oase t"eorem alies &"en transactions costs are A) lo& and roerty ri#"ts exist. B) lo& and roerty ri#"ts do not exist. $) "i#" and roerty ri#"ts exist. %) "i#" and roerty ri#"ts do not exist. E) lo& and t"ere are no externalities. Ans&er' A %iff' - (ye' $ (oic' =e#ative Externality' Pollution 21) An externality is A) t"e amount !y &"ic" rice exceeds mar#inal rivate cost. B) t"e amount !y &"ic" rice exceeds mar#inal social cost. $) t"e effect of #overnment re#ulation on market rice and outut. %) someone &"o consumes a #ood &it"out ayin# for it. E) a cost or !enefit t"at arises from an activity !ut affects eole not art of t"e ori#inal activity. Ans&er' E %iff' * (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide


16;


2*) ("e mar#inal rivate cost curve D !C ) is a ositively4sloed strai#"t line startin# at t"e ori#in. f mar#inal external cost increases as outut increases, t"en t"e mar#inal social cost curve is a ositively4sloed strai#"t line A) arallel to and a!ove t"e !C curve. B) arallel to and !elo& t"e !C curve. $) startin# at t"e ori#in, a!ove t"e !C curve, and &it" a sloe #reater t"an t"e !C curve. %) startin# at t"e ori#in, !elo& t"e !C curve, and &it" a sloe less t"an t"e !C curve. E) none of t"e a!ove. Ans&er' $ %iff' * (ye' $ (oic' =e#ative Externality' Pollution +ource' +tudy uide 2-) One &ay to solve ne#ative externality ro!lems is A) to or#ani0e a limited !oycott of t"e roducts. B) su!sidi0e t"e externalities. $) eliminate transactions costs &"en roerty ri#"ts are not le#ally esta!lis"ed. %) issue marketa!le ermits to ollutin# firms. E) esta!lis" and enforce atents and coyri#"ts. Ans&er' % %iff' * (ye' $ (oic' =e#ative Externality' Pollution 22) Pollution occurs &"en lum!er is roduced. f t"e lum!er market is unre#ulated, t"ere &ould !e A) overroduction of lum!er comared to t"e efficient amount. B) underroduction of lum!er comared to t"e efficient amount. $) sometimes overroduction and sometimes underroduction of lum!er comared to t"e efficient amount. %) an external !enefit from roducin# lum!er. E) no dead&ei#"t loss from roduction. Ans&er' A (ye' $ (oic' =e#ative Externality' Pollution +kill' $oncetual AA$+B' 7eflective ("inkin#


161


23) "en t"e mar#inal social cost of t"e roduction of ood A is #reater t"an t"e mar#inal rivate cost of t"e roduction of ood A, t"en A) a cometitive, unre#ulated market roduces less t"an t"e efficient ?uantity of ood A. B) a cometitive, unre#ulated market roduces t"e efficient ?uantity of ood A. $) a cometitive, unre#ulated market roduces more t"an t"e efficient ?uantity of ood A. %) t"e #overnment s"ould levy a tax on t"e roduction of ood A t"at is e?ual to t"e "ori0ontal distance !et&een t"e t&o mar#inal cost curves. E) a cometitive, unre#ulated market does not create a dead&ei#"t loss. Ans&er' $ (ye' $ (oic' =e#ative Externality' Pollution +kill' 7eco#nition AA$+B' 7eflective ("inkin# 26) "en t"e roduction of a #ood "as an external cost, t"e A) mar#inal social cost curve lies !elo& t"e mar#inal rivate cost curve. B) mar#inal social !enefit curve lies a!ove t"e mar#inal rivate !enefit curve. $) e?uili!rium ?uantity in an unre#ulated, cometitive market "as a mar#inal social cost #reater t"an t"e mar#inal social !enefit. %) e?uili!rium ?uantity in an unre#ulated, cometitive market "as a mar#inal social cost less t"an t"e mar#inal social !enefit. E) none of t"e a!ove. Ans&er' $ (ye' $ (oic' =e#ative Externality' Pollution +kill' 7eco#nition AA$+B' 7eflective ("inkin# 2) $onsider some tye of industrial ollution t"at #enerates air ollution. ("is industry, if left unre#ulated, &ill roduce A) too muc" outut !ecause t"ey &ill i#nore t"e mar#inal external costs. B) t"e efficient level of outut. $) too little outut !ecause t"ey &ill i#nore t"e mar#inal external costs. %) too little outut !ecause t"ey &ill i#nore t"e mar#inal external !enefits. E) too muc" outut !ecause t"ey &ill i#nore t"e mar#inal external !enefits. Ans&er' A (ye' $ (oic' =e#ative Externality' Pollution +kill' $oncetual AA$+B' 7eflective ("inkin#


16*


Use the table below to answer the following question. Table 16.2.3 Price Dcents er kilo&att) 2 8 1* 16 *;

Quantity Dkilo&atts er day) 3;; 2;; -;; *;; 1;;

Marginal cost Dcents er kilo&att) 1; 8 6 2 *

28) 7efer to (a!le 16.*.-. ("e first t&o columns of t"e ta!le s"o& t"e demand sc"edule for electricity from a coal !urnin# utility< t"e second and t"ird columns s"o& t"e utilityCs cost of roducin# electricity. ("e mar#inal external cost of t"e ollution created is e?ua l to t"e mar#inal cost. +uose t"e #overnment levies a ollution tax suc" t"at t"e utility #enerates t"e efficient ?uantity of electricity. ("e ollution tax is 99999999 cents a kilo&att "our. A) * B) 2 $) 6 %) 8 E) 1; Ans&er' $ (ye' $ (oic' =e#ative Externality' Pollution +ource' yEconLa!


16-


2:) Betty and Anna &ork at t"e same office in $al#ary. ("ey !ot" must attend a meetin# in Edmonton, and t"ey "ave decided to drive to t"e meetin# to#et"er. Betty is a ci#arette smoker and "er mar#inal !enefit from smokin# one acka#e of ci#arettes a day is 2;. $i#arettes are 6 a ack. Anna dislikes ci#arette smoke and "er mar#inal !enefit from a smoke4free environment is 3; a day. f Betty drives "er car &it" Anna as a assen#er, 99999999. f Anna drives "er car &it" Betty as a assen#er, 99999999. A) Anna &ill offer Betty an amount !et&een -2 and 3; and Betty &ill not smoke< Betty does not smoke !ecause Betty &ill not offer Anna a "i#" enou#" rice to !e allo&ed to smoke B) Betty &ill smoke !ecause s"e o&ns t"e roerty ri#"ts in t"e car< Betty does not smoke !ecause Betty &ill not offer Anna a "i#" enou#" rice to !e allo&ed to smoke $) Betty &ill smoke !ecause s"e o&ns t"e roerty ri#"ts in t"e car< Betty &ill offer Anna 31 and Betty &ill smoke %) Anna &ill offer Betty an amount !et&een -2 and 3; and Betty &ill not smoke< Betty &ill offer Anna 31 and Betty &ill smoke E) Betty &ill smoke !ecause s"e is t"e car o&ner< Betty &ill offer Anna an amount !et&een -2 and 3; and Betty &ill smoke Ans&er' A (ye' $ (oic' =e#ative Externality' Pollution +ource' yEconLa! 3;) "en t"e #overnment issues marketa!le ermits A) eac" firm !uys or sells ermits until its mar#inal !enefit from ollutin# e?uals t"e market rice of a ermit. B) firms t"at "ave a lo& mar#inal cost of reducin# ollution sell t"eir ermits, and firms t"at "ave a "i#" mar#inal cost of reducin# ollution !uy ermits. $) t"e incentive to ollute is #reater t"an &"en t"e #overnment sets emission c"ar#es. %) t"e rice at &"ic" firms !uy and sell ermits is set !y t"e #overnment. E) firms t"at "ave a "i#" mar#inal cost of reducin# ollution sell t"eir ermits, and firms t"at "ave a lo& mar#inal cost of reducin# ollution !uy ermits. Ans&er' B (ye' $ (oic' =e#ative Externality' Pollution +ource' yEconLa!


162


31) All of t"e follo&in# statements a!out emission c"ar#es are correct excet A) t"e more ollution a firm creates, t"e more it ays in emission c"ar#es. B) emission c"ar#es are fre?uently used in =ort" America. $) t"e #overnment sets a rice er unit of ollution. %) to &ork out t"e emission c"ar#e t"at ac"ieves efficiency, t"e #overnment needs a lot of information a!out t"e ollutin# industry t"at is rarely availa!le. E) emission c"ar#es are fre?uently used in Euroe. Ans&er' B (ye' $ (oic' =e#ative Externality' Pollution +ource' yEconLa! 3*) A rivate cost of roduction is a cost t"at is !orne !y t"e 99999999 of a #ood or service. A social cost of roduction is a cost t"at is 99999999. A) consumer< !orne !y t"e roducer and !y everyone else on &"om t"e cost falls B) consumer< not !orne !y t"e roducer !ut !orne !y ot"er eole $) roducer< not !orne !y t"e roducer !ut !orne !y ot"er eole %) roducer< !orne !y t"e roducer and !y everyone else on &"om t"e cost falls E) roducer< !orne !y t"e consumer Ans&er' % (ye' $ (oic' =e#ative Externality' Pollution +ource' yEconLa! 3-) $onsider t"e roduction of esticide t"at ollutes a lake used !y a trout farmer. A marketa!le ermit A) creates an efficient outcome &"en t"e rice of t"e ermit is set e?ual to t"e external cost. B) cannot result in t"e same outcome as &"en roerty ri#"ts are assi#ned to t"e esticide roducer. $) cannot result in t"e same outcome as &"en roerty ri#"ts are assi#ned to t"e trout farm. %) cannot result in t"e same outcome as &"en t"e #overnment imoses a Pi#ovian tax. E) creates an efficient outcome &"en t"e rice of t"e ermits is set e?ual to t"e external !enefit. Ans&er' A (ye' $ (oic' =e#ative Externality' Pollution +ource' yEconLa! 32) f t"e mar#inal rivate cost of roducin# one kilo&att of o&er in Britis" $olum!ia e?uals five cents and t"e mar#inal social cost of eac" kilo&att e?uals nine cents, t"en t"e mar#inal external cost e?uals 99999999 er kilo&att. A) five cents B) nine cents $) four cents %) fourteen cents E) forty4five cents Ans&er' $ (ye' $ Pearson $anada nc.

163


33) f t"e roduction of a #ood creates ollution, t"en t"e A) mar#inal social !enefit curve lies a!ove t"e mar#inal rivate !enefit curve. B) mar#inal social cost curve lies a!ove t"e mar#inal rivate cost curve. $) mar#inal social !enefit curve lies !elo& t"e mar#inal rivate !enefit curve. %) mar#inal social cost curve lies !elo& t"e mar#inal rivate cost curve. E) mar#inal social !enefit curve intersects t"e mar#inal rivate cost curve at t"e efficient ?uantity. Ans&er' B (ye' $ 36) "en ood A is roduced, ollution is also roduced. "en t"e mar#inal social cost of roduction of ood A e?uals mar#inal social !enefit from ood A, t"en . t"ere is no ollution . resources are used efficiently A)  only B)  only $) neit"er  nor  %) !ot"  and  E) sometimes  and sometimes , !ut never !ot" simultaneously Ans&er' B (ye' $ 3) Producin# aer creates ollution. ("ere is no externality in t"e consumtion of aer. ("e efficient ?uantity of aer roduced occurs &"en t"e A) mar#inal social !enefit from aer is e?ual to 0ero. B) mar#inal social cost of t"e ollution from makin# aer is e?ual to 0ero. $) mar#inal rivate cost of t"e ollution from makin# aer is e? ual to 0ero. %) mar#inal rivate cost of aer e?uals t"e mar#inal rivate !enefit from aer. E) mar#inal social !enefit from aer is e?ual to t"e mar#inal social cost of  aer. Ans&er' E (ye' $ 38) A c"emical factory and a fis"in# clu! s"are a lake. Producin# c"emicals creates &ater ollution t"at "arms t"e fis". nitially t"e lake is o&ned !y no one. Heein# in mind t"e $oase t"eorem, suose transactions costs are lo& and t"e c"emical factory is #iven o&ners"i of t"e lake. $omared to t"e situation &it" no roerty ri#"ts, t"e ?uantity of c"emicals roduced A) decreases. B) stays t"e same. $) increases. %) c"an#es !ut t"e direction of t"e c"an#e is unkno&n. E) decreases only if t"e mar#inal external !enefit decreases. Ans&er' A (ye' $


166


16.- Positive Externality' Hno&led#e 1) ("e mar#inal rivate !enefit curve D !#) is a ne#atively4sloed strai#"t line. f mar#inal external !enefit decreases as outut increases, t"e mar#inal social !enefit curve is a ne#atively4 sloed strai#"t line A) arallel to and a!ove t"e !# curve. B) arallel to and !elo& t"e !# curve. $) a!ove t"e !# curve and steeer t"an t"e !# curve. %) a!ove t"e !# curve and flatter t"an t"e !# curve. E) !elo& t"e !# curve and flatter t"an t"e !# curve. Ans&er' $ %iff' 1 (ye' $ (oic' Positive Externality' Hno&led#e Use the figure below to answer the following questions.

Figure 16.3.1

*) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. f roduction is left to t"e rivate market, t"en t"e ?uantity roduced is A) 0ero. B) Q1. $) Q*. %) Q-. E) !et&een ; and Q1. Ans&er' $ %iff' 1 (ye' $ (oic' Positive Externality' Hno&led#e


16


-) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. f roduction is left to t"e rivate market, t"en t"e rice is A) P 1. B) P -. $) P *. %) #reater t"an P 2. E) P 2. Ans&er' $ %iff' 1 (ye' $ (oic' Positive Externality' Hno&led#e 2) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. f roduction is left to t"e rivate market, t"en at t"e e?uili!rium ?uantity t"e mar#inal social !enefit from consumtion is A) less t"an t"e mar#inal cost to roducers. B) less t"an t"e mar#inal social cost of roduction. $) e?ual to t"e mar#inal cost to roducers. %) e?ual to t"e mar#inal rivate !enefit from consumtion. E) #reater t"an t"e mar#inal cost to roducers. Ans&er' E %iff' * (ye' $ (oic' Positive Externality' Hno&led#e 3) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. f roduction is left to t"e rivate market, t"en A) t"e ?uantity roduced is less t"an t"e efficient ?uantity. B) t"e ?uantity roduced is #reater t"an t"e efficient ?uantity. $) rice is #reater t"an mar#inal social !enefit ?uantity. %) t"e mar#inal cost curve is "ori0ontal. E) none of t"e a!ove. Ans&er' A %iff' * (ye' $ (oic' Positive Externality' Hno&led#e 6) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. (o romote an efficient ?uantity t"e #overnment could #rant a su!sidy e?ual to A) 0ero. B) P 1. $) P - 4 P 1. %) P 2 4 P 1. E) P * 4 P 1. Ans&er' $ %iff' * (ye' $ (oic' Positive Externality' Hno&led#e Pearson $anada nc.

168


) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. f a su!sidy is #ranted t"at #enerates an efficient ?uantity, t"en ?uantity roduced is A) 0ero. B) Q1. $) Q*. %) Q-. E) #reater t"an Q-. Ans&er' % %iff' * (ye' $ (oic' Positive Externality' Hno&led#e 8) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. f a vouc"er is #iven to consumers t"at #enerates an efficient outcome, t"en consumers ay A) 0ero. B) P 1 er unit. $) P * er unit. %) P - er unit. E) P 2 er unit. Ans&er' B %iff' - (ye' $ (oic' Positive Externality' Hno&led#e :) 7efer to >i#ure 16.-.1. ("e fi#ure s"o&s t"e mar#inal rivate !enefit curve, t"e mar#inal social !enefit curve, and t"e market suly curve. f a vouc"er is #iven to consumers t"at #enerates an efficient outcome, t"en roducers receive a rice of A) 0ero. B) P 1 er unit. $) P * er unit. %) P - er unit. E) P 2 er unit. Ans&er' % %iff' - (ye' $ (oic' Positive Externality' Hno&led#e


16:


Use the table below to answer the following questions. Table 16.3.1

1;) 7efer to (a!le 16.-.1. ("e ta!le s"o&s mar#inal rivate !enefit and t"e mar#inal social !enefit from t"e consumtion of c"emical fertili0er and t"e mar#inal social cost of t"e roduction of fertili0er. $"oose t"e correct statement. A) ("e mar#inal external !enefit is *; er unit. B) ("e mar#inal external cost is 1; er unit. $) ("ere are no externalities associated &it" t"is market. %) ("e mar#inal external !enefit is 1; er unit. E) ("ere is not enou#" information rovided to determine &"et"er or not t"ere are externalities. Ans&er' A %iff' * (ye' $ (oic' Positive Externality' Hno&led#e 11) 7efer to (a!le 16.-.1. ("e ta!le s"o&s mar#inal rivate !enefit and t"e mar#inal social !enefit from t"e consumtion of c"emical fertili0er and t"e mar#inal social cost of t"e roduction of fertili0er. f roduction is left to t"e rivate market, t"e ?uantity roduced is A) 1 unit. B) * units. $) - units. %) 2 units. E) 3 units. Ans&er' $ %iff' * (ye' $ (oic' Positive Externality' Hno&led#e


1;


1*) 7efer to (a!le 16.-.1. ("e ta!le s"o&s mar#inal rivate !enefit and t"e mar#inal social !enefit from t"e consumtion of c"emical fertili0er and t"e mar#inal social cost of t"e roduction of fertili0er. f roduction is left to t"e rivate market, t"e market rice is A) ; a unit. B) 6; a unit. $) 3; a unit. %) 2; a unit. E) -; a unit. Ans&er' $ %iff' * (ye' $ (oic' Positive Externality' Hno&led#e 1-) 7efer to (a!le 16.-.1. ("e ta!le s"o&s mar#inal rivate !enefit and t"e mar#inal social !enefit from t"e consumtion of c"emical fertili0er and t"e mar#inal social cost of t"e roduction of fertili0er. f roduction is left to t"e rivate market, t"en at t"e rofit4maximi0in# outut level mar#inal A) social cost e?uals mar#inal rivate !enefit. B) rivate cost is less t"an mar#inal rivate !enefit. $) social cost is less t"an mar#inal rivate !enefit. %) social cost is #reater t"an mar#inal rivate !enefit. E) social !enefit is less t"an mar#inal rivate !enefit. Ans&er' A %iff' * (ye' $ (oic' Positive Externality' Hno&led#e 12) 7efer to (a!le 16.-.1. ("e ta!le s"o&s mar#inal rivate !enefit and t"e mar#inal social !enefit from t"e consumtion of c"emical fertili0er and t"e mar#inal social cost of t"e roduction of fertili0er. f roduction is left to t"e rivate market, t"en A) an efficient ?uantity is roduced. B) imosin# a tax leads to roduction of t"e efficient ?uantity. $) too muc" fertili0er is roduced. %) a system of marketa!le ermits leads to roduction of t"e efficient ?uantity. E) an inefficient ?uantity is roduced. Ans&er' E %iff' * (ye' $ (oic' Positive Externality' Hno&led#e


11


13) 7efer to (a!le 16.-.1. ("e ta!le s"o&s mar#inal rivate !enefit and t"e mar#inal social !enefit from t"e consumtion of c"emical fertili0er and t"e mar#inal social cost of t"e roduction of fertili0er. An efficient ?uantity is roduced if t"e #overnment A) su!sidi0es roduction !y *; er unit. B) su!sidi0es roduction !y 1; er unit. $) rovides vouc"ers for consumtion of *; er unit. %) taxes roduction !y 1; er unit. E) eit"er A or $. Ans&er' E %iff' - (ye' $ (oic' Positive Externality' Hno&led#e Use the figure below to answer the following questions.

Figure 16.3.2

16) 7efer to >i#ure 16.-.*. ("e fi#ure s"o&s t"e market for #ood #. o& many units of #ood # are roduced and consumed in an unre#ulated market A) ; units B) - units $) 3 units %) 6 units E) : units Ans&er' B %iff' 1 (ye' $ (oic' Positive Externality' Hno&led#e +ource' +tudy uide


1*


1) 7efer to >i#ure 16.-.*.("e fi#ure s"o&s t"e market for #ood #. "at is t"e efficient ?uantity of #ood # A) ; units B) - units $) 3 units %) 6 units E) : units Ans&er' $ %iff' * (ye' $ (oic' Positive Externality' Hno&led#e +ource' +tudy uide 18) n >i#ure 16.-.*. ("e fi#ure s"o&s t"e market for #ood #. $ "ic" of t"e follo&in# #overnment olicies creates an efficient outcome A) (ax t"e roduction of # !y - er unit. B) (ax t"e roduction of # !y 2 er unit. $) Provide vouc"ers for consumtion of # of 1 er unit. %) Provide vouc"ers for consumtion of # of - er unit. E) Provide vouc"ers for consumtion of # of 2 er unit. Ans&er' % %iff' * (ye' $ (oic' Positive Externality' Hno&led#e +ource' +tudy uide 1:) 7efer to >i#ure 16.-.*. ("e fi#ure s"o&s t"e market for #ood #. @nder u!lic roduction, consumers ay 99999999 for eac" unit of #. A) 0ero B) 1 $) * %) E) 2 Ans&er' B %iff' - (ye' $ (oic' Positive Externality' Hno&led#e *;) ("e devices t"e #overnment can use to ac"ieve a more efficient allocation of resources in t"e resence of external !enefits include all of t"e follo&in# excet A) su!sidies. B) atents. $) coyri#"ts. %) taxes. E) vouc"ers. Ans&er' % %iff' * (ye' $ (oic' Positive Externality' Hno&led#e


1-


*1) ("e devices t"e #overnment can use to ac"ieve a more efficient allocation of resources in t"e resence of external !enefits include all of t"e follo&in# excet A) intellectual roerty ri#"ts. B) su!sidies. $) u!lic roduction. %) marketa!le ermits. E) atents. Ans&er' % %iff' * (ye' $ (oic' Positive Externality' Hno&led#e +ource' +tudy uide **) $omlete t"e follo&in# sentence. Hno&led#e A) #enerates external !enefits. B) #enerates external costs. $) dislays diminis"in# mar#inal !enefit. %) is encoura#ed !y intellectual roerty ri#"ts. E) A and % are correct. Ans&er' E %iff' * (ye' $ (oic' Positive Externality' Hno&led#e *-) "ic" of t"e follo&in# is least likely to dislay diminis"in# mar#inal !enefit A) land B) la!our $) caital %) entrereneurs"i E) kno&led#e Ans&er' E %iff' * (ye' $ (oic' Positive Externality' Hno&led#e *2) f ositive externalities exist and roduction is left to t"e rivate market, t"en at t"e ?uantity roduced A) !"C  !"#. B) !"C F !"#. $) !"C G !"#. %) !"#  mar#inal external !enefit. E) !"#  1/ !"C . Ans&er' B %iff' * (ye' $ (oic' Positive Externality' Hno&led#e


12


*3) $"oose t"e incorrect statement. A) A atent encoura#es invention. B) A atent encoura#es innovation. $) A atent "as an economic cost. %) A atent creates a ne#ative externality. E) A atent roduces a monooly. Ans&er' % %iff' * (ye' $ (oic' Positive Externality' Hno&led#e *6) ("ree &ays #overnments can encoura#e roduction of #oods &it" external !enefits are A) rivate su!sidies, marketa!le ermits, and intellectual roerty ri#"ts. B) rivate su!sidies, marketa!le ermits, and vouc"ers. $) intellectual roerty ri#"ts, marketa!le ermits, and vouc"ers. %) taxes, emission c"ar#es, and marketa!le ermits. E) rivate su!sidies, vouc"ers, and intellectual roerty ri#"ts. Ans&er' E %iff' - (ye' $ (oic' Positive Externality' Hno&led#e *) ("e economic !enefit of a atent or coyri#"t must !e !alanced a#ainst A) t"e external !enefit from t"e #ood. B) t"e external cost of t"e #ood. $) t"e mar#inal rivate cost of t"e #ood. %) t"e cost of temorary monooly. E) t"e mar#inal social cost of t"e #ood. Ans&er' % %iff' - (ye' $ (oic' Positive Externality' Hno&led#e *8) n recent years, as rovincial #overnments attemt to !alance t"eir !ud#ets, t"ey "ave increased tuition fees considera!ly. ("is increase &ill likely result in A) more students. B) fe&er students. $) under4rovision of education comared to t"e efficient level. %) over4rovision of education comared to t"e efficient level. E) B and $. Ans&er' E %iff' * (ye' $ (oic' Positive Externality' Hno&led#e


13


*:) A atent is an examle of A) a su!sidy. B) a marketa!le ermit. $) a vouc"er. %) a tax. E) a le#al device for creatin# roerty ri#"ts. Ans&er' E %iff' 1 (ye' $ (oic' Positive Externality' Hno&led#e -;) (o increase efficiency, A) taxes are used to overcome !ot" external !enefits and external costs. B) su!sidies are used to overcome !ot" external !enefits and external costs. $) su!sidies are used to overcome external !enefits, and taxes to overcome external costs. %) taxes are used to overcome external !enefits, and su!sidies to overcome external costs. E) emissions c"ar#es are used to overcome external !enefits, and vouc"ers to overcome external costs. Ans&er' $ %iff' * (ye' $ (oic' Positive Externality' Hno&led#e -1) A market economy tends to 99999999 #oods &it" ne#ative externalities and 99999999 #oods &it" ositive externalities. A) overroduce< overroduce B) overroduce< underroduce $) underroduce< overroduce %) underroduce< underroduce E) roduce< consume Ans&er' B %iff' * (ye' $ (oic' Positive Externality' Hno&led#e +ource' +tudy uide -*) ("e outcome from a vouc"er sc"eme is efficient &"en t"e #overnment makes t"e value of t"e vouc"er e?ual to A) mar#inal external cost. B) mar#inal external !enefit. $) rivate external cost. %) rivate external !enefit. E) mar#inal social cost. Ans&er' B (ye' $ (oic' Positive Externality' Hno&led#e +kill' $oncetual AA$+B' 7eflective ("inkin#


16


--) A vouc"er can eliminate t"e dead&ei#"t loss and lead to an efficient outcome if t"e value of t"e vouc"er e?uals t"e 99999999 of t"e #ood. A) mar#inal external !enefit B) mar#inal social !enefit $) mar#inal rivate !enefit %) mar#inal social cost E) mar#inal external cost Ans&er' A (ye' $ (oic' Positive Externality' Hno&led#e +kill' $oncetual AA$+B' 7eflective ("inkin# Use the figure below to answer the following questions.

Figure 16.3.3

-2) 7efer to >i#ure 16.-.-. ("e fi#ure s"o&s t"e mar#inal rivate !enefit and mar#inal social cost of a university education. f societyCs external !enefit from university #raduates is 1;,;;; eac", t"en t"e A) mar#inal social cost curve lies 1;,;;; to t"e left of t"e rivate mar#inal !enefit curve. B) mar#inal social cost curve lies 1;,;;; to t"e ri#"t of t"e rivate mar#inal !enefit curve. $) mar#inal social !enefit curve lies 1;,;;; !elo& t"e rivate mar#inal !enefit curve. %) mar#inal social !enefit curve lies 1;,;;; a!ove t"e rivate mar#inal !enefit curve. E) mar#inal social !enefit curve is "ori0ontal. Ans&er' % (ye' $ (oic' Positive Externality' Hno&led#e +kill' Analytical AA$+B' Analytical +kills


1


-3) 7efer to >i#ure 16.-.-. ("e fi#ure s"o&s t"e mar#inal rivate !enefit and mar#inal social cost of a university education. +ocietyCs external !enefit from university #raduates is 1;,;;; eac". it" no su!sidy A) no students #o to university. B) less t"an 1; million students #o to university. $) 1; million students #o to university. %) more t"an 1; million students #o to university. E) none of t"e a!ove. Ans&er' $ (ye' $ (oic' Positive Externality' Hno&led#e +kill' Analytical AA$+B' Analytical +kills -6) 7efer to >i#ure 16.-.-. ("e fi#ure s"o&s t"e mar#inal rivate !enefit and mar#inal social cost of a university education. f societyCs external !enefit from university #raduates is 1;,;;; eac", t"en A) a su!sidy of 1;,;;; er student aid to t"e universities ac"ieves efficiency. B) a tax of 1;,;;; er student imosed on t"e universities ac"ieves efficiency. $) 1; million students er year is t"e efficient num!er students. %) a su!sidy of *;,;;; er student aid to t"e universities ac"ieves efficiency. E) none of t"e a!ove ans&ers are correct. Ans&er' A (ye' $ (oic' Positive Externality' Hno&led#e +kill' Analytical AA$+B' Analytical +kills -) All of t"e follo&in# statements are correct excet A) kno&led#e a!out one rocess sills over into ot"er se#ments of t"e economy. B) additional kno&led#e makes eole more roductive, and t"ere seems to !e no tendency for t"e additional roductivity from additional kno&led#e to diminis". $) kno&led#e "as no external !enefit. %) kno&led#e mi#"t !e an excetion to t"e rincile of diminis"in# mar#inal !enefit. E) it is necessary to use u!lic olicies to ensure t"at t"ose &"o develo ne& ideas "ave incentives to encoura#e an efficient level of effort. Ans&er' $ (ye' $ (oic' Positive Externality' Hno&led#e +ource' yEconLa!


18


-8) 7esearc" and develoment 99999999 create an external !enefit. it" no intervention, &e roduce too 99999999 researc" and develoment. A) does< little B) does not< muc" $) does not< little %) does< muc" E) none of t"e a!ove. 7esearc" and develoment create an external cost. Ans&er' A (ye' $ (oic' Positive Externality' Hno&led#e +ource' yEconLa! -:) 7esearc"ers roduce t"e efficient ?uantity of researc" and develoment if t"ey receive a vouc"er e?ual to t"e mar#inal 99999999 !enefit, or a su!sidy e?ual to t"e mar#inal 99999999 !enefit. Patents and coyri#"ts 99999999 result in an efficient amount of researc" and develoment. A) social< social< cannot B) social< social< can $) external< external< cannot %) external< external< can E) external< social< can Ans&er' % (ye' $ (oic' Positive Externality' Hno&led#e +ource' yEconLa! 2;) ost #overnments su!sidi0e !asic education !ecause A) t"ere are external costs associated &it" &ell educated citi0ens. B) t"e mar#inal social !enefit from education is #reater t"an t"e mar#inal rivate !enefit. $) of t"e existence of rivate sc"ools. %) t"e mar#inal social cost of education is #reater t"an t"e mar#inal rivate cost. E) ot"er&ise too many students &ill receive educations. Ans&er' B (ye' $ 21) overnments use su!sidies 99999999. A) as a means of increasin# #overnment sendin# B) &"en t"ey &ant to increase taxes $) to ac"ieve an efficient outcome in a market &it" external costs %) to ac"ieve an efficient outcome in a market &it" external !enefits E) and emission ermits to ac"ieve an efficient outcome in markets &it" external !enefits Ans&er' % (ye' $


1:

Parkin Ch16

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