Question

  

1. Which of the following is true of goods that give off negative externalities?

            a) a competitive industry typically produces too few of these goods

            b) the social cost is greater than the private cost at a given level of output

            c) to internalize the externality, the government should remove any tax on                                                 the sellers of the product

            d) both a) and b) are correct

            e) both b) and c) are correct

2. Which of the following would be an effective method of internalizing a negative          production externality?

            a) providing a firm with an unrestricted cash grant by the government

            b) passing legislation that would limit an industry’s production of the product

            c) decreasing taxes that the firm has to pay on its output

            d) both a) and c) are effective methods of internalizing negative production                                              externalities

            e) none of the above is correct

3. Which of the following is true concerning public goods and common resources?

            a) Public goods are both rival and excludable, while common resources are                                                neither rival nor excludable.

            b) Public goods are rival but not excludable, while common resources are neither                                       rival nor excludable.

            c) Public goods are rival and excludable, while common resources are also rival                                         and excludable.

            d) Public goods are neither rival nor excludable, while common resources are                                             also neither rival nor excludable.

            e) Public goods are neither rival nor excludable, while common resources are                                             rival but not excludable.

4. Which of the following is true and/or indicative of the free-rider problem?

            a) Consumers who enjoy the public good pay for their enjoyment.

            b) Consumers who enjoy the public good but don’t pay for it.

            c) The free-rider problem usually results in too many public goods being                                                    produced.

            d) both a) and c) are correct

            e) both b) and c) are correct

5. Suppose the equilibrium price of a good is $15, and that 250 units are sold at that price. If      zero units are sold at a price of $35, what is the consumer surplus?

            a) $0

            b) $2,500

            c) $3,750

            d) $5,000

            e) $8,750

Answer 1

Q1. Which of the following is true of goods that give off negative externalities?

Answer:            b) the social cost is greater than the private cost at a given level of output.

Q2  Which of the following would be an effective method of internalizing a negative          production externality?

Answer: b) passing legislation that would limit an industry’s production of the product

Q3.  Which of the following is true concerning public goods and common resources?

Answer: e) Public goods are neither rival nor excludable, while common resources are rival but not excludable.

Q4. Which of the following is true and/or indicative of the free-rider problem?

Answer: b) Consumers who enjoy the public good but don’t pay for it.

Q5. Suppose the equilibrium price of a good is $15, and that 250 units are sold at that price. If      zero units are sold at a price of $35, what is the consumer surplus?

Answer:   b) $2,500 (formula: ½q * change in P - that is, ½* 250*20 = 2500)