TEST BANK FOR CHAPTER 16: Externalities and Public Goods

TEST BANK FOR
TEST CHAPTER
BANK 16 : 16:
FOR CHAPTER EXTERNALITIES
Externalities and AND
Public PUBLIC
Goods GOODS
MULTIPLE CHOICE

1. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that
the chemicals used to keep the oranges insect-free damage the environment by an estimated
$1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. The market
equilibrium quantity is
a. 400
b. 450
c. 500
d. 550
ANS: b

2. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that
the chemicals used to keep the oranges insect-free damage the environment by an estimated
$1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. The total dollar
value damage to society is
a. 400
b. 450
c. 500
d. 550
ANS: b

3. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that
the chemicals used to keep the oranges insect-free damage the environment by an estimated
$1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. The price
consumers would have to pay for the market to achieve the socially optimal level of
production is
a. 5
b. 5.5
c. 6
d. 6.5
ANS: c

4. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that
the chemicals used to keep the oranges insect-free damage the environment by an estimated
$1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. The tax that
would have to exist to achieve the socially optimal level of production would be
a. $0
b. $.50
c. $1
d. $2
ANS: c




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, 2 Chapter 16: Externalities and Public Goods


5. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that
the chemicals used to keep the oranges insect-free damage the environment by an estimated
$1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. The price that
suppliers would receive after they paid the optimal tax would be
a. 4
b. 4.5
c. 5
d. 5.5
ANS: c

6. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that
the chemicals used to keep the oranges insect-free damage the environment by an estimated
$1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. The “optimal”
amount of environmental damage would be
a. $0
b. $400
c. $450
d. $500
ANS: b

7. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that
the chemicals used to keep the oranges insect-free damage the environment by an estimated
$1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. If regulators
limited production to 200 bushels, the deadweight loss relative to the option of setting the
optimal tax would be would be
a. $0
b. $200
c. $500
d. $1000
ANS: c

8. Suppose residents of Toadhop live on the Quabache River, a river prone to flooding. Suppose
there are 1000 (type A) people who value flood control more than the 1000 (type B) people.

Type A Demand QD = 100 - P
Type B Demand QD = 50 - P

where Q measures the quality of flood control. If the price of a unit of flood control is
$100,000 and the citizens of Toadhop did not work together the amount of flood control
purchased would be
a. 0
b. 10
c. 25
d. 70
ANS: a




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