Final Exam Multiple Choice Review ECON-115 Questions with Accurate Answers

Final Exam Multiple Choice Review
ECON-115 Questions with Accurate
Answers

An externality is
A) a marginal social cost.
B) the additional amount consumers have to pay to consume an additional amount of a
good or service. C) an additional gain received by consumers from decisions made by
the government.
D) an additional cost imposed by the government on producers.
E) a cost or a benefit from an action that falls on someone other than the person or firm
choosing the action - ANSWERSE) a cost or a benefit from an action that falls on
someone other than the person or firm choosing the action

Which of the following illustrates the concept of a negative externality?
A) Smoking harms the health of nearby nonsmokers. B) Smoking harms the health of
the smoker.
C) Bad weather reduces the size of the wheat crop. D) A reduction in the size of the
wheat crop causes income of wheat farmers to fall.
E) Public health services reduce the transmission of disease - ANSWERSA) Smoking
harms the health of nearby nonsmokers.

An example of an activity that creates a positive consumption externality is
A) a flu vaccination.
B) logging, which pollutes rivers.
C) locating beehives next to an orange orchard.
D) a noisy party.
E) smoking, which harms the health of a bystander. - ANSWERSA) a flu vaccination.

A private cost of production is a cost that is borne by the ________ of a good or service.
A social cost of production is a cost that is ________.
A) producer; not borne by the producer but borne by other people
B) consumer; not borne by the producer but borne by other people
C) producer; borne by the consumer
D) consumer; borne by the producer and by everyone else on whom the cost falls
E) producer; borne by the producer and by everyone else on whom the cost falls -
ANSWERSE) producer; borne by the producer and by everyone else on whom the cost
falls

,If the marginal private cost of producing one kilowatt of power in British Columbia
equals five cents and the marginal social cost of each kilowatt equals nine cents, then
the marginal external cost equals ________ per kilowatt.
A) four cents
B) nine cents
C) forty-five cents
D) fourteen cents
E) five cents - ANSWERSA) four cents

Refer to Figure 15.2.1. The figure shows the marginal private cost curve, the marginal
social cost curve and the market demand curve of a mining firm. If the market is
unregulated, then the quantity produced is A) zero.
B) Q1.
C) Q2.
D) Q3.
E) between Q2 and Q3. - ANSWERSD) Q3.

Refer to Figure 15.2.1. The figure shows the marginal private cost curve, the marginal
social cost curve and the market demand curve of a mining firm. If the market is
unregulated, then at the equilibrium output the marginal social cost of production is
A) equal to the marginal private cost of production. B) greater than the marginal benefit
of consumers.
C) equal to the marginal benefit of consumers.
D) less than the marginal private cost of production. E) less than the marginal benefit of
consumers. - ANSWERSB) greater than the marginal benefit of consumers.

Effective strategies for addressing the problem of negative externalities include
A) imposing recycling laws.
B) stressing the use of renewable resources.
C) closing down a polluting industry.
D) taxing the profit of polluting companies at twice the rate of non-polluting companies.
E) imposing taxes on the activity that generates the pollution. - ANSWERSE) imposing
taxes on the activity that generates the pollution.

In the absence of government intervention, a profit-maximizing firm producing a good
with an external cost will produce a quantity at which
A) marginal social benefit equals marginal social cost.
B) price is less than marginal social benefit.
C) price is less than marginal private cost.
D) price is greater than marginal private cost.
E) price equals marginal private cost. - ANSWERSE) price equals marginal private cost.

If negative externalities exist, then in a market with no property rights
A) MSC = MSB.
B) MC > MSC.
C) MSC > MSB.

, D) MSC = marginal external cost.
E) MSC < MSB. - ANSWERSC) MSC > MSB.

CoolU has solved its smoking problem by allocating each student 5 smoking permits a
day, and allowing trading. This is an example of
A) emission charges.
B) a voucher.
C) cap-and-trade.
D) a pollution tax.
E) the Coase theorem. - ANSWERSC) cap-and-trade.

if the production of a good creates pollution, then the
A) marginal social benefit curve intersects the marginal private cost curve at the efficient
quantity. B) marginal social benefit curve lies below the marginal private benefit curve.
C) marginal social cost curve lies below the marginal private cost curve.
D) marginal social benefit curve lies above the marginal private benefit curve.
E) marginal social cost curve lies above the marginal private cost curve. - ANSWERSE)
marginal social cost curve lies above the marginal private cost curve.

Refer to Figure 15.3.1. The figure shows the marginal private benefit curve, the
marginal social benefit curve, and the market supply curve. If production is left to the
private market, then the quantity produced is
A) zero.
B) Q1.
C) Q2.
D) Q3.
E) between 0 and Q1. - ANSWERSC) Q2.

Refer to Figure 15.3.1. The figure shows the marginal private benefit curve, the
marginal social benefit curve, and the market supply curve. If production is left to the
private market, then
A) the quantity produced is less than the efficient quantity.
B) the marginal cost curve is horizontal.
C) the quantity produced is greater than the efficient quantity.
D) the quantity produced is zero.
E) price is greater than marginal social benefit - ANSWERSA) the quantity produced is
less than the efficient quantity.

The devices the government can use to achieve a more efficient allocation of resources
in the presence of external benefits include all of the following except
A) taxes.
B) patents.
C) copyrights.
D) subsidies.
E) vouchers. - ANSWERSA) taxes.