ECO - 201 - Exam 3 Questions and Answers Already Passed
What can you say about the equilibrium quantity of production for a market with external costs? -
Answers The equilibrium market quantity is too high and the equilibrium market price is too low,
relative to the efficient point.
What can you say about the allocatively efficient level of output compared to the new equilibrium
market quantity after the tax (that is the same size as the external cost per unit of output) on producers
described above is imposed? - Answers They are the same.
In addition to taxes, what other regulation could the government impose that would achieve the
efficient outcome? - Answers The government would have to mandate that there be no quantity
produced greater than the allocative efficient quantity
Using the concepts we used to determine that "optimal amount," when does it make sense to have zero
pollution? - Answers if the marginal benefit of pollution reduction is greater than the costs of eliminating
pollution
In efforts to increase economic efficiency, governments should ______________ goods with external
costs. - Answers Tax
The economically efficient amount of pollution will be zero when which of the following is true? -
Answers When costs of pollution are greater than the marginal costs of pollution reduction at all levels
of pollution.
Consider a good produced in a competitive market that has external costs. Too ______________ of the
good will be produced for economic efficiency and the price will be ______________ than the price that
will convince consumers to purchase the efficient amount. - Answers much; lower
Consider a good with external costs. Which of the following best describes why the market does not
produce an allocatively efficient amount? - Answers The marginal social cost exceeds the marginal social
benefit.
Consider a good with external costs. Which of the following descriptions characterizes quantities of
goods between the market equilibrium quantity and the allocatively efficient quantity? - Answers These
quantities will be produced by the private market, but the government can eliminate these quantities
from production using a tax, resulting in higher economic efficiency.
Which of the following might explain the pattern of marginal benefits of pollution reduction you
calculated in the previous question? The marginal benefits to pollution: - Answers decrease with the
amount of pollution reduction because a little bit of pollution doesn't have many negative side effects,
whereas a lot of pollution can be harmful for health, productivity, and the environment.
, Which of the following represents the efficient amount of pollution reduction given the marginal
benefits the question two above and the marginal costs in the previous question of pollution reduction?
You may need to generate a graph that includes both marginal costs and marginal benefits to answer
this question. - Answers ~150,000 tons of pollution reduction
Consider a good produced in a competitive market, but one with external benefits. The market price will
result in too ______________ of the good for economic efficiency. The market price will be
______________ than the price that would convince producers to produce the efficient amount. -
Answers Little; Lower
Which of the following descriptions best characterizes public goods? - Answers Public goods are those
where it is hard to keep non-payers from using the good, but their use of the good does not negatively
impact others' ability to use it.
Which of the following descriptions best characterizes common resources? - Answers Common
resources are those where it is hard to keep non-payers from using the good, and their use of the good
negatively impacts others' ability to use it.
Which of these is an economically efficient manner of producing basic medical research? - Answers
Either of these will work:
Subsidize production of basic medical research by private producers
or
Government production of basic medical research
Consider a good with external benefits. Which of the following best describes why the market does not
produce an allocatively efficient amount? - Answers b
The marginal private cost of production equals the marginal private benefit of production but is less
than the marginal social benefit of production.
You have been charged with deciding on optimal fishing policies in order to both encourage growth in
the salmon population in the Atlantic and allow fishermen to earn a living. You will need to allow some
fishing, but not so much fishing that population counts are depleted for next year. Three proposals are
on the table for you to choose from.
Option 1: Institute a fishing "window" of 3 weeks wherein fishermen may fish as much as they wish, but
after three weeks they must stop.
Option 2: Institute a fishing "quota" that will limit the number of fish that any individual fisherman may
harvest from the waters.
Option 3: Sell a fixed number of licenses to harvest a certain number of fish.Which of these choices is
most likely to produce the outcome you are interested in? - Answers Option 3
What can you say about the equilibrium quantity of production for a market with external costs? -
Answers The equilibrium market quantity is too high and the equilibrium market price is too low,
relative to the efficient point.
What can you say about the allocatively efficient level of output compared to the new equilibrium
market quantity after the tax (that is the same size as the external cost per unit of output) on producers
described above is imposed? - Answers They are the same.
In addition to taxes, what other regulation could the government impose that would achieve the
efficient outcome? - Answers The government would have to mandate that there be no quantity
produced greater than the allocative efficient quantity
Using the concepts we used to determine that "optimal amount," when does it make sense to have zero
pollution? - Answers if the marginal benefit of pollution reduction is greater than the costs of eliminating
pollution
In efforts to increase economic efficiency, governments should ______________ goods with external
costs. - Answers Tax
The economically efficient amount of pollution will be zero when which of the following is true? -
Answers When costs of pollution are greater than the marginal costs of pollution reduction at all levels
of pollution.
Consider a good produced in a competitive market that has external costs. Too ______________ of the
good will be produced for economic efficiency and the price will be ______________ than the price that
will convince consumers to purchase the efficient amount. - Answers much; lower
Consider a good with external costs. Which of the following best describes why the market does not
produce an allocatively efficient amount? - Answers The marginal social cost exceeds the marginal social
benefit.
Consider a good with external costs. Which of the following descriptions characterizes quantities of
goods between the market equilibrium quantity and the allocatively efficient quantity? - Answers These
quantities will be produced by the private market, but the government can eliminate these quantities
from production using a tax, resulting in higher economic efficiency.
Which of the following might explain the pattern of marginal benefits of pollution reduction you
calculated in the previous question? The marginal benefits to pollution: - Answers decrease with the
amount of pollution reduction because a little bit of pollution doesn't have many negative side effects,
whereas a lot of pollution can be harmful for health, productivity, and the environment.
, Which of the following represents the efficient amount of pollution reduction given the marginal
benefits the question two above and the marginal costs in the previous question of pollution reduction?
You may need to generate a graph that includes both marginal costs and marginal benefits to answer
this question. - Answers ~150,000 tons of pollution reduction
Consider a good produced in a competitive market, but one with external benefits. The market price will
result in too ______________ of the good for economic efficiency. The market price will be
______________ than the price that would convince producers to produce the efficient amount. -
Answers Little; Lower
Which of the following descriptions best characterizes public goods? - Answers Public goods are those
where it is hard to keep non-payers from using the good, but their use of the good does not negatively
impact others' ability to use it.
Which of the following descriptions best characterizes common resources? - Answers Common
resources are those where it is hard to keep non-payers from using the good, and their use of the good
negatively impacts others' ability to use it.
Which of these is an economically efficient manner of producing basic medical research? - Answers
Either of these will work:
Subsidize production of basic medical research by private producers
or
Government production of basic medical research
Consider a good with external benefits. Which of the following best describes why the market does not
produce an allocatively efficient amount? - Answers b
The marginal private cost of production equals the marginal private benefit of production but is less
than the marginal social benefit of production.
You have been charged with deciding on optimal fishing policies in order to both encourage growth in
the salmon population in the Atlantic and allow fishermen to earn a living. You will need to allow some
fishing, but not so much fishing that population counts are depleted for next year. Three proposals are
on the table for you to choose from.
Option 1: Institute a fishing "window" of 3 weeks wherein fishermen may fish as much as they wish, but
after three weeks they must stop.
Option 2: Institute a fishing "quota" that will limit the number of fish that any individual fisherman may
harvest from the waters.
Option 3: Sell a fixed number of licenses to harvest a certain number of fish.Which of these choices is
most likely to produce the outcome you are interested in? - Answers Option 3
