ECON 2100 UGA TEST 1 AND 2 QUESTIONS WITH SOLVED ANSWERS LATES
2025 UPDATE
1. a producer releases chemical waste into a stream. The negative effects of
chemical waste release are not captured by the private market leading to a
market failure.
Suppose Q is the amount of chemical waste in thousands of barrels, and P is
the price per barrel. The marginal social benefit (MSB), marginal private cost
(MPC) and marginal external cost (MEC), respectively, are
MSB= 50 - 0.3Q
MPC= 10 + 0.5Q
MEC= 0.2Q
The competitive equilibrium quantity and price, respectively, are VERIFIED ANS 5
35
2. (T/F) In theory, the market demand curve for a pure public good can be
obtained by a horizontal summation of individual demand curves for that
good. VERIFIED ANS False
why VERIFIED ANS it's a vertical summation
3. (T/F) A competitive equilibrium in the presence of a negative production
externality for a good will lead to overproduction of that good because the
market ignores the cost associated with the externality. VERIFIED ANS True
4. Assume that production level (Q) is 50 units. If the marginal private cost (MPC)
and marginal social cost (MSC) of production, respectively, are
MPC= 10 + 0.2Q
https://www.stuvia.com/user/MBoffin
, MSC= 10+ 0.5Q
Then, the marginal external cost (MEC) at Q=50 is VERIFIED ANS 15
5. When a negative production externality is generated, then the marginal social
cost is
a) the same as marginal private cost
b) is equal to marginal private cost plus marginal external cost
c) is equal to marginal private cost minus marginal external cost VERIFIED ANS
b) is equal to marginal private cost plus marginal external cost
https://www.stuvia.com/user/MBoffin
, 6. a producer releases chemical waste into a stream. The negative effects of
chemical waste release are not captured by the private market leading to a
market failure.
Suppose Q is the amount of chemical waste in thousands of barrels, and P is
the price per barrel. The marginal social benefit (MSB), marginal private cost
(MPC) and marginal external cost (MEC), respectively, are
MSB= 50 - 0.3Q
MPC= 20 + 0.5Q
MEC= 0.2Q
the allocatively efficient quantity and price, respectively, are VERIFIED ANS 30, 41
7. (T/F) Suppose the inverse demand curves (for a public good) for two con-
sumers are given as follows VERIFIED ANS
Consumer#1 VERIFIED ANS p1=
10 - Qd Consumer#2 VERIFIED
ANS p2= 15 - 0.5Qd
Where p1, p2 are the demand prices ($/unit) or willingness to pay for the two
consumers, respectively.
Then is the market demand curve for this public good is given as P= 25 - Qd
? VERIFIED ANS False
why VERIFIED ANS it should be 25 - 1.5Qd (add the equations)
8. (T/F) A pure public good is one that is nonrival in consumption and yields
https://www.stuvia.com/user/MBoffin
2025 UPDATE
1. a producer releases chemical waste into a stream. The negative effects of
chemical waste release are not captured by the private market leading to a
market failure.
Suppose Q is the amount of chemical waste in thousands of barrels, and P is
the price per barrel. The marginal social benefit (MSB), marginal private cost
(MPC) and marginal external cost (MEC), respectively, are
MSB= 50 - 0.3Q
MPC= 10 + 0.5Q
MEC= 0.2Q
The competitive equilibrium quantity and price, respectively, are VERIFIED ANS 5
35
2. (T/F) In theory, the market demand curve for a pure public good can be
obtained by a horizontal summation of individual demand curves for that
good. VERIFIED ANS False
why VERIFIED ANS it's a vertical summation
3. (T/F) A competitive equilibrium in the presence of a negative production
externality for a good will lead to overproduction of that good because the
market ignores the cost associated with the externality. VERIFIED ANS True
4. Assume that production level (Q) is 50 units. If the marginal private cost (MPC)
and marginal social cost (MSC) of production, respectively, are
MPC= 10 + 0.2Q
https://www.stuvia.com/user/MBoffin
, MSC= 10+ 0.5Q
Then, the marginal external cost (MEC) at Q=50 is VERIFIED ANS 15
5. When a negative production externality is generated, then the marginal social
cost is
a) the same as marginal private cost
b) is equal to marginal private cost plus marginal external cost
c) is equal to marginal private cost minus marginal external cost VERIFIED ANS
b) is equal to marginal private cost plus marginal external cost
https://www.stuvia.com/user/MBoffin
, 6. a producer releases chemical waste into a stream. The negative effects of
chemical waste release are not captured by the private market leading to a
market failure.
Suppose Q is the amount of chemical waste in thousands of barrels, and P is
the price per barrel. The marginal social benefit (MSB), marginal private cost
(MPC) and marginal external cost (MEC), respectively, are
MSB= 50 - 0.3Q
MPC= 20 + 0.5Q
MEC= 0.2Q
the allocatively efficient quantity and price, respectively, are VERIFIED ANS 30, 41
7. (T/F) Suppose the inverse demand curves (for a public good) for two con-
sumers are given as follows VERIFIED ANS
Consumer#1 VERIFIED ANS p1=
10 - Qd Consumer#2 VERIFIED
ANS p2= 15 - 0.5Qd
Where p1, p2 are the demand prices ($/unit) or willingness to pay for the two
consumers, respectively.
Then is the market demand curve for this public good is given as P= 25 - Qd
? VERIFIED ANS False
why VERIFIED ANS it should be 25 - 1.5Qd (add the equations)
8. (T/F) A pure public good is one that is nonrival in consumption and yields
https://www.stuvia.com/user/MBoffin
