ECON 2100 UGA TEST 1+2 QUESTIONS & ANSWERS
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 - answer -50, 35
(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. - answer -false
Why: it's a vertical summation
(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. - answer -true
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
Msc= 10+ 0.5q
Then, the marginal external cost (mec) at q=50 is - answer -15
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 - answer -b) is equal
to marginal private cost plus marginal external cost
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 - answer -30, 41
(t/f) suppose the inverse demand curves (for a public good) for two consumers are
given as follows:
Consumer#1: p1= 10 - qd
Consumer#2: 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 ? - answer
-false
Why: it should be 25 - 1.5qd (add the equations)
(t/f) a pure public good is one that is nonrival in consumption and yields benefits that are
excludable - answer -false
Why: non-excludable
Following are the demand estimates for an air filtration system in two districts of a town:
District#1: q=40 - 10p1
District#2: q=5 - 5p2
Where q is the percent of a pollutant to be filtered by the system, and p is the price in
millions of dollars. Determine the town's market demand for this public good. - answer -
p = -0.3q + 5
(t/f) a pure private good is one that is nonrival in consumption and yields benefits that
are excludable. - answer -false
Why: private good is rival and excludable
Under the coase theorem, when property rights to a resource belong to the recreational
users (assuming all conditions of coarse theorem hold), the users are willing to accept a
payment (p) for each unit, to have the resource polluted through production up to the
level of allocative efficiency as long as:
A) mec > p
B) p > mec
C) p < 0 - answer -b) p > mec
(t/f) for the coase theorem to lead to an efficient solution even when property rights are
assigned, damages need not be measurable - answer -false
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 - answer -50, 35
(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. - answer -false
Why: it's a vertical summation
(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. - answer -true
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
Msc= 10+ 0.5q
Then, the marginal external cost (mec) at q=50 is - answer -15
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 - answer -b) is equal
to marginal private cost plus marginal external cost
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 - answer -30, 41
(t/f) suppose the inverse demand curves (for a public good) for two consumers are
given as follows:
Consumer#1: p1= 10 - qd
Consumer#2: 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 ? - answer
-false
Why: it should be 25 - 1.5qd (add the equations)
(t/f) a pure public good is one that is nonrival in consumption and yields benefits that are
excludable - answer -false
Why: non-excludable
Following are the demand estimates for an air filtration system in two districts of a town:
District#1: q=40 - 10p1
District#2: q=5 - 5p2
Where q is the percent of a pollutant to be filtered by the system, and p is the price in
millions of dollars. Determine the town's market demand for this public good. - answer -
p = -0.3q + 5
(t/f) a pure private good is one that is nonrival in consumption and yields benefits that
are excludable. - answer -false
Why: private good is rival and excludable
Under the coase theorem, when property rights to a resource belong to the recreational
users (assuming all conditions of coarse theorem hold), the users are willing to accept a
payment (p) for each unit, to have the resource polluted through production up to the
level of allocative efficiency as long as:
A) mec > p
B) p > mec
C) p < 0 - answer -b) p > mec
(t/f) for the coase theorem to lead to an efficient solution even when property rights are
assigned, damages need not be measurable - answer -false
