Econ 2100 UGA Test 1 and 2
with complete verified
solutions
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:
with complete verified
solutions
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:
