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Homework answers / question archive / ECO 2023: Principle of Microeconomics Spring 2019 Quiz 3 Total Marks: 50   Section A: 25 Points (answer the following multiple choice questions, each question is worth of 1 points)

ECO 2023: Principle of Microeconomics Spring 2019 Quiz 3 Total Marks: 50   Section A: 25 Points (answer the following multiple choice questions, each question is worth of 1 points)

Economics

ECO 2023: Principle of Microeconomics

Spring 2019

Quiz 3

Total Marks: 50

 

Section A: 25 Points (answer the following multiple choice questions, each question is worth of 1 points).

1. A carbon tax which is designed to reduce pollution is an example of a

 

A) command-and-control policy.

B) government administrative rule.

C) noneffective incentive.

D) market-based policy.

 

2. Conceptually, the efficient level of carbon emissions is the level for which

 

A) the marginal benefit of reducing carbon emissions is maximized.

B) the marginal cost of reducing carbon emissions is minimized.

C) the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.

D) the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized.

 

3. An externality is

 

A) a benefit realized by the purchaser of a good or service.

B) a cost paid for by the producer of a good or service.

C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

D) anything that is external or not relevant to the production of a good or service.

 

4. Which of the following is a source of market failure?

 

A) unforeseen circumstances which leads to the bankruptcy of many firms

B) a lack of government intervention in a market

C) incomplete property rights or inability to enforce property rights

D) an inequitable income distribution

 

 

 

 

 

 

5. What is a market failure?

 

A) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

B) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.

C) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

D) It refers to a breakdown in a market economy because of widespread corruption in government.

 

6. Which of the following activities create a negative externality?

 

A) cleaning up the sidewalk on your block

B) graduating from college

C) repainting the house you live in to improve its appearance

D) keeping a junked car parked on your front lawn

 

7. Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

 

A) the private cost of production

B) the social cost of production

C) the external cost of production

D) the explicit cost of production

 

8. Which of the following is an example of a positive externality?

 

A) raising the speed limit to 60 mph in school zones

B) planting trees along a sidewalk which add beauty and create shade

C) permitting smoking on commercial airplanes

D) a police department stops enforcing DUI laws

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 5-1 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2.

 

9. Refer to Figure 5-1. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows

 

A) the effect of a positive externality in the production of a good.

B) the effect of a negative externality in the production of a good.

C) the effect of an external cost imposed on a producer.

D) the effect of an external benefit such as a subsidy granted to consumers of a good.

 

10. Refer to Figure 5-1. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S1 represent?

 

A) the market supply curve reflecting external cost

B) the market supply curve reflecting implicit cost

C) the market supply curve reflecting marginal social cost

D) the market supply curve reflecting marginal private cost

 

11. Refer to Figure 5-1. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S2 represent?

 

A) the market supply curve reflecting marginal private cost

B) the market supply curve reflecting marginal social cost

C) the market supply curve reflecting external cost

D) the market supply curve reflecting implicit cost

 

 

 

 

12. Refer to Figure 5-2. The efficient output level is

 

A) Qd.

B) Qb.

C) Qa.

D) Qb - Qd.

 

13. Refer to Figure 5-2. The private profit-maximizing quantity for the firm is

 

A) Qa.

B) Qb.

C) Qb - Qd.

D) Qd.

 

 

 

 

 

 

 

14. A free market fails when

 

A) there is government intervention.

B) there is an external effect in either production, consumption, or both.

C) firms that produce goods which create positive externalities go bankrupt.

D) firms that produce goods which create negative externalities earn high profits.

 

15. In economics, the optimal level of pollution is

 

A) zero.

B) the level for which the total benefit from reducing the pollution is the greatest.

C) the level for which the marginal benefit from reducing the pollution is the greatest.

D) the level for which the net benefit from reducing the pollution is the greatest.

 

16. The Coase theorem states that

 

A) government intervention is always needed if externalities are present.

B) assigning property rights is the only thing the government should do in a market economy.

C) if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

D) a free-market equilibrium is the best solution to address externalities.

 

 

 

 

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.

 

 

 

17. Refer to Figure 5-9. The efficient output is

 

A) Q1.

B) Q2.

C) Q3.

D) Q4.

 

18. Refer to Figure 5-9. The private profit-maximizing output level is

 

A) Q1.

B) Q2.

C) Q3.

D) Q4.

 

19. Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?

 

A) (P2- P1) per unit of output

B) (P2- P0) per unit of output

C) (P1- P0) per unit of output

D) P1 per unit of output

 

 

 

 

Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-10.

 

 

 

 

 

 

 

20. Refer to Figure 5-10. One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidize these vaccinations. What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits?

 

A) PE

B) (PE - PG)

C) (PE - PF)

D) (PF - PG)

 

21. Refer to Figure 5-10. What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations?

 

A) (PE × QE)

B) (PF × QF)

C) value equal to the area of FEG

D) value equal to the area of QFFGQE

 

22. Classifying a good as rival means

 

A) that the good is produced in a competitive market.

B) that there is a shortage of the good.

C) that when one person consumes a unit of the good no one else can consume it.

D) anyone who does not pay for the good cannot consume it.

 

23. The free rider problem refers to a situation in which

 

A) people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.

B) the marginal cost of allowing additional consumers to consume a public good is zero.

C) high income individuals subsidize the production of goods, such as education, that make society better off.

D) markets fail to allocate resources efficiently when benefits outweigh costs.

 

24. Which of the following is an example of a common resource?

 

A) elephants in the wild

B) lions in a zoo

C) a college education

D) public transportation

 

 

 

 

 

Section B: 5 Points (mention whether the following statements are TRUE or FALSE, each question is worth of 1 points).

 

  1. When there is a negative externality, the competitive output is greater than the economically efficient output level.

AnsT

 

2.The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.

 

AnsF

 

3. A product is considered to be excludable if it is jointly owned by all members of a community.

Ans F

 

4.A public good is a good that is both rival and excludable.

Ans F

 

5. A quasi-public good differs from a public good in that unlike a public good, it is possible to keep those who do not pay for the quasi-public good from enjoying the benefits of the good.

AnsT

 

 

 

 

6. State whether each of the following goods and services is rival or nonrival, excludable nonexcludable or both:

 

  1. a freeway during peak commute hours

AnsQuasi-Good (Non-rival Excludable)

  1. an online college course

AnsPrivate Good (Rival Exclusive)

c.   infectious disease prevention

Ans Public Good (Non-Rival, Non-Excludable)

  1. open source software such as Linux

AnsPublic Good

e.   a movie showing at Century Theatres

AnsPrivate Good

 

 

 

 

 

 

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