Ch

Question

Ch.9 worksheet

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. The term “market failure” refers to:

a.	cutthroat competition among firms.
b.	an unsuccessful advertising campaign that does not increase demand.
c.	a firm that is forced out of business because of excess losses.
d.	a product that fails to sell.
e.	a market that fails to allocate resources efficiently.

____ 2. Copyright laws exist to:

a.	eliminate negative externalities.	d.	solve the tragedy of the commons.
b.	eliminate public goods.	e.	protect consumers.
c.	limit free-riding.

____ 3. Driving in the city is an example of a good that is:

a.	excludable.	d.	non-rival.
b.	rival.	e.	excludable and non-rival.
c.	non-excludable and rival.

____ 4. Visiting the public beach during summer is an example of an activity that is:

a.	excludable.	d.	non-rival.
b.	rival.	e.	excludable and non-rival.
c.	non-excludable and rival.

____ 5. Which of the following characteristics best defines a private good?

a.	rival and excludable
b.	rival and non-excludable
c.	non-rival and non-excludable
d.	non-rival and excludable
e.	a good that is never produced by the government

____ 6. The market works efficiently in the absence of externalities if the good is:

a.	rival and excludable.
b.	non-rival and non-excludable.
c.	rival and non-excludable.
d.	non-rival and excludable.
e.	rival and either excludable or non-excludable.

____ 7. A free-rider problem exists when:

a.	people receive a benefit for which they do not need to pay.
b.	firms impose a cost on third parties.
c.	negative externalities exist.
d.	a private good is produced.
e.	any market is in equilibrium.

____ 8. A good that is non-rival and non-excludable is defined as a ________ good.

a.	private	d.	club
b.	public	e.	government
c.	common-resource

____ 9. ________ goods can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

a.	Private	d.	Public
b.	Foreign	e.	Government
c.	Common-resource

____ 10. A major reason why public goods are NOT supplied by the market is the:

a.	free-rider problem.
b.	existence of negative externalities.
c.	fact that no one is willing to pay for them.
d.	fact that public goods are rival.
e.	fact that no firm would be able to earn a profit by producing them.

____ 11. The ability to download music and movies from the Internet without paying is:

a.	an example of a negative externality.
b.	an example of a club good.
c.	an illegal form of free-riding.
d.	an illustration of the tragedy of the commons.
e.	something that anyone who pays taxes should be allowed to do.

____ 12. Which of the following characteristics best defines a common-resource good?

a.	rival and excludable
b.	rival and non-excludable
c.	non-rival and non-excludable
d.	non-rival and excludable
e.	a good that is never produced by the government

____ 13. A good that is rival and non-excludable is defined as a ________ good.

a.	private	d.	normal
b.	public	e.	government
c.	common-resource

____ 14. Common resources are:

a.	overused.	d.	always owned by the government.
b.	underused.	e.	never owned by anyone.
c.	optimally used.

____ 15. Which of the following is the best example of a common-resource good?

a.	a fireworks display	d.	fish in a lake
b.	a lighthouse	e.	the production of gasoline
c.	cable television

____ 16. The tragedy of the commons occurs for goods that are:

a.	rival and excludable.
b.	rival and non-excludable.
c.	non-rival and non-excludable.
d.	non-rival and excludable.
e.	never produced by the government.

____ 17. Global warming is an example of:

a.	the tragedy of the commons.
b.	a public good.
c.	the government good problem.
d.	a positive externality.
e.	a problem that has an easy solution.

____ 18. A carbon tax would be an efficient method of addressing the problem of global warming because:

a.	carbon taxes are an external cost.
b.	it forces firms to internalize the external cost of emissions.
c.	it eliminates the positive externalities associated with global warming.
d.	firms are likely to prefer the carbon tax over the cap-and-trade policy.
e.	it is less likely than the cap-and-trade policy to result in rising prices.

____ 19. The costs or benefits of a market activity that affect a third party are called:

a.	externalities.	d.	internal costs.
b.	public goods.	e.	common-resource goods.
c.	club goods.

____ 20. The personal decisions of consumers and firms are based on ________ costs.

a.	external	d.	third-party
b.	social	e.	public-good
c.	internal

____ 21. The amount you pay for gasoline for your car is an example of a(n) ________ cost.

a.	internal	d.	third-party
b.	social	e.	public-good
c.	external

____ 22. The costs of a market activity paid for by an individual NOT engaged in the market activity are ________ costs.

a.	external	d.	social
b.	internal	e.	common
c.	free-rider

____ 23. An external cost is best defined as the cost of an activity paid for by:

a.	the individual who is engaged in the activity.
b.	the government.
c.	a third party.
d.	a free-rider.
e.	the individual and the third party.

____ 24. Which of the following is true?

a.	social costs = internal costs – external costs
b.	social costs = internal costs + external costs
c.	internal costs = social costs + external costs
d.	external costs = social costs + internal costs
e.	internal costs – social costs = external costs

____ 25. The cost of an activity paid for by the individual and the third party is defined as a(n) ________ cost.

a.	internal	d.	third-party
b.	social	e.	public-good
c.	external

____ 26. You drive to work each day. The best example of an internal cost is the:

a.	amount of pollution emitted by your car.
b.	congestion created by your car being on the road.
c.	amount the government paid to build the road.
d.	amount you pay to maintain your car.
e.	amount of money you save each day by avoiding the toll roads.

____ 27. For a market to work efficiently:

a.	the external costs must be paid.
b.	all external costs must be eliminated.
c.	all internal costs must be eliminated.
d.	the social costs must be equal to the internal costs.
e.	all pollution must be eliminated.

____ 28. Refer to the accompanying table, where Q represents the quantity produced, internal cost and social cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

The external cost is equal to ________ per unit.

a.	$60	d.	$50
b.	$70	e.	$30
c.	$20

____ 29. Your neighbor likes to mow his grass each Saturday at 7 A.M. and the noise invariably wakes you up. This is an example of:

a.	a negative externality.	d.	the free-rider problem.
b.	the tragedy of the commons.	e.	a positive externality.
c.	an internal cost.

____ 30. Your roommate is studying to be a drummer in a rock band. She practices in your apartment every evening for three hours and the noise makes it difficult for you to concentrate. This is an example of:

a.	a negative externality.	d.	the free-rider problem.
b.	the tragedy of the commons.	e.	a positive externality.
c.	an internal cost.

____ 31. A government decision to impose a tax on the sale of plastic disposable water bottles is an example of:

a.	a positive externality.	d.	an external cost.
b.	internalizing the externality.	e.	industry discrimination.
c.	the third-party problem.

Refer to the accompanying figure to answer the three questions that follow.

____ 32. At the market equilibrium, price is equal to ________ units of the good are produced.

a.	$18, and 70	d.	$14, and 50
b.	$14, and 70	e.	$18, and 50
c.	$12, and 50

____ 33. The figure best illustrates what type of market?

a.	The good produced creates a positive externality.
b.	The good produced creates a negative externality.
c.	The good produced is a governmental good.
d.	The good produced is a public good.
e.	Firms in this industry have been given a subsidy to encourage more production.

____ 34. To achieve the social optimum, the government could set a tax equal to ________ per unit sold.

a.	$6	d.	$3
b.	$4	e.	$5
c.	$2

Consider the accompanying figure to answer the three questions that follow.

____ 35. When a negative externality exists and the government does NOT intervene, which point best identifies the market equilibrium?

a.	A	d.	D
b.	B	e.	either C or D
c.	C

____ 36. A positive externality exists and the government does NOT intervene. Which point best identifies the market equilibrium?

a.	A	d.	D
b.	B	e.	either C or D
c.	C

____ 37. When a positive externality exists, which point best identifies the social optimum?

a.	A	d.	D
b.	B	e.	either A or D
c.	C

____ 38. Consider a market with a negative externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision.

a.	over-produce; external benefit	d.	under-produce; external cost
b.	under-produce; external benefit	e.	over-produce; internal benefit
c.	over-produce; external cost

____ 39. Refer to the accompanying figure. Which area represents the difference between the social supply curve and the internal supply curve associated with producing at the market equilibrium instead of the social optimum?

a.	A	d.	C
b.	B	e.	A + B + C
c.	A + B

____ 40. Which of the following is a cost of internalizing a negative externality?

a.	Less output is produced.
b.	External costs are larger.
c.	The level of pollution rises.
d.	Taxes must increase to cover the external cost.
e.	The government must pay firms to encourage them to change production techniques.

____ 41. If government regulation forces firms in an industry to internalize the externality, then the:

a.	supply curve shifts to the left.
b.	supply curve shifts to the right.
c.	demand curve shifts to the left.
d.	demand curve shifts to the right.
e.	supply curve and the demand curve shift to the left.

____ 42. If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to ________ and the equilibrium quantity to ________.

a.	increase; increase	d.	decrease; increase
b.	increase; decrease	e.	increase; remain unchanged
c.	decrease; decrease

____ 43. When a negative externality is NOT internalized, then the equilibrium price of the good produced is too ________ and the equilibrium quantity produced is too ________.

a.	high; high	d.	high; low
b.	low; low	e.	expensive; inefficient
c.	low; high

____ 44. The government identifies a situation where production of a good is generating a negative externality. A reasonable option for the government to consider is to:

a.	impose a tax on the sale of this good.
b.	pass a law preventing the production of this good.
c.	subsidize the cost of producing the good.
d.	pass a law preventing the consumption of this good.
e.	ignore the problem.

____ 45. If the government decides to adopt a carbon tax, the price of goods whose production generates carbon emissions will ________ and the quantity produced will ________.

a.	increase; increase	d.	decrease; increase
b.	increase; decrease	e.	decrease; decrease
c.	increase; remain unchanged

____ 46. Which activity is most likely to create a positive externality?

a.	You drive downtown each day.
b.	An oil refinery operates for 16 hours each day.
c.	A new airport is built in a big city.
d.	A person receives a flu shot.
e.	The government offers reduced-cost financing toward the purchase of a new car.

____ 47. Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

a.	the commons problem.	d.	the free-rider problem.
b.	the tragedy of the commons.	e.	a positive externality.
c.	an internal cost.

____ 48. Refer to the accompanying figure. Which area represents the difference between the social supply curve and the internal supply curve associated with producing at the market equilibrium instead of the social optimum?

a.	A	d.	C
b.	B	e.	A + B + C
c.	A + B

____ 49. The term “government failure” refers to when:

a.	the government runs a budget deficit.
b.	the government defaults on its debt.
c.	government intervention makes a problem worse.
d.	the government does not establish a safety net for the poor.
e.	the government lies about its political motives.

____ 50. A key difference between incentives for government and for business is:

a.	government can run a budget deficit while a business cannot.
b.	a business must make a profit to survive while a government need not.
c.	government need not hire its employees from the labor market while a business must.
d.	a business has a credit rating while a government does not.
e.	government must elect its leaders while a publicly traded business does not elect its board members.