Q&A Hero

Q: Figure 5-1 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. 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 private cost B) the market supply curve reflecting social cost C) the market supply curve reflecting external cost D) the market supply curve reflecting implicit cost

Q: Figure 5-1 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. 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 social cost D) the market supply curve reflecting private cost

Q: Figure 5-1 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. 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.

Q: Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents. In this sense, these mandatory helmet laws are reducing ________ of risky behavior. A) positive externalities B) negative externalities C) the private benefit D) the social benefit

Q: When a negative externality exists, the private market produces A) more than the economically efficient output level. B) less than the economically efficient output level. C) products at a low opportunity cost. D) products at a high opportunity cost.

Q: A positive externality causes A) the marginal social benefit to be equal to the marginal private cost of the last unit produced. B) the marginal social benefit to be less than the marginal private cost of the last unit produced. C) the marginal social benefit to exceed the marginal private cost of the last unit produced. D) the marginal private benefit to exceed the marginal social cost of the last unit produced.

Q: Which of the following is an example of a positive externality? A) banning the sale of candy in elementary schools B) planting trees along a sidewalk which add beauty and creates shade C) forbidding the use of cell phones in public D) prohibit street parking in all residential neighborhoods

Q: If you burn your trash in the back yard in spite of regulations against it, then you are A) acting economically irrationally and creating a social cost. B) avoiding the private costs associated with disposing your trash some other way and creating a social cost. C) acting rationally and creating a positive externality. D) saving landfill space and creating a social benefit.

Q: What is a "social cost" of production? A) the cost of the natural resources used up in production B) the total costs of producing a product, both implicit and explicit costs C) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product D) the cost of the environmental damage created by production

Q: Private costs A) are borne by producers of a good while social costs are borne by government. B) are borne by consumers of a good while social costs are borne by government. C) are borne by producers of a good while social costs are borne by society at large. D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

Q: Define the tragedy of the commons. Give three examples of common resources. Briefly explain why common property resources are subject to overuse.

Q: 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

Q: Explain how the decision by parents to not immunize their children, hoping that their children will not get sick because other parents have had their children immunized, is an example of free riding. How is this behavior dangerous to the public?

Q: A negative externality exists if A) there are price controls in a market. B) there are quantity controls in a market. C) the marginal social cost of producing a good or service exceeds the private cost. D) the marginal private cost of producing a good or service exceeds the social cost.

Q: How does a public good differ from a quasi-public good? In your answer give an example of each type of good.

Q: 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

Q: State whether each of the following goods and services is nonrival, nonexcludable or both: a. A toll road b. A public park c. A lighthouse d. An art museum e. A radio broadcast of "A Prairie Home Companion"

Q: What are property rights? A) the title to ownership of any physical asset B) a legal document verifying ownership of intangible assets C) the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it D) the right of the government to appropriate private assets for the good of society

Q: "When it comes to public goods, individuals do not reveal their true preferences because it is not in their self interest to do so." Evaluate this statement.

Q: 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.

Q: Determine if each of the products below displays any of the following characteristics: (i) rivalry (ii) nonrivalry (iii) excludability (iv) nonexcludability. a. a freeway during peak commute hours b. an online college course c. infectious disease prevention d. open source software such as Linux e. a movie showing at Century Theatres

Q: 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

Q: Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms "rivalry" and "excludability" as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

Q: 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.

Q: A modern example of the tragedy of the commons is the forests in many poor countries.

Q: 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 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.

Q: The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Q: 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.

Q: A public good that is a good that is both rival and excludable.

Q: When the federal government orders firms to use particular methods to reduce pollution, it is said to be using A) command-and-control policies. B) strong-arm tactics. C) global initiatives. D) market-based policies.

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

Q: A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

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

Q: If the United States and other developed nations pay the cost of reducing public emissions, developing nations such as China could benefit from the reduction while not contributing to it. In this sense, one can think of reducing carbon emissions as being like a A) public good. B) private good. C) quasi-private good. D) quasi-public good.

Q: Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons? A) access to the commons can be restricted through community norms and laws B) offer subsidies to consumers C) force people to move away from the commons D) persuade people to use less of the scarce resource through an advertising campaign

Q: Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source? A) self-interest motives of producers and consumers B) a lack of concern for human rights C) a lack of competition D) a lack of clearly defined and enforced property rights

Q: Haiti was once a heavily forested country. Today, 80 percent of Haiti's forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has lead to devastating floods when it rains heavily. This is an example of A) tragic externalities. B) the tragedy of the commons. C) human greed. D) the consequences of not having a market economic system.

Q: In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was A) the area of pasture was nonexcludable and the consumption of the grass was rival. B) self-interest motives led livestock owners to raise too many cows and sheep. C) due to a policy of neglect on the part of the English government. D) it did not get enough rainfall.

Q: An important difference between the demand for a private good and the demand for a public good is that A) individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good. B) the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned. C) individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good. D) the demand for a private good produces consumption externalities; the demand for a public good produces production externalities.

Q: 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

Q: Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. Refer to Figure 5-16. Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other. Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved? A) The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. B) Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. C) The optimal quantity will be installed only if the two parties split the cost of installation equally. D) The optimal quantity will be installed only if Bree pays for the entire installation cost.

Q: Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. Refer to Figure 5-16. What is the optimal quantity of street lights to install? A) 3 B) 4 C) 6 D) 9

Q: Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. Refer to Figure 5-16. How much is Bree willing to pay to have 4 street lights installed? A) $1,500 B) $1,800 C) $2,700 D) $7,200

Q: Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. Refer to Figure 5-16. How much is Amit willing to pay to have 4 street lights installed? A) $3,600 B) $2,700 C) $1,800 D) $900

Q: The efficient output level of a public good occurs where the A) greatest number of free riders occurs. B) marginal cost of producing the last unit is equal to the marginal benefit realized by consumers. C) total cost of production is affordable. D) marginal cost of production is at its lowest.

Q: The supply curve of a public goods shows A) the total quantities that all producers are willing and able to supply at each price. B) the maximum amount suppliers require to produce each quantity of the good. C) the total cost of producing each unit of the good. D) the marginal cost of producing each unit of the good.

Q: It is difficult for a private market to provide the economically efficient quantity of a public good because A) by law governments cannot use cost-benefit analysis to determine this quantity. B) public goods produce positive and negative externalities. C) individual preferences are not revealed in the market for the good. D) it is too expensive to produce the necessary amount of the good.

Q: Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as A) excludability. B) public rivalry. C) free riding. D) internalizing an external cost.

Q: "Free riding" is a characteristic of which type of good? A) a private good B) a common resource C) a public good D) a good that is both rival and excludable

Q: Which of the following best illustrates the free rider problem? A) Since no one owns elephants and elephants are valued for their hide, meat and ivory, elephants can be hunted to extinction. B) For every purchase of a $30 fare card, you are entitled to five free bus rides. C) If your neighbors professionally landscape their front yards, it is likely that the market value of your property will increase. D) All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute.

Q: 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.

Q: Which of the following is an example of a nonexcludable product? A) college education B) a public library C) public transportation D) internet service for your home computer

Q: All of the following are examples of public goods except A) broadcast television with commercials. B) clean water systems. C) stock of knowledge in the public domain. D) crime prevention.

Q: A public good is A) a good that is rivalrous and excludable. B) good that is nonrivalrous and nonexcludable. C) a good that is nonrivalrous and excludable. D) a good that is rivalrous and nonexcludable.

Q: A private good is A) a good that is rivalrous and nonexcludable. B) a good that is nonrivalrous and nonexcludable. C) a good that is rivalrous and excludable. D) a good that is nonrivalrous and excludable.

Q: The demand and supply equations for the apple market are: Demand: P = 12 - 0.01Q Supply: P = 0.02Q where P= price per bushel, and Q=quantity. a. Calculate the equilibrium price and quantity. b. Suppose the government guaranteed producers a price of $10 per bushel. What would be the effect on quantity supplied? Provide a numerical value. c. By how much would the $10 price change the quantity of apples demanded? Provide a numerical value. d. Would there be a shortage or surplus of apples? e. What is the size of this shortage or surplus? Provide a numerical value.

Q: You are given the following market data for Venus automobiles in Saturnia. Demand: P = 200 - 0.25Q Supply: P = 130 + 0.10Q where P = Price and Q = Quantity. a. Calculate the equilibrium price and quantity. b. Calculate the consumer surplus in this market. c. Calculate the producer surplus in this market.

Q: Table 4.7DemandSupplyP = 50 2QDP = 35 + QSQD = 25 0.5PQS = P 35Refer to Table 4-7. The equations above describe the demand and supply for Bubba's Fried Jellybeans. The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units. What is the value of economic surplus in this market?A) $5 thousandB) $12.5 thousandC) $25 thousandD) $37.5 thousand

Q: Table 4.7DemandSupplyP = 50 2QDP = 35 + QSQD = 25 0.5PQS = P 35Refer to Table 4-7. The equations above describe the demand and supply for Bubba's Fried Jellybeans. The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units. What is the value of producer surplus?A) $5 thousandB) $12.5 thousandC) $25 thousandD) $37.5 thousand

Q: Table 4.7DemandSupplyP = 50 2QDP = 35 + QSQD = 25 0.5PQS = P 35Refer to Table 4-7. The equations above describe the demand and supply for Bubba's Fried Jellybeans. The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units. What is the value of consumer surplus?A) $5 thousandB) $12.5 thousandC) $25 thousandD) $37.5 thousand

Q: Table 4.7DemandSupplyP = 50 2QDP = 35 + QSQD = 25 0.5PQS = P 35Refer to Table 4-7. The equations above describe the demand and supply for Bubba's Fried Jellybeans. What are the equilibrium price and quantity (in thousands) for Bubba's Fried Jellybeans?A) $80 and 40 thousandB) $60 and 10 thousandC) $20 and 20 thousandD) $40 and 5 thousand

Q: Table 4-6DemandSupplyP = 80 - QDP = 50 + 1/2 QSQD = 80 - PQS = 2P - 100Refer to Table 4-6. The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick. The equilibrium price and quantity for Chef Ernie's sushi are $60 and 20 thousand units. What is the value of economic surplus in this market?A) $300 thousandB) $600 thousandC) $1,200 thousandD) $1,600 thousand

Q: Table 4-6DemandSupplyP = 80 - QDP = 50 + 1/2 QSQD = 80 - PQS = 2P - 100Refer to Table 4-6. The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick. The equilibrium price and quantity for Chef Ernie's sushi are $60 and 20 thousand units. What is the value of producer surplus?A) $100 thousandB) $200 thousandC) $600 thousandD) $800 thousand

Q: Table 4-6DemandSupplyP = 80 - QDP = 50 + 1/2 QSQD = 80 - PQS = 2P - 100Refer to Table 4-6. The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick. The equilibrium price and quantity for Chef Ernie's sushi are $60 and 20 thousand units. What is the value of consumer surplus?A) $100 thousandB) $200 thousandC) $600 thousandD) $800 thousand

Q: Table 4-6DemandSupplyP = 80 - QDP = 50 + 1/2 QSQD = 80 - PQS = 2P - 100Refer to Table 4-6. The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick. What are the equilibrium price and quantity (in thousands) for Chef Ernie's sushi?A) $80 and 80 thousandB) $60 and 20 thousandC) $50 and 100 thousandD) $40 and 50 thousand

Q: If the quantity of sunglasses supplied is represented by the equation QS = -60 + 4P then the corresponding price of sunglasses is represented by the equation A) P = 0.25QS + 15. B) P = 15QS + 240. C) P = QS - 7.5. D) P = 12 - 0.4QS.

Q: If the quantity of donuts supplied is represented by the equation QS = -15 + 5P then the corresponding price of donuts is represented by the equation A) P = 0.2QS + 3. B) P = 5QS + 75. C) P = QS - 7.5. D) P = 15 - 0.5QS.

Q: If the quantity of soccer balls demanded is represented by the equation QD = 80 - 2P then the corresponding price of soccer balls is represented by the equation A) P = 1.6QD + 80. B) P = 80 - QD. C) P = 40 - 0.5QD. D) P = QD + 160.

Q: If the quantity of fishing poles demanded is represented by the equation QD = 60 - P then the corresponding price of fishing poles is represented by the equation A) P = 0.6QD + 10. B) P = 60 - QD. C) P = -60 + QD. D) P = QD + 60.

Q: If the price of chewing gum is represented by equation P = 25 - 0.5 QD, then the corresponding quantity of chewing gum demanded is represented by the equation A) QD = 2P - 0.5. B) QD = 0.5P + 25. C) QD = 50 -2P. D) QD = -5 + 10P.

Q: If the price of hairspray is represented by equation P = 10 - 0.2 QD, then the corresponding quantity of hairspray demanded is represented by the equation A) QD = 5P - 2. B) QD = 0.5P + 2. C) QD = 50 -5P. D) QD = -10 + 0.2P.

Q: The following equations represent the demand and supply for bottles of nail polish. QD = 25 - P QS = -15 + 3P What is the equilibrium price (P) and quantity (Q - in thousands) of bottles of nail polish? A) P = $5; Q = 20 thousand B) P = $15; Q = 30 thousand C) P = $20; Q = 5 thousand D) P = $10; Q = 15 thousand

Q: The following equations represent the demand and supply for silver pendants. QD = 50 - 2P QS = -10 + 2P What is the equilibrium price (P) and quantity (Q - in thousands) of pendants? A) P = $15; Q = 20 thousand B) P = $50; Q = 10 thousand C) P = $20; Q = 15 thousand D) P = $10; Q = 30 thousand

Q: Figure 4-12 Refer to Figure 4-12. The figure above represents demand and supply in the market for gasoline. Use the diagram to answer the following questions. a. How much is the government tax on each gallon of gasoline? b. What portion of the unit tax is paid by consumers? c. What portion of the unit tax is paid by producers? d. What is the quantity sold after the imposition of the tax? e. What is the after-tax revenue per gallon received by producers? f. What is the total tax revenue collected by the government? g. What is the value of the excess burden of the tax? h. Is this gasoline tax efficient?

Q: Figure 4-11 Refer to Figure 4-11. The figure above illustrates the markets for two goods, Good X and Good Y. Suppose an identical dollar tax is imposed in each market. a. Compare the consumer burden and producer burden in each market. Illustrate your answer graphically. b. If the goal of the government is to raise revenue with minimum impact to quantity consumed, in which market should the tax be imposed? c. If the goal of the government is to discourage consumption, in which market should the tax be imposed?

Q: Using a supply and demand graph, illustrate the effect of the addition of a $10.00 unit tax on digital cameras, where the entire tax burden falls on the seller. Assume the equilibrium price before the tax is $125 and the equilibrium quantity is 50,000. What happens to the price and quantity after the tax is implemented?

Q: What do economists mean by an efficient tax?

Q: What is "tax incidence"? What determines tax incidence in a competitive market?

Q: The excess burden of a tax is also a deadweight loss.

Q: One result of a tax is an increase in economic efficiency.