51) Assume that emissions from electric utilities contribute to pollution in the form of acid rain. Which of the following describes how this affects the market for electricity?
A) The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost.
B) A deadweight loss occurs; at equilibrium the additional social cost of production is greater than the additional benefit to consumers.
C) The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced.
D) The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus.
52) Medical research that ends in a cure for a serious disease produces positive externalities. What is the impact of this positive externality on economic efficiency?
A) At equilibrium, less than the economically efficient quantity of medical research is produced.
B) A deadweight loss occurs because at equilibrium the marginal social cost of medical research is greater than the marginal social benefit.
C) At equilibrium, more than the economically efficient quantity of medical research is produced.
D) A deadweight loss occurs because at equilibrium the marginal social cost equals the marginal social benefit.
Figure 4-18
Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 4-18 shows the paper market. Use this Figure to answer the following question(s).
53) Refer to Figure 4-18. What does S1 represent?
A) the market supply curve that reflects social cost
B) the market supply curve that reflects only external cost
C) the market supply curve that reflects only private benefit
D) the market supply curve that reflects private cost
54) Refer to Figure 4-18. What does S2 represent?
A) the market supply curve that reflects social cost
B) the market supply curve that reflect private cost
C) the market supply curve that reflects external cost
D) the market supply curve that reflects social benefit
55) Refer to Figure 4-18. What is the economically efficient output level?
A) Q1
B) Q2 minus Q1
C) Q2
D) Q1 plus Q2
56) Refer to Figure 4-18. What is the deadweight loss from producing at the market equilibrium?
A) area C
B) area E
C) area D
D) area F
57) Refer to Figure 4-18. Why is there a deadweight loss?
A) because the marginal social cost of producing each additional unit in excess of Q2 exceeds the marginal benefit
B) because the marginal private cost of producing each additional unit in excess of Q2 exceeds the marginal benefit
C) because the marginal social benefit of producing each additional unit in excess of Q2 exceeds the private cost
D) because the marginal private benefit of producing each additional unit in excess of Q2 exceeds the social cost
Figure 4-19
Figure 4-19 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.
58) Refer to Figure 4-19. 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, diagram shows
A) the effect of a subsidy granted to producers of a good.
B) the effect of an excess demand in a market.
C) the effect of a positive externality in the consumption of a good.
D) the effect of a negative externality in the consumption of a good.
59) Refer to Figure 4-19. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?
A) the demand curve reflecting external benefits
B) the demand curve reflecting social benefits
C) the demand curve reflecting private benefits
D) the demand curve reflecting the sum of private and social benefits
60) Refer to Figure 4-19. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D2 represent?
A) the demand curve reflecting external benefits
B) the demand curve reflecting social benefits
C) the demand curve reflecting private benefits
D) the demand curve reflecting the sum of social and external benefits
Figure 4-20
Figure 4-20 shows the market for measles vaccinations, a product whose use generates positive externalities.
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