1) Economists generally view pollution as
A) an economic “bad” that must be eliminated entirely.
B) a negative economy.
C) a negative externality.
D) a positive externality.
E) a non-excludable good.
2) When firms in an industry have fully internalized a production externality,
A) they produce at less than the optimal level of output.
B) they produce at more than the optimal level of output.
C) it is not possible to achieve allocative efficiency.
D) the marginal social cost is zero.
E) they bear the entire social marginal cost of production.
3) If pollution is associated with the production of some good, then
A) the marginal social cost is less than the marginal social benefit.
B) the price of the good is equal to firms’ marginal private cost.
C) marginal social cost minus marginal private cost is negative.
D) marginal social cost minus marginal private cost is positive.
E) too little of the good is being produced by the firm.
4) Refer to Figure 17-1. A negative externality is depicted because the
A) marginal social cost is greater than the marginal social benefit.
B) marginal social cost is greater than the marginal private cost.
C) marginal social benefit to consumers is diminishing with greater output.
D) optimal level of output occurs where marginal private cost is positive.
E) optimal level of output occurs where marginal private benefit is positive.
5) Refer to Figure 17-1. The price that leads consumers to demand the socially optimal quantity of output is
A) zero.
B) P1.
C) P2.
D) P3.
E) not possible to know from the information given.
6) Refer to Figure 17-1. The price that would occur in a competitive market in the absence of government intervention is
A) P1.
B) P2.
C) P3.
D) P4.
E) not possible to know from the information given.
7) Refer to Figure 17-1. The equilibrium output that would occur in a competitive market in the absence of government intervention is
A) zero.
B) Q1.
C) Q2.
D) Q3.
E) none of the above; there is no equilibrium output level.
8) Refer to Figure 17-1. The socially optimal level of output is
A) zero.
B) Q1.
C) Q2.
D) Q3.
E) none of the above; there is no optimal output level.
9) When an external cost associated with the production of some good has been internalized, it means that
A) the opportunity cost of production is passed on to the consumer.
B) the private cost of production is borne by the producer.
C) the producer must bear the external costs imposed by production.
D) the consumer must bear the net social benefits imposed by the producer.
E) the firm is ignoring social costs.
10) The social marginal cost of the production of snowmobiles
A) is less than the marginal external cost of production.
B) is greater than the sum of the private marginal cost and external cost.
C) does not include the carbon emissions from snowmobiles.
D) includes the noise pollution imposed on those living near snowmobile trails.
E) does not include the increased risk of accidents caused by the operation of snowmobiles.
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