Question

10. If a good creates a negative externality when it is produced, and you have estimated that the dollar amount of the externality is $1.50 per unit produced, then one strategy for achieving the efficient, or optimal level of pollution is to:

a. subsidise consumers an amount of $1.50 per unit they consume.

b. provide a subsidy to producers equal to $1.50 per unit they produce.

c. tax producers $1.50 per unit they produce.

d. definitely ban production of the good.

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

a. Sam buys a dilapidated house, renovates it, and increases the property values of all houses in the neighborhood.

b. Sam dug a pond so he could go fishing, but the pond has contributed to an explosion of mosquitoes in your neighborhood.

c. Sam has dozens of cats, and they come into your yard to hunt the birds that come to your bird bath.

d. Liquid waste from Sam's chicken farm flows into a neighbor's well water.

12. Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas. If the market was left alone, market quantity of roses produced and consumed:

a. is more than the socially optimal quantity.

b. may be more than, less than, or equal to the socially optimal quantity.

c. is less than the socially optimal quantity.

d. equals the socially optimal quantity.

13. Common resources tend to be overused because:

a. common resources are of low quality.

b. the common resource has no value to society.

c. the individual marginal cost is greater than the marginal social cost.

d. individuals tend to not have a strong enough incentive to conserve the resource.

14. An example of a common resource is:

a. coffee sold in coffee shops.

b. fishing in the ocean.

c. any type of public good.

d. any private good that is monopolized.

15. The Tragedy of the Commons:

a. refers to the fact that common resources tend to get overused and depleted.

b. implies that society will tend to voluntary preserve a common resource.

c. refers to the fact that common resources are typically of low quality.

d. is a slang indicating that communist economic systems tend to fail.

Answer 1

10) The correct choice is C

Explanation : - When the producers are taxed on the units produced, it will automatically result in less number of units produced because the cost of production goes high. Thus when less units are produced, the level of pollution will reach the optimal level.

11) The correct choice is A

Explanation : -  Positive externality results when the by-product of a good or service benefits other parties rather than harms them.

12) The correct choice is B

Explanation : - The market quantity of roses produced and consumed depends on the interplay of demand and supply it cannot be predicted if it will be less than, equal or greater than socially optimal level.

13) The correct choice is B

Explanation : - Common resources are free of cost and therefore are of no value to society.