BSAD520 Ch 10 Economics Test

1). An externality is the uncompensated impact of

a. society's decisions on the well-being of society.

b. one person's actions on the well-being of a bystander.

c. society's decisions on the poorest person in the society.

d. a person's actions on that person's well-being.       2). Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a. A well-maintained yard conveys a positive externality because it increases the home's market value. b. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. c. A well-maintained yard cannot provide any type of externality. d. A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner.   3). Which of the following statements is not correct? a. Without government intervention, the market will tend to undersupply products that produce negative externalities. b. Government policies may improve the market's allocation of resources when negative externalities are present. c. A positive externality is an example of a market failure. d. Government policies may improve the market's allocation of resources when positive externalities are present.   4). Dioxin emission that results from the production of paper is a good example of a negative externality because a. self-interested paper firms are generally unaware of environmental regulations. b. there are fines for producing too much dioxin. c. toxic emissions cause firms to produce less than the socially optimal amount of paper. d. self-interested paper producers will not consider the full cost of the dioxin pollution they create.

 

5). When an externality is present, the market equilibrium is

a. efficient, but the equilibrium does not maximize the total benefit to society as a whole.

b. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

c. inefficient, but the equilibrium maximizes the total benefit to society as a whole.

d. efficient, and the equilibrium maximizes the total benefit to society as a whole.     6). Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates a. positive externalities. b. no externalities. c. negative externalities. d. no equilibrium in the market.       7). Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are a. $2.07 and 38 units, respectively. b. $2.80 and 24 units, respectively. c. $3.00 and 30 units, respectively. d. $1.50 and 50 units, respectively.

8).
Refer to Figure 10-2. This market

a. would maximize total well-being at Q3.

b. would be more efficient with a subsidy for the product.

c. would be more efficient with a tax on the product.

d. has no need for government intervention.

 

9). Negative externalities lead markets to produce

a. greater than efficient output levels and positive externalities lead markets to produce efficient output levels.

b. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

c. efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

d. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

 

10). The majority of economists believe that the social benefit of mandating measles vaccines for all Americans (except those with compelling medical reasons) would exceed the social cost.

a. True b. False