Chapter 19: Quiz
Externalities and Public Goods
1.
In the case of a positive or beneficial externality, the social marginal cost will
a.
exceed the private marginal cost.
b.
be equal to private marginal cost.
c.
be less than the private marginal cost.
d.
bear no significant relation to private marginal cost.
2.
A perfectly competitive steel mill that produces large amounts of a pollution (a negative
externality) will, from a social point of view, produce
a.
too little steel.
b.
the socially optimal quantity of steel.
c.
too much steel.
d.
too much steel only if it installs pollution control equipment.
3.
Each of the following provides incentives to reduce a negative externality except
a.
taxation of the good that the firm is producing.
b.
merger with affected firms.
c.
bargaining among firms.
d.
a system of pollution permits.
e.
all of the above provide an incentive to reduce a negative externality.
4.
To reach an economically efficient output level, the size of a Pigouvian tax imposed on a
firm generating a negative externality should be
a.
the firm’s private marginal cost.
b.
the social marginal cost.
c.
the difference between the social marginal cost and the firm’s private marginal
cost at the profit maximizing quantity.
d.
the difference between the social marginal cost and the firm’s private marginal
cost at the socially optimal quantity.
e.
the sum of the social marginal cost and the firm’s private marginal cost.
5.
According to the Coase theorem, environmental externalities need not distort the
allocation of resources providing
a.
transaction costs are zero.
b.
property rights are well defined.
c.
a small number of economic agents are involved in the externalities.
d.
all of the above.
6.
If an upstream firm is emitting some pollution that is hurting a downstream firm, total
output will be increased if
a.
there is a marginal decrease in the upstream firm’s production.
b.
there is a marginal decrease in the downstream firm’s production.
c.
there is a marginal transfer of productive resources from the upstream firm to the
downstream firm.
d.
e.
there is a marginal transfer of productive resources from the downstream firm to
the upstream firm.
none of the above will increase output.
7.
The sort of bargaining envisioned by the Coase theorem by which negative externalities
might be negotiated away often fails to work in real life because
a.
there are strong incentives to be a free rider.
b.
many individuals may be affected by the externalities.
c.
it is difficult to measure the costs of the externalities.
d.
All of the above
8.
For two individuals named A and B who both consume goods x and y, if we see that
UA = UA (xA, yA; xB)
then we can say that
a.
A is hurt by B’s consumption of good x.
b.
A is helped by B’s consumption of good x.
c.
d.
e.
UA
 0.
xB
UA
 0.
A is hurt by B’s consumption of good x if
xB
none of the above is true.
A is hurt by B’s consumption of good x if
9.
According to the Coase theorem, if bargaining is costless and an externality exists,
a.
an efficient outcome may be reached depending on which party is assigned
property rights.
b.
an efficient outcome can be reached regardless of which party is assigned
property rights.
c.
an efficient outcome cannot be reached without government intervention.
d.
an efficient outcome can never be reached.
10.
If bargaining is costless, the assignment of property rights for an externality
a.
has no impact on the possibility of an efficient outcome and no distributional
impact.
b.
has no impact on the possibility of an efficient outcome but does have a
distributional impact.
c.
does have an impact on the possibility of an efficient outcome but has no
distributional impact.
d.
does have an impact on the possibility of an efficient outcome and does have a
distributional impact.
11.
An example of a nonexclusive or nonexcludable good is
a.
a bridge.
b.
computer software.
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Chapter 20/Externalities and Public Goods 
c.
d.
e.
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public health.
cable television broadcasts.
all of the above.
12.
An example of a non-rival good is
a.
clean air.
b.
cable television broadcasts.
c.
a cup of coffee.
d.
none of the above.
13.
Private markets tend to underallocate resources to public goods because
a.
the fact that public goods are nonexclusive makes it impossible to make people
pay for their provision in a normal market.
b.
private firms are ill-equipped to provide the sorts of goods and services associated
with public goods.
c.
the fact that public goods are non-rival makes it impossible to make people pay
for their provision.
14.
A private firm will provide a public good if
a.
that public good is also a rival good.
b.
that public good can be provided at constant marginal cost.
c.
the marginal cost of supplying the public good to one more person is zero.
d.
the government spends tax revenue to hire the firm to provide the public good.
15.
Society’s demand curve for a public good is calculated by
a.
summing each individual’s willingness to pay for each unit of the public good.
b.
summing each individual’s quantity demanded at each price.
c.
multiplying each person’s quantity demanded by the total number of people in the
relevant population.
d.
none of the above.
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