Question

1.

Table: Coal Mine Pollution

Quantity of Pollution (tons)	Marginal Social Benefit	Marginal Social Cost
0	$800	$0
1	$700	$100
2	$600	$200
3	$500	$300
4	$400	$400
5	$300	$500
6	$200	$600
7	$100	$700
8	$0	$800

Reference: Ref 16-2 Table: Coal Mine Pollution

(Table: Coal Mine Pollution) Use Table: Coal Mine Pollution. The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine. Suppose that the marginal cost from the production process itself (to the producer) is 0. At the market-determined quantity of pollution, the marginal social benefit of pollution is:

Select one:

a. $400.

b. $0.

c. $200.

d. $800.

2.

Table: Coal Mine Pollution

Quantity of Pollution (tons)	Marginal Social Benefit	Marginal Social Cost
0	$800	$0
1	$700	$100
2	$600	$200
3	$500	$300
4	$400	$400
5	$300	$500
6	$200	$600
7	$100	$700
8	$0	$800

Reference: Ref 16-2 Table: Coal Mine Pollution

(Table: Coal Mine Pollution) Use Table: Coal Mine Pollution. The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine. From the perspective of efficiency, 2 tons of pollution is:

Select one:

a. the socially optimum amount.

b. too much.

c. not enough.

d. the efficient amount.

3.

Which good BEST fits the characteristics of a private good?

Select one:

a. police protection

b. clean water

c. national defense

d. a pizza

4.

Clean water in a river is nonexcludable because:

Select one:

a. individuals ignore the effect their use has on the amount of the resource remaining for others.

b. more than one person can consume the same unit of the good at the same time.

c. it is not possible to prevent consumption by people who do not pay for it.

d. consumption is inefficiently low.

Answer 1

1) Option a. $400

The market-determined quantity of pollution is where the Marginal Social Benefit (MSB) = Marginal Social Cost (MSC). In the table of the question, the Marginal Social Benefit (MSB) = Marginal Social Cost which is equal to 400 when the quantity of pollution is 4 tons.

2) Option c. not enough

From the perspective of efficiency, 2 tons of pollution is not enough because here the Marginal Social Benefit is greater than the Marginal Social Cost i.e. Marginal Social Benefit is 600 and the Marginal Social Cost is 200. The efficient level of output is where the Marginal Social Benefit (MSB) = Marginal Social Cost (MSC) which occurs at 4 tons of pollution.

3) Option d. a pizza

Private good is a good which is excludable and rivalrous in consumption i.e. it is possible to exclude people who have not paid for the good to consume it and also simultaneous consumption by other people can be prevented. The pizza is such a good for which those people who have not paid for it can be prevented from consuming it and also simultaneous consumption by other people can be prevented. So, pizza best fits the characteristics of a private good.

4) Option c. it is not possible to prevent consumption by people who do not pay for it

A good being excludable means that it is possible to exclude people who have not paid for the good to consume it. Clean water in a river is nonexcludable because all the people living near the river can easily access it and not allowing those people who have not paid for the clean water in the river is not possible. So, clean water in a river is nonexcludable.