Question

1.) When the production of a good results in a positive externality, the social value curve is

A below the demand curve, indicating that the total value to society is less than the private benefit.

B above the demand curve, indicating that the total value to society is greater than the private benefit.

C identical to the demand curve, indicating that the total cost to society is the equal to the private benefit.

D above the supply curve, indicating that the total cost to society exceeds the private cost.

2.) When Lisa drives to work every morning, she drives on a congested highway. What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Lisa’s highway trip

A increases the social cost above the private cost.

B lowers the social cost below the private cost.

C increases the social value above the private benefit.

D decreases the social value below the private benefit.

3.) Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

A the supply curve would adequately reflect the marginal social cost of production.

B consumers will be required to pay a higher price for steel than they would have if the externality were internalized.

C the market equilibrium quantity will not be the socially optimal quantity.

D producers will produce less steel than they otherwise would if the externality were internalized.

4.) Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

A At the current output level, the marginal social benefit exceeds the marginal private benefit.

B The current output level is inefficiently low.

C A per-shot subsidy could turn an inefficient situation into an efficient one.

D All of the above are correct.

5.) A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

A a direct regulation of an externality.

B corrective taxes.

C a Coase theorem solution to an externality.

D the misuse of a subsidy.

Answer 1

1) When the production of a good result in a positive externality, the social value curve is

option(B)above the demand curve, indicating that the total cost to society is equal to the private benefit

2) When Lisa drives to work every morning, she drives on a congested highway. What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Lisa's highway trip

option(A)increases the social cost above the private cost

3) Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

option(C)the market equilibrium quantity will not be the socially optimal quantity.

4) Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

option(D) All of the above are correct.

5) A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

option(A) a direct regulation of an externality