1. Based on society's perspective, what are the benefits from pollution abatement?
A. better health
B. increased enjoyment of the natural environment
C. lower production costs
D. all of the above
2. Which of the following is an example of an external cost?
A. a loud, crying baby in a public restaurant
B. emissions of methane into the atmosphere
C. a homeowner who likes to mow the lawn at 7 a.m. on Saturday morning
D. all of the above
3. The study of external costs is a major concern of __________ .
A. labor economics
B. international economics
C. environmental economics
D. macroeconomists
4. If, while producing goods and services, a factory is producing pollution and not incurring the cost of this pollution, then a(n) __________ exists.
A. government failure
B. market failure
C. acceptable outcome
D. none of the above
5. Reductions in pollution from a specific starting level of existing pollution is called __________ .
A. abatement
B. the EPA
C. command and control
D. usage tax
6. Private goods are __________ .
A. rival in consumption and their benefits are excludable
B. nonrival in consumption and their benefits are excludable
C. nonrival in consumption and their benefits are nonexcludable
D. rival in consumption and their benefits are nonexcludable
7. Chris buys pizza for his football party and he gets to decide who will have a slice of his pizza. This means his pizza is __________ .
A. nonrival and nonexcludable
B. a private good
C. a public good
D. rival, but nonexcludable
8. Which of the following would NOT be considered a public good?
A. national defense
B. radio broadcasts
C. police protection
D. a newspaper
9. Once a firm is forced to consider an external cost, the price of its product will __________ .
A. increase and output will decrease
B. increase and output will increase
C. decrease and output will decrease
D. decrease and output will increase
10. Markets that have external costs will produce __________ output than the socially efficient level, whereas markets that have external benefits will produce __________ output than the socially efficient level.
A. less; less
B. more; more
C. more; less
D. less; more
11. The government imposes taxes on firms that generate external costs in an effort to __________ .
A. make it easier for economists to measure external costs
B. lead to a zero level of output
C. force decision makers to consider the full costs of their actions
D. lower the firms' costs of production
12. If the government taxes a firm that is generating an external cost, the price of the firm's product will __________ .
A. increase and output will decrease
B. increase and output will increase
C. decrease and output will decrease
D. decrease and output will increase
13. By imposing tolls on people who drive during the busiest times, a government would be attempting to __________ .
A. internalize an externality
B. institute a progressive tax
C. externalize an internality
D. encourage driving to generate revenue
14. Sirens located around a town to warn citizens of the approach of a tornado are an example of __________ .
A. an external cost
B. a private good
C. a common resource
D. a public good
15. Which of the following would be classified as an external cost?
A. As more firms began hiring computer programmers, the salaries of computer programmers increased and therefore the firm's cost of production increased.
B. You eat too much pizza and end up with a stomach ache.
C. You are not able to study at night because there is so much noise coming from the dorm room next to yours.
D. When you purchase a prescription drug you are not made fully aware of all the possible side effects that may result from taking the drug
16. The biggest problem with using a tax as a way to solve an externality problem is that __________ .
A. the tax sometimes increases the external cost
B. damages must be estimated in financial terms to determine the correct level of the tax
C. the firm will pass the entire tax onto the consumer
D. the commerce clause forbids such taxes
17. Goods that are nonrival in consumption and that have benefits that are nonexcludable are __________ .
A. private goods
B. neighbor effects
C. public goods
D. none of the above
18. Taxes on a firm's external costs __________ .
A. are designed to encourage more production
B. are meant to force some firms out of business
C. are simply meant to force decision makers to consider the full costs of their actions
D. are designed primarily as a way to raise money so that the government can compensate the victims of the spillover
19. Which of the following would be an example of an external benefit?
A. More people start to ride the bus and as a result air pollution is reduced.
B. Firms are able to reduce their costs of production by using a more efficient technology.
C. The government requires polluting firms to pay a special tax.
D. A firm has just gotten permission to open a landfill on property that is adjacent to your
20. The idea behind the pollution tax equal to the external cost per unit of pollution is to __________ .
A. increase the social benefit to be above the marginal cost
B. internalize the externality
C. allow the firm to evade external costs
D. drive polluting firms out of developed countries
21. Dan is an entrepreneur who invests in commercial and residential real estate. He has a savings account with $100,000 that earns 1% APY. Dan wants to buy a house that will give him a monthly cash inflow of $200. What will be the opportunity cost of investing in the house?
A. $1,000
B. $1,200
C. $800
D. $200
22. From 1998 to 2010, the cost of electricity produced with nuclear power has __________ and the cost of electricity produced with solar power has __________ .
A. increased; increased
B. increased; decreased
C. decreased; increased
D. decreased; decreased
23. A firm's objective is to maximize its economic profit, which is __________ .
A. total revenue minus economic cost
B. total profit minus total cost
C. economic cost minus profit
D. economic cost minus total revenue
24. The budget line shows __________ .
A. the different combinations of two goods that a consumer can buy
B. the quantity of a single good that a consumer is willing to buy at different prices
C. the maximized utility from a good
D. none of the above
25. Suppose that Erin spends all of her income on two goods: pizza and fiction novels. If the price of pizza rises, then __________ .
A. the current marginal utility per dollar spent on pizza will rise
B. the current marginal utility per dollar spent on pizza will fall
C. the current marginal utility per dollar spent on fiction novels will rise
D. the current marginal utility per dollar spent on fiction novels will fall
26. Mario has a company that produces plastic freezer bags. His company objective is to maximize __________ .
A. his company's revenues
B. his company's total out-of-pocket costs
C. his company's opportunity costs of each factor of production
D. his company's economic profits, the difference between total revenue and total cost
27. Marginal utility is the __________ .
A. total amount of satisfaction gained by the consumption of a good or service
B. additional satisfaction gained by the consumption or use of one more unit of something
C. price of a good relative to the prices of other goods and services
D. comparison of utility between two different people
28. You are the owner and only employee of a company that repairs computers. Last year, you earned total revenues of $75,000. Your costs for equipment, rent, and supplies were $10,000. To start this business you quit a job at another computer software firm that paid $40,000 a year. Last year, your economic profits were __________ .
A. $100,000
B. $75,000
C. $50,000
D. $25,000
29. Suppose that a consumer is currently spending all of her income on 10 units of good A and 5 units of good B. The price of good A is $4 per unit, the price of good B is $10 per unit, the marginal utility of the last unit of good A consumed is 20, and the marginal utility of the last unit of good B consumed is 60. If the consumer wants to maximize her utility from consuming the two goods, she should __________ .
A. consume more of good B and less of good A
B. consume more of good A and less of good B
C. continue to consume 10 units of good A and 5 units of good B
D. consume more of both goods
30. If marginal product is negative, then __________ .
A. total product will decrease if more of the input is hired
B. total product is equal to zero
C. marginal product will increase if more of the input is hired
D. average product will increase if more of the input is hired