A will always improve market B is necessary to control C may improve market outcomes in the presence D reduces efficiency in the presence of Practice Exam 3A on chapters 10 and 11 only Due 1 11 in class 1 In a market economy government intervention outcomes individual greed of externalities externalities 2 In the absence of externalities the invisible hand leads a market to maximize market that market that market that market 3 An externality supply marketplace sellers benefits to society 4 An externality is over the allocation of resources A causes demand to exceed B strengthens the role of the invisible hand in the C affects buyers but not D results in an equilibrium that does not maximize the total A producer profit from that B both equality and efficiency in C total benefit to society from D output of goods or services in A the proposition that private parties can bargain without cost B a market C the costs that parties incur in the process of agreeing and D the uncompensated impact of one person s actions on the A cause equilibrium prices to be B cause markets to fail to allocate C benefit producers at the expense of D cause equilibrium prices to be equilibrium tax following through on a bargain well being of a bystander 5 All externalities too low resources efficiently consumers too high 6 When an externality is present the market equilibrium is benefit to society as a whole society as a whole society as a whole benefit to society as a whole 7 Dioxin emission that results from the production of paper is a good example of a negative externality because environmental regulations externality much dioxin of the dioxin pollution they create 8 A self interested paper firms are generally unaware of B toxic emissions are the best example of an C there are fines for producing too D self interested paper producers will not consider the full cost A inefficient and the equilibrium does not maximize the total B efficient and the equilibrium maximizes the total benefit to C inefficient but the equilibrium maximizes the total benefit to D efficient but the equilibrium does not maximize the total A emit a lower level of smoke than is B emit an acceptable level of C emit a higher level of smoke than is D not emit any smoke in an attempt to avoid paying A a beautiful flower garden outside of the local B a flu shot that prevents a student from transmitting the C cigarette smoke that permeates an D All of the above are If an aluminum manufacturer does not bear the entire cost of the smoke it emits it will socially efficient smoke socially efficient the entire cost 9 Which of the following is an example of an externality post office virus to her roommate entire restaurant correct 10 Which of the following represents a way that a government can help the private market to internalize an externality externalities externalities private markets correct 11 All remedies for externalities share the goal of market equilibrium resources A subsidizing goods that have positive B taxing goods that have negative C The government cannot improve upon the outcomes of D Both a and b are A moving the allocation of resources toward the B decreasing the allocation of C increasing the allocation of D moving the allocation of resources toward the socially resources optimal equilibrium 12 Which of the following statements is correct and subsidize goods with positive externalities subsidize goods with negative externalities negative externalities negative externalities 13 A Government should tax goods with negative externalities B Government should tax goods with positive externalities and C Government should subsidize goods with either positive or D Government should tax goods with either positive or Figure 10 1 Refer to Figure 10 1 This graph represents the tobacco industry The industry creates A negative externalities B no equilibrium in the market C positive externalities D no externalities 14 Figure 10 1 Refer to Figure 10 1 This graph represents the tobacco industry Without any government intervention the equilibrium price and quantity are respectively A 1 60 and 42 units B 1 80 and 35 units C 1 90 and 38 units D 1 35 and 58 units respectively respectively respectively 15 Figure 10 1 Refer to Figure 10 1 This graph represents the tobacco industry The socially optimal price and quantity are respectively A 1 80 and 35 units B 1 60 and 42 units C 1 90 and 38 units D 1 35 and 58 units respectively respectively respectively 16 Which of the following goods is both excludable and rival in consumption A efforts to fight poverty B a wristwatch C fire protection in a small town D fish in the ocean 17 Under which of the following scenarios would a park be considered a common resource are always plenty of empty picnic tables of the picnic tables are in use frequently all of the picnic tables are in use always plenty of empty picnic tables 18 The Great Lakes are A club goods B common resources C private goods D public goods A Visitors to the park must pay an admittance fee but there B Visitors can enter the park free of charge but frequently all C Visitors to the park must pay an admittance fee and D Visitors can enter the park free of charge and there are A club B private C public D common 19 A mobile phone is a good good good resource 20 Fire protection is a consumption not excludable consumption not excludable 21 Because it is is a public good a private good is a club good is a club good 22 A a public good because it is excludable but not rival in B club good because it is rival in consumption but C club good because it is excludable but not rival in D a public good because it is rival in consumption but A neither excludable nor rival in consumption a sweatshirt B both excludable and rival in consumption a sweatshirt is C excludable but not rival in consumption a sweatshirt D rival in consumption but not excludable a sweatshirt Figure 11 1 Rival in Consumption Excludab le Ye s No Yes A C No B D Refer to Figure 11 1 The box labeled A represents A public goods B common resources C private goods D club goods 23 Refer to Figure 11 1 The box labeled B represents A club goods B common resources C public goods D private goods 24 Refer to Figure 11 1 The box labeled C represents goods A private A club B private C public D common B club goods C common resources D public goods 25 Refer to Figure 11 1 The box labeled D represents goods goods goods resources 26 Refer to Figure 11 1 Emma s use of good x does not affect anyone else s