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51
Copyright © 2011 Pearson Education, Inc.
23) The existence of marginal external benefits for a product like higher education creates a
deadweight loss for society because, without government intervention, ________ would be
consumed and ________ would be produced.
A) more than the efficient amount; more than the efficient amount
B) more than the efficient amount; less than the efficient amount
C) less than the efficient amount; more than the efficient amount
D) less than the efficient amount; less than the efficient amount
E) the efficient amount; the efficient amount
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
24) For a product with external benefits that is produced in a competitive, unregulated market,
how can the resulting market output be described?
A) underproduction compared to the efficient level
B) overproduction compared to the efficient level
C) production equals the efficient level
D) underproduction or overproduction are both possible depending on whether the external
benefit is to consumption or production
E) None of the above is correct.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
25) If all education in the United States were provided by private, tuition charging schools,
A) too much education would be consumed.
B) too little education would be consumed.
C) the efficient level of education would be provided.
D) the government would provide both students and schools with vouchers.
E) education would no longer have an external benefit.
Skill: Level 4: Applying models
Section: Checkpoint 10.3
Author: MR
AACSB: Reflective thinking
52
Copyright © 2011 Pearson Education, Inc.
26) The figure above shows the market for college education. The efficient quantity of education
is
A) 0 students.
B) 4 million students.
C) 6 million students.
D) more than 6 million students.
E) more than 4 million students and less than 6 million students.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: SA
AACSB: Analytical reasoning
27) The figure above shows the market for college education. Left to itself without any
government intervention, a competitive market would create a deadweight loss equal to
A) zero.
B) the area d.
C) the area a + c.
D) the area b + c.
E) the area b + d.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: SA
AACSB: Analytical reasoning
53
Copyright © 2011 Pearson Education, Inc.
28) The figure above shows the market for private elementary school education in Chicago.
There is no external cost of private elementary education. If the government does not intervene
in this market, the equilibrium price of private education is
A) $12,000.
B) $16,000.
C) $20,000.
D) $4,000.
E) $6,000.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: JC
AACSB: Analytical reasoning
54
Copyright © 2011 Pearson Education, Inc.
29) The figure above shows the market for private elementary school education in Chicago.
There is no external cost of private elementary education. If the government does not intervene
in this market, the equilibrium number of students being privately educated is
A) 0 students.
B) 200 students.
C) 400 students.
D) 600 students.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: JC
AACSB: Analytical reasoning
30) The figure above shows the market for private elementary school education in Chicago.
There is no external cost of private elementary education. If the government does not intervene
in this market, the equilibrium number of students being privately educated is ________ and the
efficient quantity is ________.
A) 0 students; 400 students
B) 400 students; 400 students
C) 400 students; 600 students
D) 600 students; 400 students
E) 600 students; 600 students
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: JC
AACSB: Analytical reasoning
31) The figure above shows the market for private elementary school education in Chicago.
There is no external cost of private elementary education. If the government does not intervene
in this market, the deadweight loss equals
A) 0.
B) $800,000.
C) $1,600,000.
D) more than $1,600,000.
E) more than $800,000 and less than $1,600,000.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: JC
AACSB: Analytical reasoning
55
Copyright © 2011 Pearson Education, Inc.
32) The figure above shows the market for private elementary school education in Chicago.
There is no external cost of private elementary education. If the marginal social benefit of private
elementary education equaled the marginal social cost, the deadweight loss in Chicago's private
education market would equal
A) 0.
B) $800,000.
C) $1,600,000.
D) more than $1,600,000.
E) more than $800,000 and less than $1,600,000.
Skill: Level 4: Applying models
Section: Checkpoint 10.3
Author: JC
AACSB: Analytical reasoning
33) If a government action is designed to achieve efficiency, then the action must have the
market produce the amount of output so that the
A) marginal private cost equals the marginal private benefit.
B) marginal social cost equals the marginal social benefit.
C) marginal external cost equals the marginal external benefit.
D) marginal private cost equals the tax.
E) marginal social benefit exceeds the marginal social cost by as much as possible.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: SB
AACSB: Reflective thinking
34) Which of the following are devices that the government uses to achieve a more efficient
allocation of resources in the presence of external benefits?
A) taxes, subsidies, and regulation
B) patents, taxes, and subsidies
C) regulations, copyrights, and vouchers
D) vouchers, patents, and subsidies
E) patents, taxes, and vouchers
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: JC
AACSB: Reflective thinking
56
Copyright © 2011 Pearson Education, Inc.
35) The government can overcome the inefficiency created by a good with an external benefit by
using
A) public provision.
B) marketable permits.
C) taxes.
D) emission charges.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: SA
AACSB: Reflective thinking
36) Public provision
A) is the production of a good by the government by giving funds to private producers.
B) lowers the marginal cost of producing the good.
C) means the good is produced by a public authority that receives the most of its revenue from
the government.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: SA
AACSB: Reflective thinking
37) The production of a good or service by an authority that receives the most of its revenue
from the government is referred to as
A) public provision.
B) private subsidies.
C) vouchers.
D) patents and copyrights.
E) Coasian production.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: PH
AACSB: Reflective thinking
57
Copyright © 2011 Pearson Education, Inc.
38) Which of the following is an example of a product that is made available through public
provision?
i. local police protection
ii. public schools
iii. local fire department
A) i only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
39) When government provides a good with an external benefit, to attain efficiency the price
paid by consumers is set equal to the
A) marginal private benefit at the efficient level of output.
B) marginal private cost at the efficient level of output.
C) amount paid by taxpayers.
D) market-determined price.
E) marginal external benefit at the efficient level of output.
Skill: Level 4: Applying models
Section: Checkpoint 10.3
Author: SB
AACSB: Reflective thinking
40) A subsidy is
A) the revenue received from the government to produce a good or service by a public authority.
B) a voucher received by the government from producers of goods and services.
C) a payment that the government makes to private producers of goods and services.
D) a tax imposed on the producers of certain goods or services.
E) a tax imposed on the consumers of certain goods or services.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: PH
AACSB: Reflective thinking
58
Copyright © 2011 Pearson Education, Inc.
41) A payment made by the government to private producers of roads and libraries would be an
example of
A) a subsidy.
B) a copyright.
C) a voucher.
D) public provision.
E) a Coase payment.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: JC
AACSB: Reflective thinking
42) Which of the following is a method used by government to cope with the situation in which
production of a good creates an external benefit?
A) removing property rights
B) subsidizing production
C) marketable permits
D) running a lottery
E) imposing Coasian taxes
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: MR
AACSB: Reflective thinking
43) A government subsidy
A) is a policy that can be used to help eliminate the deadweight loss from an external cost.
B) can help achieve an efficient amount of output when the good has an external benefit.
C) increases consumers' marginal benefit from the good.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: SA
AACSB: Reflective thinking
59
Copyright © 2011 Pearson Education, Inc.
44) Private subsidies granted to producers affect
A) the supply side of the market by shifting the supply curve.
B) the demand side of the market by shifting the demand curve.
C) property rights.
D) transaction costs.
E) both the the supply side of the market and the demand side because they shift both the supply
curve and the demand curve.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: SB
AACSB: Reflective thinking
45) When the government uses a private subsidy in a market with an external benefit, to reach
the efficient quantity of production, the subsidy must be equal to the marginal
A) social benefit.
B) cost of production.
C) private benefit.
D) external benefit.
E) external cost.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: MR
AACSB: Reflective thinking
46) For a government subsidy on a good with an external benefit to result in the efficient amount
of output being produced, what must be done?
A) The size of marginal external benefit must be accurately determined.
B) The government must produce the product.
C) Private production and private consumption must both be directly subsidized.
D) The quantity demanded must be decreased to the efficient amount.
E) Private production without the subsidy must be prohibited.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
60
Copyright © 2011 Pearson Education, Inc.
47) If the government provides a subsidy to producers, what is the effect of this policy in a
supply and demand diagram?
A) The demand curve shifts leftward and the price rises.
B) The supply curve shifts rightward and the price falls.
C) The supply curve shifts leftward and the price falls.
D) The supply curve shifts leftward and the price rises.
E) The demand curve shifts rightward and the price rises.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: TS
AACSB: Analytical reasoning
48) A government subsidy paid to a firm
i. increases the demand for the good.
ii. has no effect on the supply of the good.
iii. leads to an increase in the equilibrium quantity.
A) i only.
B) i and ii.
C) ii only.
D) iii only.
E) i and iii.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: SA
AACSB: Reflective thinking
