81
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95) An external benefit is a benefit from a good or service that someone other than the ________
receives.
A) seller of the good or service
B) government
C) foreign sector
D) consumer
E) market maker
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: STUDY GUIDE
AACSB: Reflective thinking
96) When Ronald takes another economics class, other people in society benefit. The benefit to
these other people is called the marginal ________ benefit of the class.
A) social
B) private
C) external
D) Coasian
E) extra
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: STUDY GUIDE
AACSB: Reflective thinking
97) Marginal social benefit equals
A) marginal external benefit.
B) marginal private benefit.
C) marginal private benefit minus marginal external benefit.
D) marginal private benefit plus marginal external benefit.
E) marginal external benefit minus marginal private benefit.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: STUDY GUIDE
AACSB: Reflective thinking
82
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98) If an external benefit is present, then the
A) marginal private benefit curve lies above the marginal private cost curve.
B) marginal social benefit curve lies above the marginal private benefit curve.
C) marginal social cost curve lies above the marginal private benefit curve.
D) marginal social benefit is equal to the marginal social cost.
E) marginal social benefit curve is the same as the marginal private benefit curve.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: STUDY GUIDE
AACSB: Reflective thinking
99) In an unregulated market with an external benefit, the
A) quantity produced is greater than the efficient quantity.
B) price charged is too high for efficiency.
C) quantity produced is less than the efficient quantity.
D) producer is causing pollution but not paying for it.
E) government might impose a tax to help move the market toward the efficient amount of
production.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: STUDY GUIDE
AACSB: Reflective thinking
100) If tuition at a college is $30,000 and the external benefit of graduating from this college is
$10,000, then
i. in the absence of any government intervention, the number of students graduating is less than
the efficient number.
ii. the government could increase the number of graduates by giving the college a $10,000
subsidy per student.
iii. the government could increase the number of graduates by giving the students $10,000
vouchers.
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) i, ii, and iii
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: STUDY GUIDE
AACSB: Reflective thinking
83
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101) Which of the following is an example of a voucher?
A) the postal service
B) police services
C) social security
D) food stamps
E) a patent on a pharmaceutical drug
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: STUDY GUIDE
AACSB: Reflective thinking
10.4 Chapter Figures
The figure above shows the marginal benefit curve (MB) and marginal cost curve (MC) of
surveillance satellites that provide national defense services.
1) In the figure above, the efficient quantity of satellites to produce is
A) 200, because this is where marginal benefit equals marginal cost.
B) 200, because this is where the market is in equilibrium.
C) anywhere below 200, i.e. where marginal benefit exceeds marginal cost.
D) anywhere above 200, i.e. where marginal benefit is below marginal cost.
E) zero, because no one is willing to pay for satellites.
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: CO
AACSB: Analytical reasoning
84
Copyright © 2011 Pearson Education, Inc.
2) In the figure above, a private market will most likely produce
A) no satellites because of the free-rider problem.
B) 200 satellites because at this point marginal benefit equals marginal cost.
C) less than 200 satellites because over this output range marginal benefit exceeds marginal cost.
D) more than 200 satellites because over this output range marginal benefit is below marginal
cost.
E) 200 satellites because at this point the market will be in equilibrium.
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: CO
AACSB: Analytical reasoning
3) Using the figure above, suppose there are two political parties, the Hawks and the Doves,
which agree on all issues except for the quantity of defense satellites. The Hawks want 300
satellites and the Doves want 100 satellites. The voters are well informed and know what is best
for them. The parties run a voter survey and discover the marginal benefit curve (MB). They also
know the marginal cost curve (MC). What quantity of satellites will most likely result from this
political process?
A) 200, because unless each party proposes 200 satellites, the other party can beat it in an
election
B) 300, because the Hawks are more likely to win
C) 100, because the Doves are more likely to win
D) 200, because the parties will strike a deal: each will agree to give up 100 satellites
E) Zero, because given the marginal benefit and the marginal cost of satellites, none should be
provided
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: CO
AACSB: Analytical reasoning
85
Copyright © 2011 Pearson Education, Inc.
4) Suppose that satellites are publicly provided. The voters are rationally ignorant, while the
Defense Ministry is well informed. Using the figure above, which of the following quantities of
satellites is most likely to be provided?
A) 300
B) 200
C) 150
D) 100
E) Zero
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: CO
AACSB: Analytical reasoning
The figure above shows the demand for college education (D), the marginal social benefit of
college education (MSB), and the marginal cost of the private schools (MC).
86
Copyright © 2011 Pearson Education, Inc.
5) the figure above shows that the unregulated market equilibrium occurs at a tuition of
________ a year and ________ million students.
A) $15,000; 7.5
B) $25,000; 15
C) $15,000; 15
D) $25,000; 7.5
E) $38,000; 7.5
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
6) The figure above shows that at the unregulated market equilibrium, marginal social benefit
________ marginal cost, and the number of students enrolled is ________.
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
7) Based on the figure above, when the market is unregulated and is in equilibrium, the
deadweight loss is
A) $86.25 million per year.
B) $56.25 million per year.
C) $48.75 million per year.
D) $37.50 million per year.
E) zero.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
87
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8) Using the figure above, suppose education is provided by public colleges, where tuition is set
at $10,000 a year. Then, ________ million students are enrolled, and the taxpayers cover
________ of marginal cost per student.
A) 15; $15,000
B) 7.5; $5,000
C) 3.5; none
D) 15; $25,000
E) 7.5; $15,000
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
9) Using the figure above, suppose education is provided by public colleges, where tuition is set
at $10,000 a year. When the market is in equilibrium, the marginal social benefit is ________,
the marginal cost is ________, and the number of students enrolled is ________.
A) $25,000; $25,000; efficient
B) $25,000; $10,000; inefficient
C) $15,000; $25,000; inefficient
D) $15,000; $15,000; efficient
E) $25,000; $15,000; inefficient
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
10) Using the figure above, suppose education is provided by public colleges. At what level
should tuition be set to ensure the efficient number of students?
A) $10,000
B) $5,000
C) $20,000
D) $25,000
E) $15,000
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
88
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11) Using the figure above, suppose a subsidy of $15,000 per student is provided to private
colleges. Then, the market equilibrium occurs at a tuition of ________ a year and ________
million students.
A) $10,000; 15
B) $25,000; 15
C) $15,000; 15
D) $15,000; 7.5
E) $20,000; 20
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
12) Using the figure above, suppose a subsidy of $15,000 per student is provided to private
colleges. When the market is in equilibrium, marginal social benefit ________ marginal cost,
and the number of students enrolled is ________.
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
13) In the figure above, suppose a subsidy is provided to private colleges. What amount of
subsidy will ensure the efficient number of students?
A) $10,000
B) $25,000
C) $15,000
D) $5,000
E) $20,000
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
89
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14) In the figure above, suppose the government provides vouchers worth $15,000 per student
per year. Then the market equilibrium occurs at a tuition of ________ a year and ________
million students.
A) $10,000; 15
B) $25,000; 15
C) $15,000; 15
D) $15,000; 7.5
E) $20,000; 20
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
15) In the figure above, suppose the government provides vouchers worth $15,000 per student
per year. When the market is in equilibrium, marginal social benefit ________ marginal cost,
and the number of students enrolled is ________.
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CO
AACSB: Analytical reasoning
10.5 Integrative Questions
1) A noisy party that keeps neighbors awake is an example of a
A) negative production externality.
B) positive production externality.
C) negative consumption externality.
D) positive consumption externality.
E) Both answers B and C are correct.
Skill: Level 2: Using definitions
Section: Integrative
Author: MR
AACSB: Reflective thinking
90
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2) An externality can be a cost or benefit arising from the production of a good that falls upon
A) consumers but not producers.
B) producers but not consumers.
C) both the consumer and the producer.
D) someone other than the consumer or producer.
E) no one so it goes unpaid.
Skill: Level 2: Using definitions
Section: Integrative
Author: MR
AACSB: Reflective thinking
3) Externalities
A) are important in the areas of environment and education.
B) only have a negative impact on people.
C) deal with issues that are not our internal issues.
D) affect the people who are responsible for production.
E) are nonexistent in unregulated, competitive markets.
Skill: Level 2: Using definitions
Section: Integrative
Author: SA
AACSB: Reflective thinking
4) Which of the following can be rival and excludable?
i) a good
ii) a service
iii) a resource
A) i and ii
B) i and iii
C) ii and iii
D) i, ii and iii
E) only i
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking