58) The marginal benefit of a public good is the
A) sum of the marginal benefits of all the individuals at each quantity.
B) marginal benefit of the individual person who places the lowest value on the good, multiplied
by the number of people in the economy.
C) marginal benefit of the individual person who places the highest value on the good, multiplied
by the number of people in the economy.
D) benefit of the last person’s consumption.
E) average of the marginal benefits of all the individuals at each quantity.
59) The marginal benefit curve of a public good
A) slopes downward.
B) slopes upward.
C) is vertical.
D) is horizontal.
E) is U-shaped.
60) Sue and Mark are the only two members of a community. Sue’s marginal benefit from one
lighthouse is $2,000 and Mark’s marginal benefit is $1,000. If the marginal cost of one
lighthouse is $2,500 and if a lighthouse is a public good, then for efficiency the lighthouse
should
A) be built but only Sue should be allowed to use it.
B) be built but only Mark should be allowed to use it.
C) be built and both Sue and Mark should be allowed to use it.
D) not be built because its marginal cost exceeds Sue’s marginal benefit.
E) not be built because its marginal cost exceeds both Sue’s and Mark’s marginal benefit.
61) The efficient quantity of a public good is
A) the quantity produced by private firms.
B) the quantity at which the marginal benefit equals the marginal cost.
C) impossible to determine because each person’s marginal benefit is different.
D) the quantity at which the marginal benefit exceeds the marginal cost by as much as possible.
E) the quantity determined by the intersection of the demand curve and the supply curve.
62) The efficient quantity of a public good can’t be produced by private firms because
A) only the government has the necessary resources.
B) it is impossible to determine the efficient amount.
C) consumers have an incentive to free ride and not pay for their share of the good.
D) private firms aren’t large enough.
E) the price would be too high if private firms produced the goods.
63) If the two political parties propose similar or identical policies, they are following the
principle of
A) rational ignorance.
B) inefficient overprovision.
C) free riding.
D) minimum differentiation.
E) the commons.
64) ________ is the decision not to acquire information because the marginal cost of doing so
exceeds the marginal benefit.
A) Rational ignorance
B) The principle of minimum differentiation
C) A free rider
D) Consumer ignorance
E) The tragedy of the commons
65) Government bureaucracies over-provide public goods and grow larger because of their goal
of ________ combined with ________ of the voters.
A) budget maximization; rational ignorance
B) budget minimization; irrational intelligence
C) budget maximization; minimum differentiation
D) budget maximization; irrational exuberance
E) minimum differentiation; budget maximization
AACSB: Reflective thinking
10.3 Education and Health Care Services
1) The additional benefit that Marvin gets from being vaccinated against the flu is known as the
A) external benefit.
B) marginal private benefit.
C) private cost.
D) social cost.
E) marginal social benefit.
2) The benefit that Joan gets from eating cherries is an example of
A) when the external benefit equals the private benefit.
B) a private benefit.
C) an external benefit.
D) an external cost.
E) the marginal social cost of eating cherries.
3) If the marginal private benefit of attending college for Shelly is $40,000 and the marginal
external benefit is $15,000, she will attend college if the cost of attendance is no more than
A) $55,000.
B) $45,000.
C) $40,000.
D) $25,000.
E) $15,000.
4) When a person receives a flu vaccination, the ________ is the additional benefit the person
receives from getting the shot.
A) marginal private benefit
B) marginal external benefit
C) marginal social benefit
D) marginal social cost
E) marginal external cost
5) When the benefits of producing a good or service spill over to other people, rather than just
the buyer, the spillover is referred to as
A) an external benefit.
B) an external cost.
C) a marginal cost.
D) an equilibrium social output.
E) a Coasian good.
6) External benefits are the extra
A) benefits a consumer gets from consuming a good.
B) costs a producer creates in producing a good.
C) benefits that accrue to people other than the consumers.
D) costs a producer bears for producing a polluting good.
E) benefits a producer obtains for reducing production of a polluting good.
7) Research leading to the discovery of new knowledge has external benefits because
A) the new knowledge increases profits.
B) the new knowledge decreases costs.
C) others can use the new knowledge.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
8) Individuals making decisions about how much to purchase of a product with an external
benefit base their decisions on which of the following?
A) the price and marginal private benefit
B) the economically efficient output
C) the price and the marginal social benefit
D) the size of the deadweight loss
E) the size of the external benefit and the price
9) When Keisha receives a flu vaccination, the additional benefit enjoyed by Keisha’s friends is
the
A) marginal private benefit.
B) marginal external benefit.
C) marginal social benefit.
D) private benefit.
E) marginal private cost.
10) A example of a good with external benefits is
A) a pizza.
B) a dose of flu vaccine.
C) a sewing machine.
D) an imported good.
E) a pair of running shoes.
11) Education leads to external benefits because
A) the people who become better educated get better jobs.
B) better educated people commit fewer crimes.
C) better educated people are less lazy.
D) little pollution is created when educating people.
E) better educated people are more productive.
12) Which of the following is the best example of a good or service with an external benefit?
A) gasoline
B) education
C) garbage disposal
D) fertilizers
E) bread
13) Which of the following is an example of a publicly provided product with an external
benefit?
A) milk
B) gasoline
C) mink coats
D) purses
E) None of the above answers is correct.
14) Which of the following actions would most likely have an external benefit?
A) eating a peanut butter sandwich
B) throwing trash out your car window as you drive to class
C) sleeping
D) attending college
E) developing a better marketing strategy for Honda
15) Which of the following is an example of an external benefit?
A) a ton of coal burned in a power plant to produce electricity
B) a car accident that crowds a major Los Angeles freeway
C) the production of a slice of pizza
D) the cleanup of a large lake
E) the consumption of a can of Mt. Dew
16) Which of the following is true?
A) MSB = MB + Marginal external benefit.
B) MB = Marginal external benefit – MSB.
C) MB = Marginal external benefit + MSC.
D) MSB = Marginal external cost – marginal external benefit.
E) MSB = MB + Marginal external benefit – Marginal external cost.
17) MSB equals
A) MC + the marginal external cost.
B) MC + the marginal external benefit.
C) MB + the marginal external cost.
D) MB + the marginal external benefit.
E) MB + MC.
18) If an external benefit is present in the consumption of a good or service, then
A) there can be no external cost.
B) the marginal social benefit is greater than the marginal private benefit.
C) the marginal social benefit is equal to the marginal private benefit.
D) the marginal private benefit is equal to the marginal social benefit plus the marginal external
benefit.
E) the marginal external benefit is equal to the marginal private benefit minus the marginal social
benefit.
19) If a product has an external benefit, how does its marginal private benefit compare to its
marginal social benefit?
A) Marginal private benefit is less than marginal social benefit.
B) Marginal private benefit is greater than marginal social benefit.
C) At low quantities, marginal private benefit is less than marginal social benefit but at high
quantities, marginal private benefit is greater than marginal social benefit.
D) At low quantities, marginal private benefit is greater than marginal social benefit but at high
quantities, marginal private benefit is less than marginal social benefit.
E) Marginal private benefit cannot be compared to marginal social benefit.
20) The sum of the marginal private benefit and the marginal external benefit derived from eco-
tourism in British Columbia is called the
A) total private benefit.
B) net gain.
C) total external benefit.
D) marginal social benefit.
E) total Coase benefit.
21) Suppose Julie plants a beautiful garden in her front yard. The benefits of the garden to Julie
and to her neighbors equals the
A) external benefit.
B) marginal private benefit.
C) marginal external benefit.
D) marginal social benefit.
E) marginal social cost.
22) Suppose scientific research generates external benefits. Without government intervention, the
market for scientific research would
A) produce the efficient amount.
B) produce more than the efficient amount.
C) produce some research, but less than the efficient amount.
D) produce zero research.
E) either produce more than or less than the efficient amount depending on whether the external
benefit is on the production or consumption of the research.
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
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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
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.
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.
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
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
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.
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.
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.
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
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.
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.
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.
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.
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.
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.