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Externalities 2583
163. Refer to Figure 10-11. “The social value of the last unit produced exceeds the private cost of
the last unit produced by $13.50.” This statement is correct at which quantity of output?
a. 210 units
b. 270 units
c. 330 units
d. 390 units
164. Refer to Figure 10-11. On the
a. 390th unit of output, private value exceeds private cost.
b. 390th unit of output, private value exceeds external value.
c. 450th unit of output, private value exceeds social value.
d. 450th unit of output, private cost exceeds social value.
2584 Externalities
165. Refer to Figure 10-11. Taking into account private value and external benefits, the maximum
total surplus that can be achieved in this market is
a. $5,880.
b. $9,480.
c. $13,230.
d. $15,360.
166. Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at
the market equilibrium amounts to
a. $3,850.
b. $4,320.
c. $4,980.
d. $5,530.
Externalities 2585
Table 10-4
Quantity
Private Value
Private Cost
External Cost
1
$46
$21
$6
2
$44
$24
$6
3
$42
$27
$6
4
$40
$30
$6
5
$38
$33
$6
6
$36
$36
$6
7
$34
$39
$6
167. Refer to Table 10-4. The table represents a market in which
a. there is no externality.
b. there is a positive externality.
c. there is a negative externality.
d. The answer cannot be determined from inspection of the table.
168. Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is
a. $7.
b. $23.
c. $30.
d. $38.
2586 Externalities
169. Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the
a. 2nd unit.
b. 3rd unit.
c. 4th unit.
d. 5th unit.
170. Refer to Table 10-4. The market equilibrium quantity of output is
a. 3 units.
b. 4 units.
c. 5 units.
d. 6 units.
Externalities 2587
171. Refer to Table 10-4. Take into account private and external costs and assume the quantity of
output is always a whole number (that is, fractional units of output are not possible). The
maximum total surplus that can be achieved in this market is
a. $29.
b. $35.
c. $40.
d. $46.
172. Refer to Table 10-4. Taking into account private and external costs, total surplus in the market
equilibrium amounts to
a. $28.
b. $39.
c. $45.
d. $51.
2588 Externalities
173. Refer to Table 10-4. Which of the following policies would move the market from the market
equilibrium to the socially optimal equilibrium?
a. a tax of $4 per unit of output
b. a subsidy of $4 per unit of output
c. a tax of $6 per unit of output
d. a subsidy of $6 per unit of output
Figure 10-12
Externalities 2589
174. Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?
a. social cost
b. social value
c. private cost
d. private value
175. Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?
a. social cost minus social value
b. social value minus private cost
c. demand
d. private cost
176. Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?
a. social cost
b. social value
c. private cost
d. private value
2590 Externalities
177. Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?
a. social cost minus social value
b. social value minus private cost
c. demand
d. private value plus external benefit
178. Refer to Figure 10-12. An alternative label for the line labeled “Supply” would be
a. private value.
b. external value.
c. private cost.
d. external cost.
Externalities 2591
179. Refer to Figure 10-12. An alternative label for the quantity would be
a. .
b. .
c. .
d. .
180. Refer to Figure 10-12. An alternative label for the quantity would be
a. .
b. .
c. .
d. .
2592 Externalities
181. Refer to Figure 10-12. The graph, as drawn, could apply to the market for
a. automobiles.
b. aluminum.
c. industrial robots.
d. All of the above are correct.
182. Refer to Figure 10-12. The graph, as drawn, could apply to the market for
a. fire extinguishers.
b. immunizations such as flu shots.
c. education.
d. All of the above are correct.
Externalities 2593
183. Refer to Figure 10-12. Suppose, on the figure, Q represents the quantity of education and P
represents the price of education. Then the quantity represents
a. an inefficiency.
b. the extent of the negative externality that pertains to the market for education.
c. the amount of the tax that would be required to correct the negative externality that pertains
to the market for education.
d. the amount of the subsidy that would be required to correct the positive externality that
pertains to the market for education.
184. The externality associated with technology spillovers
a. cannot be internalized by government.
b. is a negative externality.
c. can be internalized, potentially, through taxation of firms that are responsible for technology
spillovers.
d. can be internalized, potentially, through patent protection.
2594 Externalities
185. Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his
friends and relatives avoid the flu for the entire flu season. It would make sense to argue that
a. flu shots provide a positive externality, and that flu shots should be subsidized.
b. if flu shots are not subsidized, then the number of people getting flu shots will be smaller than
the socially optimal number.
c. the externality generated by flu shots is more like the externality generated by education than
the externality generated by pollution.
d. All of the above are correct.
186. Assuming education results in a positive externality, which of the following statements is correct?
a. The social cost of producing education exceeds the private cost of producing education.
b. The positive externality can be depicted on a graph by the vertical distance between the
supply curve and the social-cost curve.
c. The socially optimal quantity of education will exceed the market equilibrium quantity of
education.
d. All of the above are correct.
Externalities 2595
187. Assume the production of a good causes a negative externality. In the market equilibrium, the
marginal consumer values the good at
a. less than the social cost of producing it.
b. less than the private cost of producing it.
c. more than the social cost of producing it.
d. more than the private cost of producing it.
2596 Externalities
188. If the social value of producing a good is always higher than the private value of producing it,
then there is a
a. negative externality associated with the production of the good, and the market equilibrium
quantity of the good is less than the socially optimal quantity.
b. negative externality associated with the production of the good, and the socially optimal
quantity of the good is less than the market equilibrium quantity.
c. positive externality associated with the production of the good, and the market equilibrium
quantity of the good is less than the socially optimal quantity.
d. positive externality associated with the production of the good, and the socially optimal
quantity of the good is less than the market equilibrium quantity.
Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes
upward. The production of the 1,000th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
189. Refer to Scenario 10-1. From the given information, it is apparent that
a. the production of gasoline involves a negative externality, so the market will produce a smaller
quantity of gasoline than is socially desirable.
b. the production of gasoline involves a negative externality, so the market will produce a larger
quantity of gasoline than is socially desirable.
c. the production of gasoline involves a positive externality, so the market will produce a smaller
quantity of gasoline than is socially desirable.
d. the production of gasoline involves a positive externality, so the market will produce a larger
quantity of gasoline than is socially desirable.
Externalities 2597
190. Refer to Scenario 10-1. The production of the 1,000th gallon of gasoline entails an
a. external cost of $0.15.
b. external cost of $0.45.
c. external benefit of $0.15.
d. external benefit of $0.45.
191. Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent
the price of a gallon of gasoline. Which of the following statements is correct?
a. One point on the social-cost curve is (Q = 1,000, P = $0.45).
b. One point on the supply curve is (Q = 1,000, P = $3.10).
c. One point on the demand curve is (Q = 1,000, P = $3.55).
d. The socially optimal quantity of gasoline is less than 1,000 gallons.
2598 Externalities
192. Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let
QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following
inequalities is correct?
a.
1,000 < QOPTIMUM < QMARKET
b.
QOPTIMUM < 1,000 < QMARKET
c.
QMARKET < 1,000 < QOPTIMUM
d.
QOPTIMUM < QMARKET < 1,000
193. Refer to Scenario 10-1. Suppose the equilibrium quantity of gasoline is 1,150 gallons; that is,
QMARKET = 1,150. Then the equilibrium price of a gallon could be
a. $2.80.
b. $3.00.
c. $3.30.
d. $3.80.
Externalities 2599
194. Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is
constant, regardless of how much gasoline is produced. Then the externality could be internalized
if producers of gasoline were
a. provided a subsidy of $0.30 per gallon of gasoline sold.
b. provided a subsidy of $0.45 per gallon of gasoline sold.
c. required to pay a tax of $0.45 per gallon of gasoline sold.
d. required to pay a tax of $0.30 per gallon of gasoline sold.
195. Education yields positive externalities. For example, a more educated population
a. may increase the pace of technological advances, leading to higher productivity and wages for
everyone.
b. leads to more informed voters, resulting in better government for everyone.
c. tends to result in lower crime rates.
d. All of the above are correct.
2600 Externalities
196. Education yields positive externalities. For example,
a. colleges and universities have benefited, in recent years, from increases in tuition paid by
students.
b. as a result of earning a college degree, a person becomes a more productive worker and
benefits by earning higher wages.
c. a more educated population tends to result in lower crime rates.
d. All of the above are correct.
197. Education is heavily subsidized through public schools and government scholarships. This
subsidization of education reflects the fact that
a. a negative externality requires a subsidy to move the market equilibrium closer to the social
optimum.
b. the social cost of education exceeds the private cost of education.
c. the social value of education exceeds the private value of education.
d. the market-equilibrium quantity of education exceeds the optimal quantity of education.
Externalities 2601
198. Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity
of good x is 4,000 units. Then
a. the production of good x imposes external costs on society.
b. the private value of good x exceeds the private cost of good x when 5,000 units are produced.
c. the private cost of good x exceeds the private value of good x when 5,000 units are produced.
d. the social cost of good x exceeds the private value of good x when 4,000 units are produced.
199. Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity
of good x is 3,000 units. When 2,500 units of good x are produced, the
a. external cost of good x exceeds the private value of good x.
b. external cost of good x equals the private value of good x.
c. social cost of good x exceeds the private value of good x.
d. social cost of good x equals the private value of good x.
2602 Externalities
200. Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of
the United States.
On the basis of what they found, they concluded that environmentalists should be in favor of
a. lower taxes on carbon-based fuels such as gasoline.
b. more and taller skyscrapers.
c. policies that encourage people to move from large cities to suburban areas.
d. policies that encourage people to move from suburban areas to rural areas.
Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of
plastics.
