161. Unintended costs that are imposed in third parties as a result of an economic activity are called:
a.
marginal costs.
b.
direct costs.
c.
negative externalities.
d.
positive externalities.
e.
positive costs.
162. If a chemical factory causes noxious fumes to be emitted in the neighborhood, a third party would be:
a.
workers at the factory.
b.
factory managers.
c.
chemical customers.
d.
local homeowners.
e.
owners of the factory.
163. Which of the following would generate positive externalities?
a.
Flu vaccinations.
b.
Farmers’ use of pesticides.
c.
Cigarette smoking in elevators.
d.
Litter left at the beach.
e.
An unkept front yard.
164. Which of the following is an example of a negative externality?
a.
Planting flowers in your front yard.
b.
Talking loudly when others are trying to study economics.
c.
People donating money to charity.
d.
The price of bread increases.
e.
Accidentally pushing someone as you try to cross the street.
165. Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her
blanket near someone who has a radio and listen all day (without having to carry her radio, get sand in
her speakers, or buy new batteries). This is an example of:
a.
private property abuse.
c.
a negative externality.
b.
external costs.
d.
a positive externality.
166. Bobby’s neighbor is growing a tree that is blocking Bobby’s ocean view. Bobby is considering taking
his neighbor to court. This is most likely an example of a:
a.
considerate neighbor.
b.
public good.
c.
free rider.
d.
positive externality.
e.
negative externality.
167. Which of the following is not an example of an externality?
a.
Drunk drivers raise everyone’s auto insurance premiums.
b.
The price of lumber increases as lumberjacks’ wages increase.
c.
The neighbor’s beautiful front yard increases your home value.
d.
Someone drives a car that emits thick black smoke.
e.
People who live near a bakery enjoy the smell of baked bread.
168. Third-party beneficiaries are called:
a.
polluters.
b.
property owners.
c.
free riders.
d.
efficient market.
e.
losers.
169. Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His
neighbor John is not happy about the pigeons, since they leave a mess on his property. This is an
example of:
a.
a negative externality.
b.
a public good.
c.
privatization.
d.
third-party benefits.
e.
well-defined property rights.
170. Dina is driving to work on an interstate highway at 90 MPH, well in excess of the legal speed of 65
MPH. Sandy is also driving to work at the same time, going 85 MPH. A state trooper pulls Dina over
and gives her a speeding ticket. Sandy continues driving, but if Dina had not been speeding, the
trooper would have ticketed Sandy instead. In terms of externalities, this story shows that:
a.
Sandy’s actions gave Dina a positive externality.
b.
Dina’s actions gave Sandy a positive externality.
c.
Sandy’s actions gave Dina a negative externality.
d.
Dina’s actions gave Sandy a negative externality.
e.
Dina’s and Sandy’s actions did not create any externalities.
171. If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:
a.
$0.
b.
more than $0, but less than $2,000.
c.
$2,000.
d.
more than $2,000, but finite.
e.
infinite.
172. Tammy installed a set of wind chimes in her backyard. She enjoys listening to the musical tones when
the breeze hits them. Her neighbor Steven also enjoys the chimes, but her other neighbor Sally hates
the constant noise. Tammy’s wind chimes:
a.
create a negative externality for Steven and a positive externality for Sally.
b.
are not related to the issue of property rights since all parties are homeowners.
c.
are an example of an efficient market since the benefits to one party are balanced by costs
to another party.
d.
are a public good because all three parties can hear the wind chimes.
e.
create a positive externality for Steven and a negative externality for Sally.
173. John paints the exterior of his house and, as a result, his neighbor Christine is able to sell her home for
$5,000 more than she could have before. John’s house painting:
a.
creates a negative externality for Christine.
b.
shows John is a free rider.
c.
results in an efficient market outcome for both.
d.
creates a positive externality for Christine.
e.
was poorly done.
174. Suppose a wallet firm has been dumping its wastes into the local river. The government finds out and
insists that the firm pay for the cost of the river cleanup. As a result, we can expect:
a.
more wallets to be produced at a lower price.
b.
more wallets to be produced at a higher price.
c.
fewer wallets to be produced at a lower price.
d.
fewer wallets to be produced at a higher price.
e.
the same number of wallets to be produced at a higher price.
175. When there is market failure due to a negative externality,
a.
innocent people will suffer since it cannot be corrected.
b.
setting price equal to marginal social cost will solve it.
c.
the free market produces too little output.
d.
externalities have been taken into account.
e.
the best solution eliminates the externality entirely.
176. The positive externality associated with education is:
a.
producers can get higher prices for their goods and services.
b.
less crowding in the classrooms.
c.
increases in societal well-being and economic growth.
d.
technological progress slows as basic research increases.
e.
the market excludes noncontributors to education from benefits.
177. The reason individual homeowners usually do not hire a private contractor to fill the potholes on their
street is because:
a.
it costs too much.
b.
the value to the neighborhood exceeds the cost of repair.
c.
others who use the street will be free riders.
d.
they do not trust the government.
e.
there are negative externalities associated with the repair.
178. Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost
her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The
benefit she expects to receive is $1,800. In addition, neighbor Billy will receive a benefit of $150 and
neighbor Sammy will receive a benefit of $100. From this, we can conclude that:
a.
butterflies are a negative externality for Billy and Sammy.
b.
Denise will set up the butterfly garden without any help from her free-rider neighbors.
c.
if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its
benefits if it is built.
d.
if Billy refuses to contribute to the butterfly garden, Denise will not have one.
e.
if Billy and Sammy contribute the amounts at which they value the butterfly garden,
Denise will set it up.
179. When there is a positive externality associated with the watering of one’s lawn, the free market results
in:
a.
not enough lawn watering.
b.
too much lawn watering.
c.
the socially optimal level of lawn watering.
d.
people watering each other’s lawns.
e.
government subsidies for lawn watering.
180. Most economists believe that there are positive externalities in education. One can conclude that a free
market would fail to give the socially optimal outcome because the equilibrium:
a.
price and quantity would be too high.
b.
price would be too low and quantity would be too high.
c.
price and quantity would be too low.
d.
price would be too high and quantity would be too low.
e.
price and quantity would be just right.
181. When there are positive externalities associated with the consumption of a good, we can expect the
market:
a.
demand curve to lie above the social demand curve.
b.
demand curve to lie below the social demand curve.
c.
supply curve to lie above the social supply curve.
d.
supply curve to lie below the social supply curve.
e.
demand curve to lie below the social supply curve.
182. A third party is a person, or persons, who:
a.
consume goods produced from at least two intermediate inputs.
b.
avoids the transactions of the two principal parties.
c.
takes risks to avoid externalities.
d.
internalizes the costs of market failure.
e.
is imposed upon by the activity of others.
183. Albert and Betty hire Christine and David to play music at their wedding. Elizabeth, who lives behind
the church, cannot study because of the loud music. The third party is:
a.
Albert.
b.
Betty.
c.
Christine.
d.
David.
e.
Elizabeth.
184. Albert, Betty, Christine and David are all very good students. When they hold their study sessions,
they often discuss very difficult concepts in great detail. Christine’s roommate, Elizabeth, who takes
completely different classes, still learns from the discussions of the others. This is the case of a(n)
____, which ____ a ____.
a.
public good; benefits; third party
b.
externality; imposes a cost on; free rider
c.
market failure; results from; third party
d.
free rider; benefits from; third party
e.
Externalities; benefits; third party
185. The Yankee Candle Company, in Hatfield, Massachusetts, makes thousands of scented candles each
day. The factory emits the odor of the candles it produces, some of which smell quite nice. On days
when they make strawberry candles the townspeople really enjoy the smell. On days when they make
potpourri scented candles, people close their windows and don’t go outside. What can we infer about
the scented candle market?
a.
b and c.
b.
Strawberry candles are more expensive than is socially optimum.
c.
Potpourri candles are priced too low to be socially optimum.
d.
Candle production generates only negative externalities.
e.
Candle production technologies are inefficient.
186. Externalities are unintended costs or benefits that are imposed on unsuspecting people and that result
from:
a.
poor planning.
b.
intentional damages.
c.
excessive costs.
d.
excessive losses.
e.
the economic activity of others.
187. Externalities get their name from the fact that they are:
a.
b and d.
b.
unintended.
c.
short lived.
d.
outside of decisions.
e.
outside of marketplace.
188. The existence of an externality is proof that there is a(n):
a.
market failure.
b.
undervaluation of a good.
c.
undervaluation of a cost.
d.
property dispute.
e.
free-rider problem
189. Much of the nation’s coal is extracted by strip mining. This process leaves a huge barren hole in the
ground when complete, and the cost of replanting the trees is approximately $10 per ton of coal.
Burning the coal for electricity causes air pollution. No one knows how much damage the air pollution
causes, but we know that for another $10 per ton the power plant can be outfitted with a pollution
control device. What is one measure of the true social cost of coal fired electricity, in dollars per ton?
a.
Private marginal cost plus the $10 replanting charge.
b.
Private marginal cost plus the $10 emission control charge.
c.
Only the $20 of replanting and emission control charges, because the other costs are
private, not social.
d.
Private marginal cost plus the $20 of replanting and emission control charges.
e.
In order to answer this question we need to know the dollar value of the pollution.
190. Which of the following statements is not true?
a.
If marginal social cost and marginal private cost are the same, any externality that exists
will be positive.
b.
If marginal externality costs are not zero, externalities exist.
c.
An expansion of property rights to include air quality and scenic beauty would bring some
private markets close to a socially optimal equilibrium.
d.
The existence of pollution as the byproduct of a production or exchange process indicates
a market failure.
e.
When municipal water supplies have heavy concentration of agricultural chemicals, it is
probable that agricultural output from the area is produced in quantities greater than the
socially optimal level.
191. Which of the following are not methods of dealing with externalities?
a.
Relying on voluntary compliance.
b.
Taxing the output of industries that pollute.
c.
Creating legal environmental standards.
d.
Increasing public spending on cleanup/reduction.
192. Noise pollution is a serious problem. One major contributor is the recent development of very
powerful amplification equipment for automobile radios. Many people complain that the windows in
their home vibrate when some cars drive by. Others complain that loud car radios set off very sensitive
alarms in nearby parked cars. What do we know about the drivers of cars with loud stereos?
a.
b, c, and e.
b.
It would be very expensive for them to engage in this behavior if individuals had a right to
a nonvibrating home.
c.
The cost of their own hearing loss is less than the benefit they receive from cranking it up.
d.
They realize that there are no ordinances prohibiting loud noise.
e.
Their private costs fall short of the social costs.
193. Voluntary recycling is available in many parts of the country. If citizens of these areas have collected
recyclable material at home, they can bring it to a recycling center. These materials reduce landfill
space, reduce the need for virgin material extraction, and provide an inexpensive input in many
production processes. The information in this question suggests what about areas without voluntary
recycling?
a.
Externalities exist.
b.
There is mandatory recycling.
c.
Raw materials are less expensive.
d.
The cost of production is higher.
e.
Nothing.
194. Suppose the government imposes a per unit tax on an item whose production process creates a
negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the
government now uses the tax revenue to clean up pollution from this process, the market will:
a.
have internalized all costs and benefits.
b.
be inefficient.
c.
be destroyed.
d.
not have failed.
e.
be subject to obligatory controls.
195. Sometimes the government deals with externalities by creating laws to regulate behavior instead of
using taxes to correct the market failure. So, requiring auto manufacturers to install a device called a
catalytic converter which removes some toxins from exhaust may be preferable to a gas tax that
reduces driving levels. This route is often preferred because:
a.
c and e.
b.
it requires less technological development.
c.
it doesn’t penalize drivers of clean cars.
d.
only car drivers pay for the externality.
e.
the cost of the externality is unknown.
196. One method of correcting for ____ externalities is to create a ____ to make sure the market accounts
for all costs and benefits.
a.
market failure; tax
b.
negative; tax
c.
positive; mechanism
d.
positive; tax
e.
negative; free market
197. Nonsmoking sections in restaurants are designed to remove ____ from a market ____.
a.
smoke; with food service
b.
third parties; for food service
c.
externalities; with public goods
d.
third parties; externality
e.
nonsmokers; for food service
198. When airplanes take off and land at Logan airport, residents of East Boston complain about the noise.
The same planes make the same noise during the trip to Boston from Paris, but there are no ____ for
most of the trip because ____.
a.
jet sounds; noise doesn’t travel at high altitudes
b.
third parties; there are no externalities
c.
externalities; there are no third parties
d.
complaints; airplanes are insulated
e.
free riders; passengers must pay to board the plane
199. An externality is an unintended ____ imposed on ____ as a result of the ____.
a.
c or d
b.
cost; sellers; negligence of others
c.
cost; third parties; economic activity of others
d.
benefit; third parties; economic activity of others
e.
benefit; sellers; beneficence of others
200. There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find
free riders on the roof enjoying ____.
a.
free property rights
c.
a public good
b.
an externality
d.
excess utility
201. A community in a Southeastern state passed a beautification ordinance (law) prohibiting the placement
of indoor furniture outside of homes (i.e., no couches on the porch). The law represents a conflict
between ____ and ____.
a.
the rich; the poor
b.
third parties; market participants
c.
victims; criminals
d.
public goods; private goods
e.
residents; visitors
202. Which of the following is an example of a pure public good?
a.
A bus.
b.
A mall.
c.
A teddy bear.
d.
An army.
e.
An automobile.
203. From the standpoint of economic efficiency, competitive markets provide:
a.
less of a public good than would be efficient.
b.
more of a public good than would be efficient.
c.
exactly the amount of a public good that is efficient.
d.
none of these.
204. A competitive market economy is unlikely to provide an efficient quantity of some public goods
because:
a.
only the government has the vast resources necessary to produce public goods.
b.
the nature of public goods makes it difficult for producers to withhold them from
nonpaying consumers.
c.
the technology involved in the production of public goods makes it difficult for private
firms to produce them even though, once produced, they could be marketed efficiently.
d.
private production of public goods generally results in a large amount of profit, which is
difficult for a firm to effectively pay out to shareholders.
205. Goods whose benefits to society are not diminished as more people consume them and whose benefits
cannot be withheld from anyone are:
a.
impossible since resources are limited.
b.
examples of negative externalities.
c.
public goods.
d.
food and other necessities.
e.
provided by free markets to free riders.
206. Which of the following is a public good?
a.
Pencil.
c.
Light house.
b.
Apple.
d.
Gun.
207. Which of the following is the best example of a public good?
a.
Apples.
c.
Education.
b.
Cars.
d.
National defense.
208. Which of the following is the best example of a public good?
a.
Cars.
c.
Radios.
b.
Education.
d.
Air traffic control.
209. A public good may be defined as any good or service that:
a.
must be provided to citizens who are most able to benefit from it.
b.
must be distributed to all citizens in equal shares.
c.
excludes free riders.
d.
none of these.
210. Which of the following is a property of a public good?
a.
It is established by legislation.
b.
Free riders are excluded.
c.
Users collectively consume benefits.
d.
It is determined by positive economics.
211. Which if the following is the best example of a public good?
a.
Bread.
c.
Scrambled satellite broadcasts.
b.
Fish in the ocean.
d.
National defense.
212. People who enjoy the benefits of a public good without paying for them are called:
a.
spillover parties.
c.
free riders.
b.
external consumers.
d.
antitrust violators.
213. Which of the following is a property of a public good?
a.
A public good is free from externalities.
b.
Many individuals benefit simultaneously.
c.
A public good is not subject to free riders.
d.
A public good is established by law.
214. Which of the following is a public good?
a.
Air traffic control.
c.
Clean air.
b.
National defense.
d.
All of these.
215. Which of the following is not a characteristic of a public good?
a.
It is scarce.
b.
It is not diminished in amount as additional people consume the product.
c.
Its benefits cannot be withheld from anyone.
d.
It is free.
e.
It yields widespread benefits.
216. Which of the following would be an example of a public good?
a.
A candy bar.
b.
A painting by Monet.
c.
A taxi cab.
d.
A sunset.
e.
The beach.
217. Public goods differ from private goods in that:
a.
they produce negative externalities.
b.
they are not scarce.
c.
their benefits cannot be denied to anyone.
d.
their consumption must be regulated by the government.
e.
their benefits are very narrow.
218. Public goods are usually provided by:
a.
private industry.
b.
the government.
c.
private citizens.
d.
internal markets
e.
local industry.
219. If the free market is called upon to provide public goods, then:
a.
there will more goods provided than is optimal.
b.
there will be fewer goods provided than is optimal.
c.
the market will provide the optimal number of goods.
d.
the market price will be correct, but the optimal amount of output will not be produced.
e.
the firms will earn excess profit.
220. In order to avoid the free-rider problem, which of the following goods is best provided by the
government and paid for with tax dollars?
a.
Automobiles.
b.
Lighthouses.
c.
Bread.
d.
Prescription drugs.
e.
Windows.
221. If each of us relied exclusively on the market to determine what to buy, we would probably end up
with few, if any:
a.
streetlights.
b.
strawberries.
c.
CDs.
d.
raincoats.
e.
televisions.
222. City streets, sewage systems, and police protection are all examples of:
a.
public goods.
b.
private goods.
c.
exclusive goods.
d.
rival goods.
e.
consumer goods.
223. The city of Logan Square needs $40 million for a network of streetlights. There are 20,000 residents in
the Logan Square neighborhood, meaning the cost for each resident is $2,000. Psychiatrist Denise
Miller refuses to donate $2,000 towards the project. This is an example of the problems encountered
with:
a.
consumer goods.
b.
capital goods.
c.
rival goods.
d.
public goods.
e.
private goods.
224. Which of the following is a public good?
a.
An economics lecture.
b.
A television set.
c.
Higher education.
d.
Housing.
e.
Clean air
225. A public good will:
a.
be efficiently provided by the free market as long as its total benefits exceed its total costs.
b.
be efficiently provided by the free market as long as its marginal benefits exceed its
marginal costs.
c.
be provided in less than efficient quantities by the free market.
d.
be provided in efficient quantities by voluntary contributions.
e.
not be provided by the government.