1. College education provides higher income for the individual, but also a more productive and more educated person who will contribute to society in many ways. Higher education is an example of
a) a positive externality.
b) a negative externality.
c) a non-excludable service.
d) adverse selection.
2. If a positive externality is associated with the purchase of smoke detectors:
a) the marginal social benefit of smoke detectors exceeds their price.
b) the marginal social benefit of smoke detectors is zero.
c) the marginal social benefit of smoke detectors equals their price.
d) more than the efficient quantity of smoke detectors will be sold.
3. Carbon dioxide emissions are thought to contribute to global warming, and there is concern that changes in climate will be costly. Emitting carbon dioxide is an example of:
a) a public good.
b) a negative externality.
c) an adverse selection problem.
d) an effluent fee.
4. An economist is most likely to support all of the following methods to address the negative externalities created by the waste from newspapers except:
a) requiring publishers to cut the volume of newspapers generated, but allowing them to sell certificates so that others can meet those requirements for them.
b) taxing the suppliers of newspaper by the pound.
c) having the cost of the externality be paid by the government.
d) ensuring that the social cost of buying a newspaper is reflected in its price.
5. Suppose the marginal benefit (MB) of national defense is MB = 1,000 - 10Q, where Q measures units of national defense, for Charlie and MB = 400 - 4Q for Sally. Combining Charlie's and Sally's marginal benefits yields the social MB equation:
a) MB = 1,000 - 6Q.
b) MB = 1,000 - 14Q.
c) MB = 1,400 - 6Q.
d) MB = 1,400 - 14Q.
6. Music spreads easily and cheaply on computer networks. As a result, music has become more like:
a) a private good.
b) a public good.
c) a merit good.
d) an inferior good.
7. In the case of public goods, a demand curve that shows the marginal benefit of the good is:
a) nonexistent.
b) the horizontal sum of individual demand curves.
c) the vertical sum of individual demand curves.
d) perfectly inelastic.
8. If air pollution control is a public good, it follows that:
a) the efficient output of air pollution control is zero.
b) additional persons can benefit from a given amount of air pollution control without reducing the benefits enjoyed by others.
c) the efficient output of air pollution control can be attained by selling it by the unit in a market.
d) the more air pollution control enjoyed by any one person, the less is available to others.
9. Suppose that a negative externality creates $1 billion worth of costs to third parties. The government attacks the problem with regulations that cut the cost of the externality to $500 million but cost business and consumers $1.5 billion. This situation illustrates the idea that:
a) regulations are an effective way to curb externalities.
b) externalities can never be corrected.
c) correcting market failure can result in government failure.
d) getting rid of externalities requires a great deal of necessary sacrifice for all of us.
10. Milton Friedman argues that medical licensure benefits doctors because it:
a) allows them to restrict supply, increase prices, and significantly increase their incomes.
b) protects them from malpractice suits.
c) ensures that they will not have to compete against each other for patients.
d) prevents other doctors from advertising and stealing their patients.