Assignment- Principles of Microeconomics

Part 1: Multiple Choice. Circle the letter corresponding to the answer you believe to be correct.

1. Before the ban on smoking within buildings at GUST, your economics professor enters your class smoking a cigar. The cigar smoke you breath/smell (referred to as second-hand smoke) is an example of a(n) ________.
a. economy of scale
b. externality
c. public good
d. government failure
e. none of the above

2. An externality is
a. a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction.
b. the total cost to society of producing an additional unit of a good or service.
c. the amount a consumer pays to consume an additional amount of a particular good.
d. a problem intrinsic to public goods: The good or service is so costly that its provision generally does not depend on whether or not any single person pays.
e. none of the above

3. If a profit-maximizing perfectly competitive firm does not have to pay a tax or fee to compensate society for a negative externality, the firm will choose to produce where
a. price equals marginal cost.
b. price equals marginal social cost.
c. marginal cost equals marginal social cost.
d. marginal revenue equals marginal social cost.
e. none of the above

4. If a profit-maximizing perfectly competitive firm has to pay a tax or fee to compensate society for a negative externality, the firm will choose to produce where
a. price equals marginal private cost.
b. price equals marginal social cost.
c. marginal cost equals marginal social cost.
d. marginal revenue equals marginal social cost.
e. none of the above

5. A polluting firm can be compelled to ______a negative externality if the government _____.
a. externalize; grants a subsidy.
b. externalize; imposes a tax.
c. internalize; grants a subsidy.
d. internalize; imposes a tax.
e. none of the above

6. For the Coase Theorem to work, three conditions must be satisfied. What are those conditions?
a. basic rights must understood, no impediments to bargaining, only a few parties are involved.
b. the government assigns property rights, there are many parties involved, a court must adjudicate the dispute.
c. the government owns the property rights, any number of parties may be involved, a government agency regulates the dispute.
d. all of the above are different ways of saying the same thing
e. none of the above.

7. Public goods represent a market failure because
a. they are provided by firms with market power.
b. positive externalities are created through their production.
c. they are nonexcludable and nonrival, the private sector cannot supply them efficiently.
d. there is incomplete information regarding their quality.
e. none of the above.

8. If one person's enjoyment of the benefits of a good does not interfere with another's consumption of it, the good is
a. excludable.
b. nonexcludable.
c. rival in consumption.
d. nonrival in consumption.
e. none of the above

9. Because people can enjoy the benefits of public goods whether they pay for them or not, they are usually unwilling to pay for them. This is known as the
a. intractable problem.
b. nonexcludable problem.
c. nonrival problem.
d. free-rider problem.
e. none of the above.

10. Which of the following goods most satisfies the conditions for a public good?
a. government scholarships for students
b. pizza
c. national defense
d. welfare payments to the poor
e. none of the above.