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Foundations of Microeconomics, 6e (Bade/Parkin)
Chapter 10 Externalities
1) Externalities
A) can be either benefits or costs.
B) always create extra social costs.
C) always make society better off.
D) cannot be expressed in dollar amounts.
E) are always part of private costs or private benefits.
Answer: A
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 10.1, 5e
AACSB: Reflective thinking
2) A cost that arises from the production or consumption that falls on someone other than the
producer or consumer is called
A) a negative benefit.
B) a public choice impact.
C) a positive externality.
D) a negative externality.
E) a private good.
Answer: D
Topic: Externalities
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Checkpoint 10.1, 5e
AACSB: Reflective thinking
1
Copyright © 2013 Pearson Education, Inc.
4) An example of someone bearing the burden of a negative production externality would be
A) Taylor living downwind from a smelly feedlot where pigs are raised.
B) Jess's roommate smokes and she doesn't.
C) Lynna's neighbors play loud music late at night.
D) All of these are examples of someone bearing the burden of a negative production externality.
E) None of these is an examples of someone bearing the burden of a negative production
externality.
Answer: A
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 10.1, 5e
AACSB: Reflective thinking
6) To ensure all students are protected from getting the flu this year, your school offers free flu
shots. What type of externality exists in this example?
A) Negative consumption externality.
B) Positive consumption externality.
C) Positive production externality.
D) Negative production externality.
E) Neutral externality.
Answer: B
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 10.1, 5e
AACSB: Reflective thinking
2
Copyright © 2013 Pearson Education, Inc.
7) 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.
Answer: B
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Status: Checkpoint 10.3, 5e
AACSB: Reflective thinking
3
Copyright © 2013 Pearson Education, Inc.
10) When studying pollution and the environment, economists
A) have no role to play.
B) concentrate on the physical aspects of the environment.
C) emphasize costs and benefits.
D) attempt to reduce pollution at all costs.
E) think pollution is good if it occurs when production takes place.
Answer: C
Topic: Economics and pollution
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
11) The production of electricity creates pollution. When deciding how much electricity to buy,
customers ________ the cost of pollution. When deciding how much electricity to buy,
producers ________ the cost of pollution.
A) take into account; take into account
B) do not take into account; do not take into account
C) take into account; do not take into account
D) do not take into account; take into account
E) None of the above answers is correct.
Answer: B
Topic: Externalities
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
4
Copyright © 2013 Pearson Education, Inc.
13) A private cost is a cost of production that is
A) borne by the producer of a good.
B) measured in marginal terms.
C) borne by someone other than the producer of a good.
D) measured in total terms.
E) the same as an external cost.
Answer: A
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
14) The cost of producing an additional unit of a good or service that is borne by the producer of
that good or service is the marginal
A) external cost.
B) private cost.
C) social cost.
D) public cost.
E) None of the above answers is correct.
Answer: B
Topic: Private cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
15) The difference between private cost and social cost is that
A) social cost only considers the external cost borne by society.
B) social cost only considers the cost borne by people other than the producer.
C) private cost only considers the cost borne by producers of the good.
D) social cost also includes any external benefit whereas private cost excludes all external
benefits.
E) there is no difference; the terms refer to the same cost.
Answer: C
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
5
Copyright © 2013 Pearson Education, Inc.
16) Harry, the owner of a beauty salon, hires a new hair stylist. The wages paid to the new stylist
are
A) a private cost and not an external cost .
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) only a private benefit because people want their hair styled.
Answer: A
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
17) Joanne rents a TV production studio to produce an extra hour of a TV show. The rent is
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because viewers will benefit from watching the extra hour of the show.
Answer: A
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
6
Copyright © 2013 Pearson Education, Inc.
19) For a firm, its labor costs are
A) a marginal benefit.
B) a private cost.
C) an external cost.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
Answer: B
Topic: Private cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
20) The cost of producing an additional unit of a good or service that falls on people other than
the producer is the marginal
A) external cost.
B) private cost.
C) social cost.
D) social benefit.
E) None of the above answers is correct.
Answer: A
Topic: External cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
7
Copyright © 2013 Pearson Education, Inc.
22) A loud band plays a concert late at night in a neighborhood park. The noise produced by the
band that keeps the neighbors not attending the concert awake is
A) only a private cost.
B) only an external cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because the neighbors get to hear the band.
Answer: B
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
24) A firm dumps dioxin in a river, thereby severely polluting the river. The cost of the water
pollution is
i. zero for the firm.
ii. an external cost.
iii. part of the marginal social cost
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
Answer: E
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
8
Copyright © 2013 Pearson Education, Inc.
25) When logging in the Pacific Northwest destroys forests that hikers would have used for eco-
tourism, the destruction of the trails is an example of
A) an external cost.
B) a private cost.
C) a government cost.
D) an external benefit.
E) None of the above answers is correct.
Answer: A
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
27) Jacob pays $5,000 to paint his house because pollution from a nearby factory damaged the
paint. To the factory, the $5,000 cost is
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because viewers will benefit from watching the extra hour of the show.
Answer: A
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
9
Copyright © 2013 Pearson Education, Inc.
28) A landfill site produces an obnoxious odor. Homes downwind of the site rent for $1000 per
month while homes upwind of the site rent for $1500 per month. If the odor is the only
detectable difference between two neighborhoods, the difference in the rent is the ________ of
the odor.
A) social cost
B) external cost
C) private cost
D) marginal cost-benefit
E) private benefit
Answer: B
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
29) Suppose two neighborhoods (A and B) have identical housing, but neighborhood A has a
strictly enforced deed restriction that prohibits homeowners from parking junk cars in the front
yard. If houses in neighborhood A sell for $105,000 and houses in neighborhood B sell for
$100,000, how would an economist value the external cost of visible junk cars, per house?
A) $205,000
B) $105,000
C) $100,000
D) $5,000
E) None of the above answers is correct.
Answer: D
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
30) Suppose two neighborhoods with 10 homes each in Buffalo, New York are identical except
one of them is near a toxic waste dump. If homes near the dump sell for an average of $40,000
and the other homes sell for $90,000, the external cost of the dump is
A) $400,000.
B) $1,300,000.
C) $900,000.
D) $500,000.
E) $90,000.
Answer: D
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
10
Copyright © 2013 Pearson Education, Inc.
31) The marginal cost incurred by the entire society to produce a good or service is the
A) marginal external cost.
B) marginal private cost.
C) marginal social cost.
D) marginal social benefit.
E) marginal private benefit.
Answer: C
Topic: Marginal social cost
Skill: Level 1: Definition
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
11
Copyright © 2013 Pearson Education, Inc.
34) Which of the following equations is correct?
A) MC = MSC + marginal external cost
B) MSC = MC ÷ marginal external cost
C) MSC = MC + marginal external cost
D) MSC = MC × marginal external cost
E) MC = marginal external cost - MSC
Answer: C
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
12
Copyright © 2013 Pearson Education, Inc.
37) If there is no external cost, then marginal social cost
A) increases as output increases.
B) decreases as output increases.
C) is constant regardless of the level of output.
D) is unrelated to output levels.
E) first increases and then decreases as output increases.
Answer: A
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
39) If the marginal external cost of building a children's playground equals zero, then the
i. marginal private cost equals the marginal social cost.
ii. marginal social cost equals zero.
iii. marginal private cost equals zero.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i and ii
Answer: A
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
13
Copyright © 2013 Pearson Education, Inc.
40) If the marginal private cost of running a car is $0.30 a mile and the marginal external cost is
$0.10, what is the marginal social cost?
A) $0.20
B) $3.00
C) $0.03
D) $0.40
E) None of the above answers is correct.
Answer: D
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
41) If the marginal social cost of generating a kilowatt of electricity is $0.10 and the marginal
private cost is $0.08, what is the marginal external cost?
A) $0.18
B) $0.10
C) $0.08
D) $0.02
E) $0.80
Answer: D
Topic: Marginal external cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
42) If the marginal social cost of producing a ton of cement is $4,000 and the marginal private
cost is $3,500, then the
A) marginal benefit of a ton of cement will equal $4,000.
B) total cost of producing a ton of cement is $7,500.
C) marginal external cost of producing a ton of cement is $500.
D) marginal external cost of producing a ton of cement is $7,500.
E) marginal external cost of producing a ton of cement is $4,000.
Answer: C
Topic: Marginal social cost
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
14
Copyright © 2013 Pearson Education, Inc.
43) If a good has an external cost, then the marginal private cost curve
A) lies below then the marginal social cost curve.
B) lies above the marginal social cost curve.
C) lies below the horizontal axis.
D) is the same as the marginal external cost curve.
E) is undefined because the firms' costs are not equal to the social costs.
Answer: A
Topic: Marginal social cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
45) If the production of a good causes an external cost, then the efficient quantity is
A) equal to the quantity at which the marginal benefit equals marginal cost.
B) less than the quantity at which the marginal benefit equals the marginal cost.
C) more than the quantity at which the marginal benefit equals the marginal cost.
D) the quantity at which the marginal private benefit is greater than the marginal social benefit.
E) None of the above answers is correct.
Answer: B
Topic: Efficiency
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
15
Copyright © 2013 Pearson Education, Inc.
46) If a good has an external cost, the
A) unregulated competitive market outcome is efficient.
B) marginal private cost reflects the external cost.
C) unregulated competitive market outcome is inefficient.
D) marginal social benefit is equal to the marginal social cost when the market is in equilibrium.
E) external benefit must equal the external cost.
Answer: C
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
47) The basic reason that a competitive unregulated market produces an inefficient amount of a
good with an external cost because
A) producers cannot measure marginal social cost.
B) producers do not pay the external cost.
C) the general public does not care about external costs.
D) external costs are not a political issue.
E) the external cost is paid by consumers rather than producers.
Answer: B
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
48) When production of a good results in an external cost, the unregulated competitive market
equilibrium quantity is
A) the efficient level of output.
B) greater than the efficient level of output.
C) not zero but is less than the efficient level of output.
D) unattainable.
E) zero.
Answer: B
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
16
Copyright © 2013 Pearson Education, Inc.
49) If producing a good or a service creates pollution, then
A) an unregulated competitive market produces an efficient output.
B) the industry's supply curve includes the extra cost of pollution.
C) at the unregulated, competitive market equilibrium quantity, marginal social cost is greater
than the equilibrium price.
D) at the unregulated, competitive market equilibrium quantity, marginal social benefit and
marginal social cost are equal.
E) at the unregulated, competitive market equilibrium quantity, marginal social benefit is less
than the equilibrium price.
Answer: C
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
50) An external cost in the production of a good creates a difference between the
i. costs borne by the producer and the costs borne by society in general.
ii. efficient quantity of output and the equilibrium quantity of output.
iii. marginal social cost and the marginal private cost.
A) i only
B) iii only
C) ii and iii
D) i, ii, and iii
E) i and iii
Answer: D
Topic: Inefficient equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
51) The deadweight loss associated with producing a product that has an external cost occurs
because
A) too much output is produced.
B) too little output is produced.
C) the price firms charge for the good is too high.
D) not enough resources are allocated to producing the good.
E) the marginal social cost does not equal zero.
Answer: A
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Reflective thinking
17
Copyright © 2013 Pearson Education, Inc.
52) When production of a good results in an external cost, the unregulated competitive market
equilibrium is inefficient because ________.
A) MSC = MC
B) MSC = MB
C) MSC > MB
D) MSC < MB
E) MSC is undefined
Answer: C
Topic: Inefficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
53) For a good whose production creates an external cost, the efficient quantity of output is
A) where the market demand curve and the market supply curve intersect.
B) where the marginal social cost curve and marginal benefit curve intersect.
C) as low as possible.
D) zero.
E) the amount of production so that the marginal social benefit exceeds the marginal social cost
by as much as possible.
Answer: B
Topic: Efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
18
Copyright © 2013 Pearson Education, Inc.
54) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. If 5 concerts are put on, then the
A) marginal external cost will be greater than the marginal social cost.
B) marginal external cost will be greater than the marginal private cost.
C) marginal external cost will equal the marginal private cost.
D) marginal social cost will equal the marginal external cost.
E) marginal external cost will equal zero.
Answer: B
Topic: External cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
55) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. Suppose the marginal private cost of the 5th
concert is $10,000. Then, for the 5th concert, the
A) marginal external cost equals $30,000.
B) marginal social cost equals $30,000.
C) marginal external cost equals the marginal private cost.
D) marginal external cost equals $40,000.
E) marginal external cost equals $10,000.
Answer: A
Topic: External cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
19
Copyright © 2013 Pearson Education, Inc.
56) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. At 10 concerts, the
A) marginal private cost equals the marginal external cost.
B) marginal social cost equals $60,000.
C) marginal private cost is more than $40,000.
D) marginal external cost equals $60,000.
E) marginal external cost equals $80,000.
Answer: D
Topic: External cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
57) The figure above represents the relationship between output and cost in an industry with an
external cost. Which line represents the marginal private cost (MC) curve?
A) Curve 1
B) Curve 2
C) the dotted line BC
D) the y-axis
E) the dotted line AB
Answer: B
Topic: Private cost
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Checkpoint 11.1, 5e
AACSB: Analytical reasoning
20
Copyright © 2013 Pearson Education, Inc.
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“Edwin Arlington Robinson’s new volume of miscellaneous poems,
‘The three taverns’ is likely to earn him—if he has not already earned
—a reputation as the Henry James among poets. His fondness for
portraying the complex facets of character in an oblique light and by
means of inscrutable hints and sinuous innuendoes has led him to
further workings of the vein of dramatic lyric opened four years ago
by his famous ‘Ben Johnson entertains a man from Stratford.’ The
present collection contains seven long poems of this sort, revealing in
monolog or dialog a moment in the life of St Paul, Lazarus, Brown of
Harper’s ferry, Hamilton, and real or imagined people of lesser
note.”—Springf’d Republican
“‘The man against the sky’ indicated very clearly the place of the
poet, it was very high—how high we had not the standards by which
to measure. ‘The three taverns’ brings us much nearer to him, closer
within the embrace of his sympathies, and, by the same law, lifts him
much farther above us.” S: Roth
“Mr Robinson’s verse, as always, flows with limpid purity, but his
quaintly compounded vocabulary and his intellectual penetration
compel the closest attention to his pages. Readers who have the
patience or the agility to follow Mr Robinson are not meanly
rewarded.”
20–16520
20–12599
A story of the last days of the war and the period immediately
following. The scene is laid in a village of Lorraine. Here Daniel
Steele, an American Friend who has come to France to do relief and
reconstruction work, falls under the spell of Joan le Jeune, the maid
of Mirabelle. When Daniel had left home he had taken with him the
promise of his foster-sister Faith to be his wife on his return. But for
a little time Joan makes him forget Faith, and Joan, to whom he
brings the romance of strange lands, almost forgets her own soldier
lover Jean. But when Jean is under suspicion she turns to him, and
Daniel, too, recovering from a wound, finds his thoughts bound up in
Faith and is ready to return to his own country leaving Joan to her
happiness.
20–2645
“In construction the present story is by far the best he has written.”
20–17881