Econ200N - Second Exam - Version B

. In the absence of externalities, the ''invisible hand'' leads a market to maximize A) producer profit from that market. B) total benefit to society from that market. C) both equality and efficiency in that market. ...

. In the absence of externalities, the ''invisible hand'' leads a market to maximize A) producer profit from that market. B) total benefit to society from that market. C) both equality and efficiency in that market. D) output of goods or services in that market. 2. When externalities are present in a market, the well-being of a market participants A) and market bystanders are both directly affected. B) and market bystanders are both indirectly affected. C) is directly affected, and market bystanders are indirectly affected. D) is indirectly affected, and market bystanders are directly affected. 3. Private markets fail to account for externalities because A) externalities don't occur in private markets. B) sellers include costs associated with externalities in the price of their product. C) decisionmakers in the market fail to include the costs of their behavior to third parties. D) the government cannot easily estimate the optimal quantity of pollution. 4. Which of the following is NOT an example of a negative externality? A) air pollution from a manufacturing plant. B) disrupted sleep from a neighbor's loud music. C) an illness caused by secondhand cigarette smoke. D) a decrease in your property value from neglecting your lawn and garden. 5. A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the A) supply curve for paper would shift to the right. B) supply curve for paper would shift to the left. C) demand curve for paper would shift to the right. D) demand curve for paper would shift to the left. 6. Which of the following is true of markets characterized by positive externalities? A) Social value exceeds private value, and market quantity exceeds the socially optimal quantity. B) Social value is less than private value, and market quantity exceeds the socially optimal quantity. C) Social value exceeds private value, and market quantity is less than the socially optimal quantity. D) social value seldom exceeds private value; therefore, social quantity is less than private quantity. 7. Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? A) The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. B) The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. C) The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. This study source was downloaded by 100000830772748 from CourseHero.com on 12-19-2021 07:07:29 GMT -06:00 https://www.coursehero.com/file/6183016/Econ200N-Second-Exam-Version-B/ D) There is not enough information to answer the question. 8. Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced? A) They are equal. B) The equilibrium quantity is greater than the socially optimal quantity. C) The equilibrium quantity is less than the socially optimal quantity. D) There is not enough information to answer the question. 9. The Coase theorem states that A) taxes are an efficient way for governments to remedy negative externalities. B) subsidies are an efficient way for governments to remedy positive externalities. C) industrial policies encourage technology spillovers. D) in the absence of transaction costs, private parties can solve the problem of externalities on their own. 10. A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? A) The radio station puts up a shield, which it pays for. B) The radio station puts up a shield, which the dentist pays for. C) Neither the radio station nor the dentist purchase additional equipment. D) The dentist gets a new drill; it does not matter who pays for it.