Top 80+ Solved MicroEconomics, Theory and Applications 2 MCQ Questions Answer
Q. Each of the following provides incentives to reduce a negative externality except:
a. a merger with affected firms.
b. subsidizing consumption of the good being produced.
c. bargaining among firms.
d. taxation of the externality.
Q. To reach an economically efficient output level, the size of an excise tax imposed on a firmgenerating a negative externality should be
a. the firm’s marginal cost.
b. the social marginal cost.
c. the difference between the social marginal cost and the firm’s marginal cost.
d. the sum of the social marginal cost and the firm’s marginal cost.
Q. In perfect competition, environmental externalities need not distort the allocation ofresources providing
a. transactions costs are zero.
b. average costs are constant for all output levels.
c. firms install pollution control equipment.
d. the government sets realistic pollution standards.
Q. In drilling a new oil well in an existing oil field, the fact that output on existing wells isreduced means that
a. existing wells have negatively sloped marginal cost curves.
b. existing wells and new wells are owned by different people.
c. existing wells and new wells are owned by the same people.
d. there is a discrepancy between private and social marginal costs.
Q. Bargaining costs are generally high in cases involving environmental externalities because
a. there are strong incentives to be a free rider.
b. many individuals may be affected by the externalities.
c. it is difficult to measure the costs of the externalities.
d. all of the above.
Q. Externalities between two firms can be “internalized” if: I. The two firms merge. II. Bargaining costs are zero.III. The externalities affect each firm equally. IV. Marginal costs for both firms are constant. Which statement(s) correctly complete(s) the sentence?
a. only ii.
b. all except iii.
c. i and ii, but not iii and iv.
d. i and iv, but not ii and iii.
Q. Common property
a. is owned by specific people.
b. is inexhaustible.
c. refers strictly to land resource.
d. refers to goods “owned” by society at large and freely usable by anyone.
Q. Which best describes consumer surplus?
a. the price consumers are willing to pay for a unit
b. the cost of providing a unit
c. the profits made by a firm
d. the difference between the price a consumer pays for an item and the price he/she is willing to pay for it
Q. Which of the following statements is NOT true?In the free market changes in the price of a product:
a. can act as a signal to producers
b. can provide an incentive to reallocate resources
c. can act as a rationing device
d. are set by the government
Q. Community surplus equals:
a. producer surplus minus consumer surplus
b. profits plus utility
c. total utility minus plus profit
d. consumer surplus plus producer surplus
Q. Monopoly power in a market is likely to:
a. increase consumer surplus
b. increase community surplus
c. lead to higher producer surplus
d. lead to lower prices and lower output
Q. A negative production externality means:
a. the social marginal cost is greater than the private marginal cost
b. the social marginal benefit is greater than the private marginal cost
c. the social marginal cost is greater than the private marginal benefit
d. the social marginal cost is less than the private marginal cost
Q. A positive consumption externality occurs when:
a. the social marginal cost is greater than the private marginal cost
b. the social marginal benefit is greater than the private marginal benefit
c. the social marginal cost is greater than the private marginal benefit
d. the social marginal cost is less than the private marginal cost
Q. A merit good:
a. is a public good
b. involves a negative externality
c. is overprovided in the free market
d. is under provided in the free market
Q. A demerit good:
a. is a public good
b. involves a positive externality
c. is overprovided in the free market
d. is under provided in the free market