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Microeconomics, 10e (Parkin)

Part 5 Review

Market Failure and Government

1) A non-crowded freeway is

A) rival and nonexcludable

B) nonrival and excludable

C) nonrival and nonexcludable

D) rival and excludable

Answer: C

Topic: Public Goods

Skill: Analytical

Question history: New 10th edition

AACSB: Analytical Skills

2) A crowded freeway during the rush hour is

A) rival and nonexcludable

B) nonrival and excludable

C) nonrival and nonexcludable

D) rival and excludable

Answer: A

Topic: Common Resource

Skill: Analytical

Question history: New 10th edition

AACSB: Analytical Skills

3) Street lights are a public good. If street lights were provided by the private market, at the equilibrium quantity, it would be the case that

A) MSB = MSC

B) MSC > MC

C) MSB > MSC

D) MSB > MB

Answer: C

Topic: Public Goods

Skill: Analytical

Question history: New 10th edition

AACSB: Analytical Skills

4) The marginal private cost of a chemical is $80 per ton and its marginal external cost is $10 per ton. What is the marginal social cost of the chemical?

A) $70 per ton

B) $85 per ton

C) $90 per ton

D) $45 per ton

Answer: C

Topic: Marginal Social Cost

Skill: Analytical

Question history: Previous edition, Part Review 5

AACSB: Analytical Skills

5) The marginal social cost of a chemical is $45 per ton and its marginal private cost is $30 per ton. What is the marginal external cost of the chemical?

A) $75 per ton

B) $30 per ton

C) $15 per ton

D) zero

Answer: C

Topic: Marginal External Cost

Skill: Analytical

Question history: Previous edition, Part Review 5

AACSB: Analytical Skills

6) At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $20 per ton. The market for paper is competitive and unregulated. This means that at the current level of production

A) the market for paper is in equilibrium.

B) the efficient quantity of paper is produced.

C) there is a shortage of paper.

D) the quantity of paper produced is less than the efficient level of output. Answer: A

Topic: An Unregulated Market

Skill: Conceptual

Question history: Previous edition, Part Review 5

AACSB: Analytical Skills

7) At the current level of output, the marginal social cost of paper is $30 per ton and its marginal private cost is $20 per ton. The marginal social benefit from paper is $30 per ton. This means that the current level of production is

A) greater than the efficient level.

B) efficient.

C) less than the efficient level.

D) the equilibrium quantity attained in an unregulated perfectly competitive market.

Answer: B

Topic: Efficiency

Skill: Conceptual

Question history: Previous edition, Part Review 5

AACSB: Reflective Thinking

8) To increase efficiency,

A) taxes can be used to overcome the problems created by both external benefits and external costs.

B) subsidies can be used to overcome problems created by both external benefits and external costs.

C) taxes can be used to overcome the problems created by external benefits, and subsidies can be used to overcome the problems created by external costs.

D) subsidies can be used to overcome the problems created by external benefits, and taxes can be used to overcome the problems created by external costs.

Answer: D

Topic: Subsidies and Taxation

Skill: Analytical

Question history: Previous edition, Chapter 16

AACSB: Reflective Thinking

9) An unregulated market produces too ________ of a good with an external cost and too ________ of a good with an external benefit.

A) much; much

B) little; much

C) much; little

D) little; little

Answer: C