Week-5 Practice Questions Question 1 Private costs are the same as Question 1 options: A) internal c

Week-5 Practice Questions
Question 1
Private costs are the same as
Question 1 options:

A) internal
costs.

B) implicit
costs.

C) external
costs.

D) public
costs.

Question 2
Internal costs are
Question 2 options:

A) costs
borne solely by the individuals who incur them.

B) all costs
incurred in the marketplace.

C) costs
borne by people in the same society as those who incur them.

D) costs
borne by people working in the firm that incurs them.

Question 3
Society must pay the full opportunity cost of any activity
Question 3 options:

A) that uses
scarce resources.

B) that
causes costs to rise.

C) that
increases revenues.

D) None of
these.

Question 4
Social costs are
Question 4 options:

A) costs
borne by society whenever a resource-using action takes place.

B) external
costs minus internal costs.

C) costs
incurred in governmental welfare programs.

D) costs
incurred by government and borne by all taxpayers.

Question 5
The total social cost of production is equal to
Question 5 options:

A) external
cost plus internal cost.

B) external
cost minus internal cost.

C) internal
cost minus external cost.

D) internal
cost plus opportunity cost.

Question 6
There is “too much” steel production if the
Question 6 options:

A) social costs
of steel production are significantly lower than the private costs.

B) social
benefits of steel production are declining.

C) social
costs of steel production are declining.

D) social
costs of steel production are significantly higher than the private costs.

Question 7
Social costs are
Question 7 options:

A) costs
incurred when common property is used.

B) private
costs plus any external costs.

C) the costs
of the externality only.

D) the costs
associated with reaching and enforcing agreements.

Question 8
A social cost that is not fully paid by the individual using
an automobile is
Question 8 options:

A) gasoline
and oil.

B) depreciation
of the vehicle.

C) traffic
congestion.

D) insurance.

Question 9
When the social costs exceed the private costs, economists
state that there is
Question 9 options:

A) social
appreciation of resources.

B) an
underproduction of output.

C) a
negative externality.

D) a positive
externality.

Question 10
When social and private costs differ, economists state that
Question 10 options:

A) the
society will produce inside the production possibilities frontier.

B) there is
not an efficiency problem but an equity problem.

C) there is
an externality.

D) there will
be economic profit in the society.

Question 11
An externality that is not fully paid by the individual
using an automobile is
Question 11 options:

A) gasoline
for the vehicle.

B) operation
of the vehicle.

C) air
pollution from the vehicle.

D) insurance
for the vehicle.

Question 12
If social cost exceeds private cost, there is
Question 12 options:

A) underproduction
of a good.

B) a
negative externality.

C) too
little economic profit in the activity.

D) a positive
externality.

Question 13
If a person does not pay all costs associated with a
particular resource-using activity, then
Question 13 options:

A) the
external costs of the activity are greater than the internal costs of the
activity.

B) the
external costs of the activity are greater than the private costs of the
activity.

C) the full
costs of the activity are the sum of private costs plus internal costs.

D) the social
costs of the activity are greater than the private costs of the activity.

Question 14
When a person does not have to pay the full costs for using
a scarce resource, then
Question 14 options:

A) the use of
the resource is not affected since society pays for the resource.

B) more of
the resource will be used.

C) the
internal costs of using the resource are too high.

D) the social
costs of the resource are less than they would be if the “correct”
amount of the resource were being used.

Question 15
Suppose there are two factories on a river, and both need
clean water for their production processes. The upstream factory takes in clean
water and dumps dirty water back into the river. The downstream firm must clean
up the water it gets from the river before using it. In this situation
Question 15 options:

A) the
upstream factory’s private costs are less than its social costs, and its
external costs are borne by the downstream factory.

B) the
social costs are greater than the private costs for the upstream firm, while
the social costs are less than the private costs for the downstream firm.

C) the
private costs of the downstream factory are more than the private costs of the
upstream factory, but for both factories private costs and social costs are the
same.

D) the
internal costs of the upstream factory are externalized by the downstream
factory, which then passes them on to its customers.

Question 16
If firms were forced to take into account the full social
costs of production, then
Question 16 options:

A) output
would be unaffected but pollution levels would come down.

B) output
could be increased and pollution levels would decrease.

C) output
and pollution levels would decrease.

D) output
would decrease but pollution levels would probably remain at the same levels.

Question 17
If the market price of a good does NOT include all of the
costs and benefits that arise from the production or consumption of the good,
then
Question 17 options:

A) society is
consuming and producing the optimal amount of the good.

B) the
market is perfectly competitive.

C) an externality
is present.

D) resources
are properly allocated.

Question 18
In economic analysis, air pollution, water pollution, and
scenery destruction are considered to be
Question 18 options:

A) private
costs.

B) externalities.

C) marginal
benefits.

D) internalities.

Question 19
If a good is produced by firms that generate external costs,
the price consumers pay
Question 19 options:

A) will be
efficient as long as it equals the marginal costs of the firms.

B) will be
the correct price, but the quantity sold of the good will be too large.

C) will be
too low.

D) will be
too high because the consumers end up paying the costs instead of the firm.

Question 20
The Black Ash Steel Company’s plant belches large quantities
of noxious fumes and black ash into the air. Residents in the surrounding area
have higher medical bills because of Black Ash’s pollution. These additional
medical costs represent
Question 20 options:

A) the
neighboring families’ external costs.

B) a
negative externality.

C) a
positive externality.

D) the
company’s private costs.

Question 21
The Black Ash Steel Company’s plant belches large quantities
of noxious fumes and black ash into the air. Residents in the surrounding area
have higher medical bills because of Black Ash’s pollution. As long as Black
Ash is allowed to emit pollution and ignore any externalities, the firm will
Question 21 options:

A) be
absorbing the full value of its social costs.

B) under
produce.

C) charge
too high a price for its output.

D) overproduce.

Question 22

Refer to the above figure. It represents supply and demand
for The Black Ash Steel Company’s output. The firm’s plant belches large
quantities of smelly fumes and black ash into the air. Residents in the
surrounding area have higher medical bills as a result. If the firm is forced
to pay the full social cost of its production, what will occur?
Question 22 options:

A) Demand for
the firm’s steel will shift to the left.

B) Black Ash
will increase its own output to cover the cost increase.

C) Black Ash’s
supply curve will shift from SA to SB.

D) The
company’s supply curve will shift from SB to SA.

Question 23
Private costs are
Question 23 options:

A) costs
borne by private members of society rather than governmental bodies.

B) explicit
costs rather than implicit costs.

C) external
costs borne by private firms.

D) costs
borne solely by the individuals who incur them.

Question 24
Costs borne solely by the individuals who incur them are
Question 24 options:

A) common
property.

B) private
costs.

C) social
costs.

D) internality.

Question 25
John raises bees to pollinate his apple trees. One of the
bees just stung him. This is a(n)
Question 25 options:

A) internality.

B) social
cost.

C) common
property.

D) private
cost.

Question 26
John raises bees to pollinate his orchard. A couple of bees
which escaped ended up pollinating his neighbor’s orchard, so
Question 26 options:

A) John’s
neighbor has received an internal cost of John’s bee-keeping.

B) John’s
neighbor has received an external cost of John’s bee-keeping.

C) John’s
neighbor has received an external benefit of John’s bee-keeping.

D) None of
these is correct.

Question 27
External costs are
Question 27 options:

A) borne by
individuals other than those who incurred them.

B) borne by
the government but incurred by the public.

C) borne by
the public but incurred by the government.

D) another
term for implicit costs.

Question 28
The sum of internal and external costs is
Question 28 options:

A) private
costs.

B) internality.

C) common
property.

D) social
costs.

Question 29
When a person drives an automobile, that individual is
creating
Question 29 options:

A) external
costs only.

B) private
costs only because the individual pays for the insurance, gas etc.

C) social
costs.

D) internal
costs only.

Question 30
Which of the following statements is TRUE about the
relationship among external, internal and social costs?
Question 30 options:

A) Internal
costs will always be higher than external costs.

B) Social
costs will always be higher than external costs.

C) Internal
costs will never equal external costs.

D) Social
costs will always be higher than internal costs.

Question 31
Which of the following statements is TRUE about the
relationship among external, internal and social costs?
Question 31 options:

A) External
cost is the difference between social and internal costs.

B) Internal
cost is the sum of social and external costs.

C) Social
cost is the difference between internal and external costs.

D) None of
these

Question 32
If the social costs of driving an automobile are greater
than the private costs of driving an automobile, then
Question 32 options:

A) the
external costs of auto driving exceed the internal costs.

B) the
external costs of auto driving exceed the social costs of auto driving.

C) either
people drive their autos too much or more funds should be spent on reducing air
pollution.

D) the price
of automobile driving is too high.

Question 33
Suppose there are two identical factories on a river. Both require
clean water for their production processes. The upstream firm gets clean water
from the river and dumps dirty water into the river. The downstream firm must
clean the water it gets from the river before it can use the water and later it
dumps dirty water into the river. In this situation
Question 33 options:

A) the
private costs of the two firms are the same since both dump dirty water into
the river.

B) the
private costs of the upstream firm are less than its social costs while the
social costs of the downstream firm are less than its private costs.

C) the
upstream factory’s private costs are lower than its social costs since it
passes the costs of the dirty water on to the downstream firm. For the
downstream firms, private costs equal social costs.

D) the
private costs of the downstream firm are greater than the private costs of the
upstream firm and the social costs are less than the private costs for both
firms.

Question 34
A person removes the anti-pollution devices on his
automobile. An external cost associated with this is
Question 34 options:

A) the man
buys less gasoline, reducing the income of local gas stations.

B) the
ticket he gets when a highway patrol officer pulls him over.

C) the man’s
neighbor washes his car more often because of increasing smog.

D) the
feeling of guilt the person feels for violating the law.

Question 35
Air pollution is a problem because
Question 35 options:

A) a market
economy does not provide as strong an incentive for environmental cleanup as a
socialist economy.

B) people
are not environmentally conscious.

C) people
are greedy.

D) people
make use of air without having to bear all the costs of their actions.

Question 36

In the above figure, S1 represents the supply curve which
includes private costs, and S2 is the supply curve which includes social costs.
If the firm is producing a product that has external costs that the firm does
NOT have to pay, what will be the equilibrium price and quantity?
Question 36 options:

A) P2, Q3

B) P4, Q1

C) P1, Q4

D) P3, Q2

Question 37

In the above figure, S1 represents the supply curve which
includes private costs, and S2 is the supply curve which includes social costs.
If the firm is producing a product that has external costs that the firm does
have to pay, what will be the equilibrium price and quantity?
Question 37 options:

A) P1, Q4

B) P3, Q2

C) P4, Q1

D) P2, Q3

 

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