Multiple Choice Quiz


1	When economists talk about externalities they are referring to
		A)	costs (besides the price) of good that consumers must face (such as their increased risk of heart attack from smoking.)
		B)	implicit costs to firms such as the increased vulnerability to lawsuits associate with selling tobacco.
		C)	the actual costs of production of goods
		D)	the costs that are borne by people other than the direct consumer or producer of the good.


2	There is no age requirement to purchase a computer but there is one to buy tobacco and alcohol. Of the reasons for limiting a market, economists rely on which to justify this
		A)	the argument that these goods are immoral when consumed by the young
		B)	the argument that these goods have external costs when consumed by the young
		C)	the argument that consumers (young consumers) have inadequate information about the ill-effects of these goods
		D)	the argument that government is necessary to control all consumption


3	The advertising done by tobacco and beer companies that appeal to children (aside from the question of the ad's intent) only exacerbate the ______ problem
		A)	information
		B)	externality
		C)	immorality
		D)	cost


4	Economists estimate that the external costs of tobacco consumption are
		A)	approximately $1 per pack of cigarettes.
		B)	obviated by the fact that smokers die quicker and more cheaply than nonsmokers.
		C)	triple the private costs.
		D)	a) and b)


5	To model externalities economists use a supply and demand diagram to suggest that not all the costs are included on the supply side. This model makes the assumption that
		A)	people dislike smoking even when they do it.
		B)	we can put a dollar value on human life.
		C)	human life is infinitely valuable.
		D)	tobacco companies do not profit from their sales.


6	For there to be an economically efficient level of smoking it would
		A)	mean that people would not smoke.
		B)	have to be at the market equilibrium.
		C)	have to account for all costs so consumption would be less but not zero.
		D)	have to increase to provide more farmers and tobacco workers with jobs.


7	Demand for cigarettes is estimated to be
		A)	perfectly elastic.
		B)	elastic.
		C)	inelastic.
		D)	perfectly inelastic.


8	If a person is a pack-a-day smoker regardless of the price of cigarettes then the person's demand is
		A)	perfectly elastic.
		B)	elastic.
		C)	inelastic.
		D)	perfectly inelastic.


9	The demand for cigarettes is far more elastic among children than it is among adults. Which of the following explain this:
		A)	children use a higher proportion of the income on cigarettes.
		B)	the price of cigarettes is higher to children (because they have to find someone to buy it for them).
		C)	children will smoke when the parents tell them not to.
		D)	a) and b)


10	Given the relative inelasticity of demand for cigarettes, a tax increase would likely
		A)	reduce consumption substantially.
		B)	reduce consumption marginally.
		C)	increase prices substantially.
		D)	b) and c)

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