Economics (McConnell) AP Edition, 19th Edition

Chapter 5: Market Failures: Public Goods and Externalities

Quiz

1
Use the following diagram to answer the next question; assume the demand and supply curves capture all relevant benefits and costs.

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Refer to the diagram. In this competitive market, total surplus (combined consumer and producer surplus) is maximized at:
A)price M
B)price B
C)output G
D)output H
2
Suppose two goods, X and Y, are economically desirable in that there is some positive output at which total benefits exceed total costs. If good X is characterized by nonrivalry and nonexcludability but good Y is characterized by both rivalry and excludability, then.
A)both can be efficiently provided by private firms
B)X can be efficiently provided by private firms but Y must be financed through taxes
C)Y can be efficiently provided by private firms but X must be financed through taxes
D)both goods must be financed through taxes
3
Answer the next question on the basis of the following diagram:

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Refer to the diagram. At the equilibrium price and quantity, consumer surplus in this market is:
A)$3
B)$7
C)$150
D)$350
4
Positive externalities are most likely to be found in the production of:
A)illegal drugs
B)DVD recording devices
C)milk and dairy products
D)secondary education
5
Bees from a keeper's hive can pollinate fruit trees for many surrounding orchards. Therefore, the production of honey:
A)generates a positive externality and should be encouraged through subsidies
B)generates a positive externality, however resources are correctly allocated in this market
C)generates a negative externality and should be discouraged through taxes
D)needs no government intervention. Beekeepers reap all private benefits
6
Government has imposed a tax on the producers of good X and has subsidized the consumers of good Y. If these policies result in the production of the efficient amounts of both goods, it is likely the government is correcting for:
A)external costs in producing X and external benefits in consuming Y
B)external benefits in producing X and external costs in consuming Y
C)external benefits in producing X and consuming Y
D)external costs in producing X and consuming Y
7
Answer the next question on the basis of the following information for a public good. PR and PS are the prices that Rafael and Sarah, respectively, are willing to pay for the marginal unit of a public good, rather than do without it. Rafael and Sarah are the only members of society.

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Refer to the table. Suppose the public good can be provided by the government at a constant marginal cost of $7. The optimal quantity of the public good is:
A)1 unit
B)2 units
C)3 units
D)4 units
8
Compared to the efficient amount, suppose too many resources are allocated to the production of some good. The most likely explanation is that:
A)production of this good creates external costs
B)production of this good creates external benefits
C)this good is characterized by nonrivalry and nonexcludability
D)this is a "public good"
9
Answer the next question on the basis of the following information for four city beautification programs of increasing scope. All figures are in millions of dollars.

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Refer to the table. On economic grounds, the most efficient program is:
A)A
B)B
C)C
D)D
10
After his car broke down on a hot day, Jack walked more than a mile to the nearest convenience store and paid $1 for a bottle of water. Considering his thirst, he would willingly have paid $3. Jack's consumer surplus is:
A)$1
B)$2
C)$3
D)$4
McConnell Economics Nineteenth Edition Large Cover Image
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