BUSI1118 Seminar 3

Which of the following is an example of a positive externality?

• Bob mows Hillary’s lawn and is paid $100 for performing the service

• While mowing the lawn, bob’s lawnmower spews out smoke that Hillary’s neighbor Kristen has to breathe

• Hillary’s newly cut lawn makes her neighborhood more attractive

• Hillary’s neighbors pay her if she promises to get her lawn cut on a regular basis

If the production of a good yields a negative externality, then the social cost curve lies ___the supply curve, and the socially optimal quantity is ___ than the equilibrium quantity.

• Above, greater

• Above, less

• Below, greater

• Below, less

When the government levies a tax on a good equal to the external cost associated with the good’s production, it____ the price paid by consumers and makes the market outcome__ efficient.

• Increase, more

• Increase, less

• Decrease, more

• Decrease, less

Which of the following statements about corrective taxes is not true?

• Economist prefer them to command-and-control regulation

• They raise government revenue

• They cause deadweight losses

• They reduce the quantity sold in a market

The government auctions off 500 units of pollution rights. They sell for $50 per unit, raising total revenue of $25,000. This policy is equivalent to a corrective tax of ___ per unit of pollution.

• $10

• $50

• $450

• $500

The Coase theorem does NOT apply if

• There is a significant externality between two parties

• The court system vigorously enforces all contracts

• Transaction costs make negotiating difficult

• Both parties understand the externality fully

Which categories of goods are excludable?

• Private goods and club goods

• Private goods and common resources

• Public goods and club goods

• Public goods and common resources

Which categories of goods are rival in consumption?

• Private goods and club goods

• Private goods and common resources

• Public goods and club goods

• Public goods and common resources

Which of the following is an example of a public good?

• Residential housing

• National defense

• Restaurant meals

• Fish in the ocean

Which of the following is an example of a common resource?

• Residential housing

• National defense

• Restaurant meals

• Fish in the ocean