Question

19. Which of the following is not a negative externality?

a. air pollution.

b. high oil prices.

c. clear-cutting in forests.

d. litter.

20. Which of the following types of goods is least likely to be provided by the market?

a. a good that is rival in consumption and for which exclusion is possible.

b. a good that is nonrival in consumption and for which exclusion is possible.

c. a good that is nonrival in consumption and for which exclusion is impossible.

d. a good that is rival in consumption and for which exclusion is impossible.

22. Government provision of a public good eliminates the free-rider problem because the government is able to

a. eliminate the rival nature of the consumption for these goods.

b. exclude consumers from the consumption of a pure public good.

c. achieve a higher level of profit from the provision of these goods than would occur in the private sector when exclusion is feasible.

d. enforce its taxation policies.

23. In the long run, the monopolistically competitive firm

a. will produce more than the monopolist, but at a higher price because of product differentiation.

b. will produce less than the competitive firm, but at a higher price.

c. will produce less than the competitive firm, but at a lower price because it faces relatively elastic demand.

d. will produce more than the competitive firm because it offers a differentiated product, rather than a standardized one.

25. External costs exist in the marketplace when

a. social costs equal private costs.

b. social costs are less than private costs.

c. social costs are greater than private costs.

d. corporations operate overseas.

Answer 1

19. When consumption of certain good pertain bad effect on third party that will be considered as negative externality. Here due to consumption of motor vehicle air is polluted, for industries sometimes air get polluted and thus affect third party. Hence air polluton is an example of negative externality.
ANSWER : (a)

20. Public goods can not be provided by the market. These goods have the characteristic of non excludabilitiy and non rivalry. Non rivalry means, consumption by one consumer can not reduce consumption for the other. Non excludablity means non paying customers are not excluded from consumption. Since in market prices are charged thus public goods are excluded.
ANSWER : (c)

22. While provisioning of public good, government is able to charge taxes for those goods. It charges proportional income tax and hence no one is excluded from the tax structure and problem of free rider is eleminated.
ANSWER : (d)

23. A monopolistically competitive firm will produce leaaser than competitve firm but will always charge a higher price than competitive firm. As this market is a composition of monopoly and perfect competition that's why this happens.
ANSWER : (b)

25. External cost is imposed on the person whose production creates negative externalitites. In this case, social cost of the consumption is greater than private cost.
ANSWER : (c)