Question_Doc14_15Dec

1) Which of the following statements best defines private costs?

A) They are internal in the sense that the firm or household must explicitly take them into

account.

B) They are costs borne by people other than those who commit the action.

C) They are synonymous with social costs.

D) They represent explicit costs incurred by business firms in the private sector.

2) Costs that are borne solely by the individuals who incur them are called

A) private costs.

B) public costs.

C) social costs.

D) external costs.

3) When the costs of an action are not fully borne by the two parties engaged in a transaction,

this is called a(n)

A) externality.

B) equilibrium.

C) property right.

D) internal cost.

4) Pollution created by auto exhaust fumes is an example of a situation in which

A) social costs are greater than private costs.

B) social costs are less than private costs.

C) social costs are equal to private costs.

D) social costs are approaching the shutdown point.

5) An individual who pays for personal auto repair has incurred a

A) social cost.

B) private cost.

C) negative externality.

D) positive externality

6) Private costs are the same as

A) implicit costs.

B) external costs.

C) public costs.

D) internal costs.

7) All of the following are private costs of operating an automobile EXCEPT

A) gasoline for the car.

B) depreciation of the vehicle.

C) car insurance.

D) harm to the environment from emissions.

8) Internal costs are

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

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

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

D) all costs incurred in the marketplace.

9) To find the social cost of an action, add together

A) the external and accounting costs.

B) the private costs and the internal costs.

C) the external costs and the internal costs.

D) the internal costs and the private opportunity costs.

10) Society must pay the full opportunity cost of any activity

A) that uses scarce resources.

B) that causes costs to rise.

C) that increases revenues.

D) none of the above.

11) Social costs are

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

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

C) costs incurred in governmental welfare programs.

D) external costs minus internal costs.

12) The total social cost of production is equal to

A) external cost minus internal cost.

B) internal cost minus external cost.

C) external cost plus internal cost.

D) internal cost plus opportunity cost.

13) There is "too much" steel production if the

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 significantly higher than the private costs.

D) social costs of steel production are declining.

14) Social costs are

A) private costs plus any external costs.

B) the costs of the externality only.

C) costs incurred when common property is used.

D) the costs associated with reaching and enforcing agreements.

15) A social cost that is not fully paid by the individual using an automobile is

A) traffic congestion.

B) gasoline and oil.

C) insurance.

D) depreciation of the vehicle.

16) When the social costs exceed the private costs, economists state that there is

A) a positive externality.

B) an underproduction of output.

C) a negative externality.

D) social appreciation of resources.

17) When social and private costs differ, economists state that

A) there will be economic profit in the society.

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

C) there is an externality.

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

18) An externality that is not fully paid by the individual using an automobile is

A) insurance for the vehicle.

B) gasoline for the vehicle.

C) air pollution from the vehicle.

D) operation of the vehicle.

19) If social cost exceeds private cost, there is

A) underproduction of a good.

B) a negative externality.

C) a positive externality.

D) too little economic profit in the activity.

20) Where pollution is concerned, if an automobile driver considers only the internal costs of his

actions, he is apt to

A) use resources very carefully and in small quantities.

B) garage his car and drive very seldom.

C) be making a positive contribution to the greater community.

D) drive too much and use up more scarce resources than he would if he had to cover all his

costs.

21) If a person does not pay all costs associated with a particular resource-using activity, then

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

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

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

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

22) If the social costs of refining oil are greater than the private costs of oil refining, then

A) the external costs of oil refining are greater than the social costs of oil refining.

B) users of products that use refined oil are paying too much for the products.

C) there is too much oil refining.

D) the amount of oil refining needs to increase in order to bring social costs and private costs in

line with each other.

23) When a person does not have to pay the full costs for using a scarce resource, then

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.

24) 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,

A) 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.

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 upstream factory's private costs are less than its social costs, and its external costs are

borne by the downstream factory.

D) the internal costs of the upstream factory are externalized by the downstream factory, which

then passes them on to its customers.

25) When a person does not have to pay the full costs for using a scarce resource, then there is

A) an underproduction of a good.

B) a negative externality.

C) a positive externality.

D) too little economic profit in the activity.

26) When social costs for using a scarce resource are included, then there is

A) a decrease in the production of the good.

B) a negative externality.

C) a decrease in the price of the good.

D) a positive externality.

27) When both internal and external costs for using a scarce resource are included, then there is

A) an increase in the production of the good.

B) a negative externality.

C) an increase in the price of the good.

D) a positive externality.

28) Which of the following is an example of an external cost?

A) The cost of labor to a firm

B) The pollution caused by automobile exhaust

C) The cost of tires for your car

D) The opportunity cost of getting a college education

29) If coal-burning electrical utility companies fully internalized pollution costs, then we could

expect

A) an increase in electricity prices.

B) a decrease in electricity prices.

C) no change in electricity prices.

D) a greater use of coal to produce electricity.

30) Externalities exist because

A) private costs differ from social costs.

B) private costs are equal to social costs.

C) government has created them.

D) they are a function of socialism.

31) If the external costs of production are not taken into account, then production will

A) be less than socially desirable.

B) be more than socially desirable.

C) be the same since only prices are affected by externalities.

D) cease.

32) If crop dusting on your farm causes your neighbors to have sore throats, then crop dusting is

creating

A) only explicit costs.

B) opportunity costs.

C) external costs.

D) internal costs.

33) If firms were forced to take into account the full social costs of production, then

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

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

C) output and pollution levels would decrease.

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

34) 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

A) the market is perfectly competitive.

B) an externality is present.

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

D) resources are properly allocated.

35) In economic analysis, air pollution, water pollution, and scenery destruction are considered

to be

A) externalities.

B) internalities.

C) private costs.

D) marginal benefits.

36) If a good is produced by firms that generate external costs, the price consumers pay

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

B) will be too low.

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

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

37) If a good is produced by firms that incur all private and external costs, the price consumers

pay

A) will be efficient since it includes all social costs.

B) will be too low.

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

D) will be the correct price, but inefficient.

38) 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

A) a positive externality.

B) a negative externality.

C) the company's private costs.

D) the neighboring families' external costs.

39) 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

A) overproduce.

B) under produce.

C) charge too high a price for its output.

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

40) 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. If the firm is forced to pay the social costs of its production,

A) the amount of steel it produces will increase in order to pay the additional costs.

B) the price it charges for its steel will decrease.

C) its supply curve will shift to the right.

D) it will produce less and charge more for its steel.