1. © 2013 Pearson

2. 10
Externalities
CLICKER QUESTIONS
Notes and teaching tips: 3, 4, 5, 6, 7, 13, 16, 17, 19, 20, 22. 2

3. Checkpoint 10.1 Checkpoint 10.2 Question 1 Question 6 Question 2

4. CHECKPOINT 10.1
Question 1
The cost of producing an additional unit of a good or service that is borne by the producer of that good or service _________.
equals the consumer’s marginal benefit from that good or service
equals the cost borne by people other than the producer
is the marginal private cost
is the external cost
is the marginal social cost
Answer: C

5. CHECKPOINT 10.1
Question 2
If the marginal private cost of producing one kilowatt of power is 10¢ and the marginal social cost of each kilowatt hour is 14¢, then the marginal external cost is ____ a kilowatt hour.
10¢
19¢ 4¢ 0¢
14¢
Answer: B

6. CHECKPOINT 10.1
Question 3
The figure shows the market for a good with an external cost. The external cost is _______ and the efficient quantity is ____ a year.
$10 a ton; 0 tons
$5 a ton; 100 tons
$10 a ton; 200 tons
$20 a ton; 400 tons
$10 a ton; 100 tons
Answer: E

7. CHECKPOINT 10.1
Question 4
If a firm that pollutes is forced to pay a pollution charge, then __________.
the firm increases the quantity supplied of the good
the demand for the firm’s output decreases
the firm increases its supply of the good
the firm decreases its supply of the good
Both the firm’s supply of the good and the demand for the good decreases
Answer: D

8. Question 5 CHECKPOINT 10.1 A marketable pollution permit _________.
allows firms to pollute all they want without any cost
allows firms to buy and sell the right to pollute at government controlled prices
eliminates pollution entirely
allows firms to buy and sell the right to pollute
is the Coase solution to the pollution problem
Answer: D

9. CHECKPOINT 10.2
Question 6
Suppose that a service creates an external benefit. If the market for the service is unregulated, the _______.
quantity of the service produced exceeds than the efficient quantity
price of the service is too high for the market to be efficient
quantity of the service produced is less than the efficient quantity
producer’s marginal cost is less than the marginal social cost
government might impose a tax to help make the market outcome more efficient
Answer: C

10. CHECKPOINT 10.2
Question 7
The figure shows the market for flu vaccinations. The quantity of vaccinations is ____ a year, and the deadweight loss is ______.
100 million; $187.5
50 million; $250 million
75 million; $0
100 million; $250 million
75 million; $187.5 million
Answer: E

11. CHECKPOINT 10.2
Question 8
If an external benefit is present, then the _______.
marginal private benefit exceeds the marginal private cost
marginal social benefit exceeds the marginal private benefit
marginal social cost exceeds the marginal private benefit
marginal social benefit is equal to the marginal social cost
marginal social benefit equals the marginal private benefit
Answer: B

12. CHECKPOINT 10.2
Question 9
The figure shows the market for flu vaccinations. The quantity of flu vaccinations will be efficient if the government ____.
offers doctors a $10 subsidy
advertises the benefits
offers people a $10 subsidy
offers people a $20 voucher
offers free flu vaccinations
Answer: D

13. CHECKPOINT 10.2
Question 10
Which of the following is a method used by government to cope with the situation in which production of a good creates an external benefit?
removing property rights
paying subsidies
issuing production quotas
running a lottery
Imposing a Coasian tax
Answer: B