1

Government actions which help prevent harm to people and property are part of the:

a) Protective function of government

b) Productive function of government

c) Classical function of government

d) Neo-classical function of government

2

A negative externality occurs when

a) Social benefits exceed private costs

b) Social costs exceed private benefits

c) Social costs exceed private costs

d) Social benefits exceed private benefits

3

Which of the following actions is most likely to create positive externalities?

a) Going to school with the coronavirus

b) Planting trees and flowers in neighborhood

c) Side-talking during a class

d) Watching a movie

4

Which of the following activities is least likely to give rise to external costs or benefits?

a) spraying to control mosquitos in your backyard

b) buying a sandwich and eating it for lunch

c) driving one's car during rush hour

d) getting a flu shot before flu season

5

When taking actions where Private Benefits exceed Private Costs

a) The action will increase overall efficiency

b) The action will decrease overall efficiency

c) The action may increase or decrease overall efficiency

6

In the absence of government intervention, when production of a good creates positive externalities:

a) actual market curves for the good will overstate the true costs of the good

b) actual market curves for the good will overstate the true benefits of the good

c) actual market curves for the good will understate the true costs of the good

d) actual market curves for the good will understate the true benefits of the good

7

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. In the absence of government actions

a) The price will be too high and the output will be too large

b) The price will be too low, and the output will be too large

c) The price will be too high, and the output will be too small

d) The price will be too low, and the output will be too small

8

On their own, from the standpoint of economic efficiency, markets tend to provide

a) less of a public good than would be efficient

b) exactly the amount of a public good that is efficient

c) more of a public good than would be efficient

d) none of these answers

9

Suppose in the absence of government, a perfectly competitive firm faces the following private marginal costs of production

Quantity	1	2	3	4	5	6
Marginal Cost	200	240	280	320	360	400

If the firm is able to sell each unit for $320, and each unit creates $80 of negative externalities, the efficient level of production is ____ while in actuality the producer will make _____ .

a) Two units; Four units

b) Four units; Six units

c) Four units; Two units

d) Six units; Four units

10

Which of the following is true?

a) With negative externalities, the social costs of actions are smaller than their private costs

b) Public goods have large negative externalities

c) In the absence of government, goods that are non-excludable and non-rival will be over-produced

d) The government can increase market efficiency by subsidizing actions with positive externalities