1 The following graph shows the marginal social cost(MSC), the marginal private cost(MPC), and the marginal social benefit(MSB) of a good.

Which of the following indicate the marginal external cost and the socially optimal quantity?

A $3.00 and 40 units

B$2.50 and 60 units

C$2.00 and 40 units

D$1.00 and 20 units

E$1.00 and 80 units

2 The following graph shows the marginal social cost(MSC), the marginal private cost(MPC), and the marginal social benefit(MSB) of a good.

If the government wants the firm to internalize the externality, the government can do so by

Adoing nothing

Bimposing a per-unit tax of $0.50

Cimposing a per-unit tax of $1.00

Dgranting a per-unit subsidy of $0.50

Egranting a per-unit subsidy of $1.50

3 In the absence of externalities, the perfectly competitive market maximizes economic surplus when

Athe market price is above the equilibrium price

Bthe market price is below the equilibrium price

Cthe market is at equilibrium

Dfor the last unit produced, marginal benefit exceeds marginal cost

Ethe total benefit from all units produced equals the total costs of all units produced

4 Assume the government implements a policy that causes a market to produce the socially optimal level of output. Which of the following must be true?

AThe government policy must have reduced the level of output produced.

BThe government policy must have increased the level of output produced.

CThe government policy must have resulted in marginal social benefit being greater than marginal social cost for the last unit produced.

DEquating marginal private benefit and marginal private cost must have resulted in inefficiencies in the market.

EEquating marginal social benefit and marginal social cost must have resulted in inefficiencies in the market.

5 An example of a good that is nonrival and nonexcludable is

Aclean water in a stream

Ba bicycle

Chigher education

Da lighthouse

Ean entertainment website requiring a paid subscription

6 A free-rider problem exists when

Aa good is excludable in consumption.

Ba good is nonexcludable in consumption.

Ca good is rival in consumption.

Da good is nonrival in consumption.

Ea good is in abundant supply.

7 If the government regulates the monopolist to produce the allocatively efficient quantity and provides a subsidy sufficient to maintain zero economic profits for the firm, what price would the government set and what level of output would the firm produce?

A$1.00 and 50

B$2.00 and 80

C$3.00 and 50

D$3.50 and 50

E$4.50 and 30

8 Antitrust laws are intended to

Aprevent the entry of firms into imperfectly competitive markets

Bensure that firms produce the allocatively efficient quantity of output

Creduce monopoly profits

Dcontrol monopolies and maintain a competitive market environment

Eeliminate negative externalities

9 The closer income distribution moves toward complete equality, the closer the Lorenz curve moves to

Aa horizontal line

Ba vertical line

Ca diagonal line

Dthe vertical axis

Ethe horizontal axis

10 The higher wages college graduates receive are primarily due to

Adiscrimination

Bdifferences in working conditions

Con-the-job training

Ddifferences in bargaining power

E differences in human capital

If the government regulates the monopolist to produce the allocatively efficient quantity and provides a subsidy sufficient to maintain zero economic profits for the firm, what price would the government set and what level of output would the firm produce?

• $1.00 and 50
• $1.00 and 50
• A
• $2.00 and 80
• $2.00 and 80
• B
• $3.00 and 50
• $3.00 and 50
• C
• $3.50 and 50
• $3.50 and 50
• D
• $4.50 and 30