Taipei ECONOMY 6705 – Private costs are the same

Taipei ECONOMY 6705 – Private costs are the same

Subject: Economics    / General Economics
Question

Week-5 Practice Questions

Question 1

Private costs are the same as

Question 1 options:

A) internal costs.

B) implicit costs.

C) external costs.

D) public costs.

Question 2

Internal costs are

Question 2 options:

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

B) all costs incurred in the marketplace.

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

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

Question 3

Society must pay the full opportunity cost of any activity

Question 3 options:

A) that uses scarce resources.

B) that causes costs to rise.

C) that increases revenues.

D) None of these.

Question 4

Social costs are

Question 4 options:

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

B) external costs minus internal costs.

C) costs incurred in governmental welfare programs.

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

Question 5

The total social cost of production is equal to

Question 5 options:

A) external cost plus internal cost.

B) external cost minus internal cost.

C) internal cost minus external cost.

D) internal cost plus opportunity cost.

Question 6

There is “too much” steel production if the

Question 6 options:

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 declining.

D) social costs of steel production are significantly higher than the private costs.

Question 7

Social costs are

Question 7 options:

A) costs incurred when common property is used.

B) private costs plus any external costs.

C) the costs of the externality only.

D) the costs associated with reaching and enforcing agreements.

Question 8

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

Question 8 options:

A) gasoline and oil.

B) depreciation of the vehicle.

C) traffic congestion.

D) insurance.

Question 9

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

Question 9 options:

A) social appreciation of resources.

B) an underproduction of output.

C) a negative externality.

D) a positive externality.

Question 10

When social and private costs differ, economists state that

Question 10 options:

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

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

C) there is an externality.

D) there will be economic profit in the society.

Question 11

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

Question 11 options:

A) gasoline for the vehicle.

B) operation of the vehicle.

C) air pollution from the vehicle.

D) insurance for the vehicle.

Question 12

If social cost exceeds private cost, there is

Question 12 options:

A) underproduction of a good.

B) a negative externality.

C) too little economic profit in the activity.

D) a positive externality.

Question 13

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

Question 13 options:

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

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

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

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

Question 14

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

Question 14 options:

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.

Question 15

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

Question 15 options:

A) the upstream factory’s private costs are less than its social costs, and its external costs are borne by the downstream factory.

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 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.

D) the internal costs of the upstream factory are externalized by the downstream factory, which then passes them on to its customers.

Question 16

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

Question 16 options:

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

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

C) output and pollution levels would decrease.

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

Question 17

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

Question 17 options:

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

B) the market is perfectly competitive.

C) an externality is present.

D) resources are properly allocated.

Question 18

In economic analysis, air pollution, water pollution, and scenery destruction are considered to be

Question 18 options:

A) private costs.

B) externalities.

C) marginal benefits.

D) internalities.

Question 19

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

Question 19 options:

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

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

C) will be too low.

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

Question 20

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

Question 20 options:

A) the neighboring families’ external costs.

B) a negative externality.

C) a positive externality.

D) the company’s private costs.

Question 21

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

Question 21 options:

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

B) under produce.

C) charge too high a price for its output.

D) overproduce.

Question 22

Refer to the above figure. It represents supply and demand for The Black Ash Steel Company’s output. The firm’s plant belches large quantities of smelly fumes and black ash into the air. Residents in the surrounding area have higher medical bills as a result. If the firm is forced to pay the full social cost of its production, what will occur?

Question 22 options:

A) Demand for the firm’s steel will shift to the left.

B) Black Ash will increase its own output to cover the cost increase.

C) Black Ash’s supply curve will shift from SA to SB.

D) The company’s supply curve will shift from SB to SA.

Question 23

Private costs are

Question 23 options:

A) costs borne by private members of society rather than governmental bodies.

B) explicit costs rather than implicit costs.

C) external costs borne by private firms.

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

Question 24

Costs borne solely by the individuals who incur them are

Question 24 options:

A) common property.

B) private costs.

C) social costs.

D) internality.

Question 25

John raises bees to pollinate his apple trees. One of the bees just stung him. This is a(n)

Question 25 options:

A) internality.

B) social cost.

C) common property.

D) private cost.

Question 26

John raises bees to pollinate his orchard. A couple of bees which escaped ended up pollinating his neighbor’s orchard, so

Question 26 options:

A) John’s neighbor has received an internal cost of John’s bee-keeping.

B) John’s neighbor has received an external cost of John’s bee-keeping.

C) John’s neighbor has received an external benefit of John’s bee-keeping.

D) None of these is correct.

Question 27

External costs are

Question 27 options:

A) borne by individuals other than those who incurred them.

B) borne by the government but incurred by the public.

C) borne by the public but incurred by the government.

D) another term for implicit costs.

Question 28

The sum of internal and external costs is

Question 28 options:

A) private costs.

B) internality.

C) common property.

D) social costs.

Question 29

When a person drives an automobile, that individual is creating

Question 29 options:

A) external costs only.

B) private costs only because the individual pays for the insurance, gas etc.

C) social costs.

D) internal costs only.

Question 30

Which of the following statements is TRUE about the relationship among external, internal and social costs?

Question 30 options:

A) Internal costs will always be higher than external costs.

B) Social costs will always be higher than external costs.

C) Internal costs will never equal external costs.

D) Social costs will always be higher than internal costs.

Question 31

Which of the following statements is TRUE about the relationship among external, internal and social costs?

Question 31 options:

A) External cost is the difference between social and internal costs.

B) Internal cost is the sum of social and external costs.

C) Social cost is the difference between internal and external costs.

D) None of these

Question 32

If the social costs of driving an automobile are greater than the private costs of driving an automobile, then

Question 32 options:

A) the external costs of auto driving exceed the internal costs.

B) the external costs of auto driving exceed the social costs of auto driving.

C) either people drive their autos too much or more funds should be spent on reducing air pollution.

D) the price of automobile driving is too high.

Question 33

Suppose there are two identical factories on a river. Both require clean water for their production processes. The upstream firm gets clean water from the river and dumps dirty water into the river. The downstream firm must clean the water it gets from the river before it can use the water and later it dumps dirty water into the river. In this situation

Question 33 options:

A) the private costs of the two firms are the same since both dump dirty water into the river.

B) the private costs of the upstream firm are less than its social costs while the social costs of the downstream firm are less than its private costs.

C) the upstream factory’s private costs are lower than its social costs since it passes the costs of the dirty water on to the downstream firm. For the downstream firms, private costs equal social costs.

D) the private costs of the downstream firm are greater than the private costs of the upstream firm and the social costs are less than the private costs for both firms.

Question 34

A person removes the anti-pollution devices on his automobile. An external cost associated with this is

Question 34 options:

A) the man buys less gasoline, reducing the income of local gas stations.

B) the ticket he gets when a highway patrol officer pulls him over.

C) the man’s neighbor washes his car more often because of increasing smog.

D) the feeling of guilt the person feels for violating the law.

Question 35

Air pollution is a problem because

Question 35 options:

A) a market economy does not provide as strong an incentive for environmental cleanup as a socialist economy.

B) people are not environmentally conscious.

C) people are greedy.

D) people make use of air without having to bear all the costs of their actions.

Question 36

In the above figure, S1 represents the supply curve which includes private costs, and S2 is the supply curve which includes social costs. If the firm is producing a product that has external costs that the firm does NOT have to pay, what will be the equilibrium price and quantity?

Question 36 options:

A) P2, Q3

B) P4, Q1

C) P1, Q4

D) P3, Q2

Question 37

In the above figure, S1 represents the supply curve which includes private costs, and S2 is the supply curve which includes social costs. If the firm is producing a product that has external costs that the firm does have to pay, what will be the equilibrium price and quantity?

Question 37 options:

A) P1, Q4

B) P3, Q2

C) P4, Q1

D) P2, Q3