Evaluate the following two statements: (i) General equilibrium does NOT guarantee efficiency if firms have market power. (ii) General equilibrium does NOT guarantee efficiency if producing output creates a negative externality O a. Neither (i) nor (ii) is true. O b. Both (i) and (ii) are true. O c. Only (i) is true. O d. Only (ii) is true.
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- For a product with external benefits like vaccines (positive externality),which of the following is true?Select one: Oa. The market equilibrium results in too much of the good compared to what is optimalOb. The market equilibrium results in too little of the good compared to what is optimal.Oc. The market will not provide the good; it must be publicly funded.O d. Large economies of scale work as a barrier to firm entry.Which statement about externalities is wrong? O Markets are typically not efficient in dealing with externalities O Externalities can be positive or negative O A firm naturally takes into account negative externalities that result from their production O Interventions such as carbon taxes can help correct externalities gative externalities imply that the social cost is high than the internal (or private) costQUESTION 4 Which of the following is true if good x is an externality exhibiting good. O Consumers consume too much good x relative to what is socially optimal. O If consumption of good x by person 1 exhibits a positive externality, then consumption of good x by person 2 must also exhibit a positive externality. O Consumers consume too much good y relative to what is socially optimal. O Equilibrium consumption of the good is not Pareto efficient.
- QUESTION 5 Suppose there are two consumers A and B, and two goods x and y. A's utility function has the following form UA = XA - (XR)-1. Which of the following is true? O Consumer A's consumption of good x exhibits a negative externality. O Consumer A's consumption of good x exhibits a positive externality. O Consumer B's consumption of good x exhibits a negative externality. O Consumer B's consumption of good x exhibits a positive externality. QUESTION 6 If we write possible outcomes as (Utility of A, Utility of B), which of the following outcomes would a Utilitarian social welfare function select O (19, 1) O (7, 7) O (-1, 22) O (0, 13) QUESTION 7 In the hotelling model, suppose firm 2 locates at 45 meters. Which of the following location choices for firm 1 gives highest profits? O 50 meters O 49 meters O 44 metersSuppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then Select one: O a. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. O b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. O .There is not enough information to answer the question. O d. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.Write down a model of positive production externality with two firms, in which theproduction activities of one firm directly affects the production/cost of the other firm.State and explain the key assumptions of the model. Using the model, answer thefollowing questions:(a) Explain why the presence of a positive production externality could prevent therealisation of an efficient outcome.(b) Name a possible cure for the positive production externality and explain how itcould solve the inefficiency problem.
- Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then Select one: O a. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. O b.the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. O c. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. O d. There is not enough information to answer the question.Determine the type of market failure (if any) represented by the scenario below: A student reading a novel in her apartment. Select one: O a. asymmetric information O b. negative externality O . positive externality O d. public good O e. no externality occursAn increase in globalization has lead to an increase in pollution, and this is a problem because pollution is seen to be the classic example of a This is a that individuals impose on others but do not pay for. O negative externality, cost O possitive externality, benefit O negative externality, benefit O possitive externality, cost
- on 7 When externalities exist, buyers and sellers red Select one: d out of a. neglect the external effects of their actions and the market equilibrium is efficient b. do not neglect the external effects of their actions and the market equilibrium is efficient on c. neglect the external effects of their actions and the market equilibrium is not efficient O d. do not neglect the external effects of their actions and the market equilibrium is not efficient on 8 A positive consumption externality will cause a market to red Select one: d out of a. produce less than is socially desirable O b. produce more than is socially desirable on c. produce more than is market optimal O d. produce less than is market optimal on 9 If only a few people are affected by an externality red Select one: d out of a. then it is likely that Pigovian taxes will provide the most efficient solution to the externality O b. then it is likely that command and control regulation will provide the most efficient solution…A positive externality will cause a market to produce Select one: more than is socially desirable. O b. more than the same market would produce in the presence of a negative externality. O c. less than is socially desirable. O d. the socially optimal equilibrium amount. a.Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? Select one: O a. The equilibrium quantity is greater than the socially optimal quantity. O b. The equilibrium quantity is less than the socially optimal quantity. O . No relationship exists. O d. They are equal.