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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Externalities A) cannot be expressed in dollar amounts. B) always make society better off. C) are always part of private costs or private benefits. D) always create extra social costs. E) can be either benefits or costs. Answer: E Topic: Externalities Skill: Level 2: Using definitions

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2) An example of a good with an external cost includes A) Jess smoking near her non-smoking roommate. B) electricity generation that produces carbon dioxide emissions that contribute toward global warming. C) All of these are examples of mixed goods with external costs. D) noise pollution from aircraft. E) logging that destroys wildlife habitat. Answer: C Topic: Externalities Skill: Level 2: Using definitions

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3) If the marginal private benefit of attending college for Shelly is $40,000 and the marginal external benefit is $15,000, she will attend college if the cost of attendance is no more than A) $45,000. B) $40,000. C) $55,000. D) $15,000. E) $25,000. Answer: B Topic: Private benefit Skill: Level 3: Using models

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4) A cost or a benefit that arises from the production or consumption that falls on someone other than the producer or consumer is called A) a public good. B) an externality. C) a private good. D) a mixed good. E) a public choice impact. Answer: B Topic: Externalities Skill: Level 1: Definition

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5) The deadweight loss associated with producing a product that has an external cost occurs because A) not enough resources are allocated to producing the good. B) the marginal social cost does not equal zero. C) too little output is produced. D) the price firms charge for the good is too high. E) too much output is produced. Answer: E Topic: Inefficient equilibrium Skill: Level 3: Using models

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6) A noisy party that keeps neighbors awake is an example of a A) negative consumption externality. B) positive consumption externality. C) positive production externality. D) negative production externality. E) Both answers B and C are correct. Answer: A Topic: Integrative Skill: Level 2: Using definitions

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7) Evidence of external costs in the production of a product is present if A) the production cost increases because of an increase in the minimum wage. B) producers pay all of the costs of producing the good or service. C) non-buyers and/or non-producers of the product experience a loss for which they are not compensated. D) buyers refuse to purchase the product. E) the price of the product is higher than it should be. Answer: C Topic: Externalities Skill: Level 4: Applying models

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8) Research leading to the discovery of new knowledge has external benefits because A) the new knowledge decreases costs. B) others can use the new knowledge. C) the new knowledge increases profits. D) Both answers A and B are correct. E) Both answers A and C are correct. Answer: B Topic: External benefit Skill: Level 2: Using definitions

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9) An example of someone bearing the burden of a negative production externality would be A) Taylor living downwind from a smelly feedlot where pigs are raised. B) Jess's roommate smokes and she doesn't. C) None of these are examples someone bearing the burden of a negative production externality. D) Lynna's neighbors play loud music late at night. E) All of these are examples someone bearing the burden of a negative production externality. Answer: A Topic: Externalities Skill: Level 2: Using definitions

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10) Which of the following is NOT an example of a good with an external cost? A) electricity generation that produces carbon dioxide emissions that contribute toward global warming. B) noise pollution from aircraft. C) Jess smoking near her non-smoking roommate. D) Ahmed works at a bank and he gets a flu shot each fall. E) logging that destroys wildlife habitat. Answer: D Topic: Externalities...
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