Problem_Set_3

Problem_Set_3 - Economics 2 Prob le m Set III Practice Only...

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Economics 2 Problem Set III Practice Only I. Multiple Choice Questions (Briefly explain your answers) 1. Which of the following is an example of an activity with an external cost? a. Raising honeybees where neighbors on all sides grow apples. b. Keeping the front yard clean. c. Reading a book. d. Having to buy batteries for the new remote that came with a TV. e. Speeding on the Interstate. 2. If the equilibrium quantity is greater than the socially optimal quantity, one can infer that a. the supply curve for the activity is above the socially optimal supply. b. the demand curve for the activity is below the socially optimal demand. c. the production of this good has a positive externality. d. the production of this good has a negative externality. e. the production of this good has no externality. 3. The EPA has proposed strict controls on the amount of sulfur diesel fuel contains. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming the supply of diesel fuel has positive slope and the demand has negative slope, one can infer that a. the external benefit of diesel fuel is less than 10 cents. b. the external cost of diesel fuel is greater than 10 cents. c. the external cost of diesel fuel is less than 10 cents. d. the external benefit of diesel fuel is greater than 10 cents. e. the external benefit of diesel fuel is equal to 10 cents. 4.
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Problem_Set_3 - Economics 2 Prob le m Set III Practice Only...

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