practice quiz 1

practice quiz 1 - Eco 402 Public Finance Sample Quiz 1...

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Eco 402 – Public Finance Sample Quiz 1: Externalities NAME__________________________________________________ 1. Suppose a positive externality is associated with education. a. On the next page, carefully graph the following for this situation being sure to label axes: i. Marginal social cost (MSC) ii. Marginal private benefit (MPB) iii. Marginal social benefit (MSB) b. Label the following on your graph: iv. Private level of output (Q p ) v. Socially optimal level of output (Q s ) c. Would a tax or subsidy be used to internalize the externality? (2) d. Graph the area representing the total amount of the subsidy or tax necessary to internalize the externality. (3) NOTE: YOUR GRAPH MUST BE NEATLY DRAWN AND CLEAR. Similar to the Cassanova problem from class (Rosen text, page 108, #2)
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2. The table below shows the total private costs (TPC) to a chemical producer from producing various quantities of chemicals. The total external costs thrust upon a small community of 20 people downstream from the chemical producer's water pollution (TEC) is also given.
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