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# Suppose that for Jim the marginal benefit (MB) of producing is \$60 and that the marginal c

Suppose that for Jim the marginal benefit (MB) of producing is \$60 and that the marginal cost (MC) of producing is \$10.  Suppose also that his marginal benefit of stealing is \$50 and the marginal cost of stealing is \$10.  Is Jim currently maximizing utility in terms of producing and stealing?  If not, should he produce more and steal less, or produce less and steal more to move toward utility maximization?

a.Yes, Jim is maximizing utility.

b.No, Jim is not maximizing utility.  Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Jim should produce more and steal less.

c.No,  Jim is not maximizing utility.  Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Jim should produce more and steal less.

d.No,  Jim is not maximizing utility.  Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Jim should steal more and produce less.

2.Suppose that for Alicia the marginal benefit (MB) of producing is \$75 and that the marginal cost (MC) of producing is \$5.  Suppose also that her marginal benefit of stealing is \$85 and the marginal cost of stealing is \$5.  Is Alicia currently maximizing utility in terms of producing and stealing?  If not, should she produce more and steal less, or produce less and steal more to move toward utility maximization?

a.Yes, Alicia is maximizing utility.

b.No, Alicia is not maximizing utility.  Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Alicia should produce more and steal less.

c.No,  Alicia is not maximizing utility.  Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Alicia should produce more and steal less.

d.No,  Alicia is not maximizing utility.  Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Alicia should steal more and produce less.

3.Which of the following is true?

a.Government cannot remove individuals from a prisoner’s dilemma setting and make them better off.

b.As long as government charges each individual a tax that is more than the gain received by being removed from a prisoner’s dilemma setting, then government makes that individual better off.

c.Government can remove individuals from a prisoner’s dilemma setting by changing the payoff matrix.

d.a and c

e.all of the above

4.Which of the following is false?

a.In the case of a negative externality, the market equilibrium is inefficient.

b.In the case of a negative externality, when a tax is set equal to the marginal external costs (MEC) efficiency can be achieved.

c.In the case of a negative externality, when a tax is set that is greater than the marginal external costs (MEC) inefficiency will result.

d.In the case of a positive externality, when a tax is set equal to the marginal external benefits (MEB) efficiency can be achieved.

5.In the case of a negative externality, in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

a.tax; external costs

b.tax; external benefits

c.subsidy; external costs

d.subsidy; external benefits

e.tax; private costs

6.In the case of a positive externality, in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

a.tax; external costs

b.tax; external benefits

c.subsidy; external costs

d.subsidy; external benefits

e.subsidy; private costs

7.When a negative externality exists, _______________________ and thus _______________ intervention may be needed to achieve efficiency.

a.external costs are necessarily greater than private costs; government

b.social costs equal private costs; no government

c.social costs are less than private costs; government

d.social costs are greater than private costs; government

e.none of the above

8.When a positive externality exists, _______________________ and thus _______________ intervention may be needed to achieve efficiency.

a.external costs are necessarily greater than private costs; government

b.social costs equal private costs; no government

c.social costs are less than private costs; government

d.social costs are greater than private costs; government

e.none of the above

9.A consequence of a negative externality is that social costs __________ private costs, and the efficient level of output __________.

a.equal; does not require any type of government intervention

b.are less than; requires the government to create a subsidy

c.are greater than; requires the government to impose a tax

d.are greater than; requires the government to create a subsidy

e.are less than; requires the government to impose a tax

10.In the case of a negative externality, the government can use a ________________ to turn an inefficient outcome into an efficient one.  In the case of a positive externality, the government can use a ________________ to turn an inefficient outcome into an efficient one.

a.tax; subsidy

b.subsidy; tax

c.tax; tax

d.subsidy; subsidy

Dec 08 2019 View more View Less