Question 1

Education is an example of a positive externality.

Accepted Answer

A) True 
 B)False

Question 2

Vaccinations are a ________ good that create a ________ externality.

Accepted Answer

A)  public; positive 
B)  private; positive 
C)  public; negative 
D)  private; negative 
A)  public; positive 
B)  private; positive 
C)  public; negative 
D)  private; negative

Question 3

The marginal social benefit of pollution is the incremental benefit to society from producing one more unit of pollution.

Accepted Answer

A) True 
 B)False

Question 4

As pollution emission levels increase, the marginal social benefit of pollution

Accepted Answer

A)  increases. 
B)  decreases. 
C)  does not change. 
D)  becomes infinite. 
A)  increases. 
B)  decreases. 
C)  does not change. 
D)  becomes infinite.

Question 5

There are 10 families in a neighborhood that are affected by noise pollution from a local factory. The noise could be reduced if the company spent $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the $5,000. Since there are no legal restrictions governing the factory's noise, the negotiations fail. This outcome is an example of the

Accepted Answer

A)  free-rider problem. 
B)  drop-in-the-bucket problem. 
C)  Coase theorem. 
D)  problem that arises when property rights are not defined. 
A)  free-rider problem. 
B)  drop-in-the-bucket problem. 
C)  Coase theorem. 
D)  problem that arises when property rights are not defined.

Question 6

An external cost is

Accepted Answer

A)  MSC + MC. 
B)  MSC ‐ MC. 
C)  MSC/ MC. 
D)  MSC × MC. 
A)  MSC + MC. 
B)  MSC ‐ MC. 
C)  MSC/ MC. 
D)  MSC × MC.

Question 7

Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.   Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the residents of Playa Del Rey, then the airlines and the residents engage in negotiations. The resulting efficient level of air travel is

Accepted Answer

A)  0 units. 
B)  100 units. 
C)  120 units. 
D)  indeterminate from the given information. 
A)  0 units. 
B)  100 units. 
C)  120 units. 
D)  indeterminate from the given information.

Question 8

In cases where a common resource is shared by many and technology is well developed,

Accepted Answer

A)  overuse is more likely. 
B)  overuse is rarely problematic. 
C)  the resource becomes nonrival in consumption. 
D)  the resource becomes excludable. 
A)  overuse is more likely. 
B)  overuse is rarely problematic. 
C)  the resource becomes nonrival in consumption. 
D)  the resource becomes excludable.

Question 9

Refer to the data provided in Table 16.2 below to answer the following question(s).
Table 16.2 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.2
 \[\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \
\hline \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm A }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm B }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} \
\hline 1 & \$ 1 & \$ 1 & 1 & \$ 8 & \$ 8 \
\hline 2 & 3 & 4 & 2 & 12 & 20 \
\hline 3 & 6 & 10 & 3 & 16 & 36 \
\hline 4 & 10 & 20 & 4 & 20 & 56 \
\hline 5 & 15 & 35 & 5 & 24 & 80 \
\hline
\end{array}\]
-Refer to Table 16.2. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are not allowed to trade permits, what is the total cost of the pollution reduction?

Accepted Answer

A)  $24 
B)  $46 
C)  $76 
D)  $115 
A)  $24 
B)  $46 
C)  $76 
D)  $115

Question 10

In the presence of ________ externalities, too much of the good is produced and in the presence of ________ externalities, too little of the good is produced.

Accepted Answer

A)  positive; negative 
B)  negative; positive 
C)  positive; no 
D)  no; negative 
A)  positive; negative 
B)  negative; positive 
C)  positive; no 
D)  no; negative

Question 11

In the presence of negative externalities, ________ is produced and in the presence of positive externalities, ________ is produced.

Accepted Answer

A)  too little of the good; too much of the good 
B)  too much of the good; too little of the good 
C)  too much of the good; the right amount of the good 
D)  the right amount of the good; too little of the good 
A)  too little of the good; too much of the good 
B)  too much of the good; too little of the good 
C)  too much of the good; the right amount of the good 
D)  the right amount of the good; too little of the good

Question 12

When a firm imposes an external social cost, the government should impose a tax exactly equal to the marginal social cost to ensure that the efficient level of output will be produced.

Accepted Answer

A) True 
 B)False

Question 13

Ronald Coase argued that property rights should always be assigned to the party that is harmed by the negative externality.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the information given in Table 16.6 below to answer the question that follows.
Table 16.6 $\begin{array} { ccc } \text { Number of } & \text { Tim's } & \text { Al's }\
\text {Police Officers}& \text { Willingness to Pay}& \text { Willingness to Pay}\
\hline1 & \$ 100 & \$ 60 \
2 & 80 & 20 \
3 & 50 & 0\
\hline
 \end{array}$

-Refer to Table 16.6. Assume that the marginal cost of hiring a police officer is $100. If A and B are the only two people in the society, the optimal number of police officers is

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  indeterminate from this information. 
A)  1. 
B)  2. 
C)  3. 
D)  indeterminate from this information.

Question 15

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow.   Figure 16.1
-Refer to Figure 16.1. The ________ imposed as a result of producing the efficient level of fertilizer is $250.

Accepted Answer

A)  marginal social cost 
B)  total damage 
C)  marginal private cost 
D)  tax 
A)  marginal social cost 
B)  total damage 
C)  marginal private cost 
D)  tax

Question 16

Direct regulation of externalities take place at the ________ level.

Accepted Answer

A)  federal 
B)  state 
C)  local 
D)  all of the above 
A)  federal 
B)  state 
C)  local 
D)  all of the above

Question 17

Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.   Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the airlines, then the airlines and the residents engage in negotiations. The resulting efficient level of air travel is

Accepted Answer

A)  0 units. 
B)  100 units. 
C)  120 units. 
D)  indeterminate from the given information. 
A)  0 units. 
B)  100 units. 
C)  120 units. 
D)  indeterminate from the given information.

Question 18

The Coase theorem will ________ if the number of people involved is small.

Accepted Answer

A)  only apply 
B)  rarely apply 
C)  always apply 
D)  never apply 
A)  only apply 
B)  rarely apply 
C)  always apply 
D)  never apply

Question 19

Suppose that you rent a house next to a factory. The factory legally emits a chemical into the air that smells like feet. You now have to spend $300 more per month on air fresheners because the firm pollutes the air. You could move to another house far enough away from the factory, but the rent for that house is $200 more than you now pay. The efficient solution to this problem is that

Accepted Answer

A)  the factory owner should compensate you $300 so that you can pay for the additional expenses you incur. 
B)  you should move to the new house because the additional rent on that new house is less than the additional expenses you incur from living next to the factory. 
C)  the factory owner should reimburse you $100, the difference between your expenses and the higher rent on the new house. 
D)  the firm should be able to continue to pollute because only one person is being harmed by the factory's pollution. 
A)  the factory owner should compensate you $300 so that you can pay for the additional expenses you incur. 
B)  you should move to the new house because the additional rent on that new house is less than the additional expenses you incur from living next to the factory. 
C)  the factory owner should reimburse you $100, the difference between your expenses and the higher rent on the new house. 
D)  the firm should be able to continue to pollute because only one person is being harmed by the factory's pollution.

Question 20

The costs that we avoid by not eliminating pollution while being able to enjoy the goods that create the pollution are the social benefits of pollution.

Accepted Answer

A) True 
 B)False

Education is an example of a positive externality.

Vaccinations are a good that create a externality.

The marginal social benefit of pollution is the incremental benefit to society from producing one more unit of pollution.

As pollution emission levels increase, the marginal social benefit of pollution

An external cost is

In cases where a common resource is shared by many and technology is well developed,

In the presence of externalities, too much of the good is produced and in the presence of externalities, too little of the good is produced.

In the presence of negative externalities, is produced and in the presence of positive externalities, is produced.

When a firm imposes an external social cost, the government should impose a tax exactly equal to the marginal social cost to ensure that the efficient level of output will be produced.

Ronald Coase argued that property rights should always be assigned to the party that is harmed by the negative externality.

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow. Figure 16.1 -Refer to Figure 16.1. The ________ imposed as a result of producing the efficient level of fertilizer is $250.

Direct regulation of externalities take place at the ________ level.

The Coase theorem will ________ if the number of people involved is small.

The costs that we avoid by not eliminating pollution while being able to enjoy the goods that create the pollution are the social benefits of pollution.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Exam 16: Externalities, Public Goods, and Common Resources

Education is an example of a positive externality.

Vaccinations are a ________ good that create a ________ externality.

The marginal social benefit of pollution is the incremental benefit to society from producing one more unit of pollution.

As pollution emission levels increase, the marginal social benefit of pollution

An external cost is

In cases where a common resource is shared by many and technology is well developed,

In the presence of ________ externalities, too much of the good is produced and in the presence of ________ externalities, too little of the good is produced.

In the presence of negative externalities, ________ is produced and in the presence of positive externalities, ________ is produced.

When a firm imposes an external social cost, the government should impose a tax exactly equal to the marginal social cost to ensure that the efficient level of output will be produced.

Ronald Coase argued that property rights should always be assigned to the party that is harmed by the negative externality.

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow. Figure 16.1 -Refer to Figure 16.1. The ________ imposed as a result of producing the efficient level of fertilizer is $250.

Direct regulation of externalities take place at the ________ level.

The Coase theorem will ________ if the number of people involved is small.

The costs that we avoid by not eliminating pollution while being able to enjoy the goods that create the pollution are the social benefits of pollution.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Vaccinations are a good that create a externality.

In the presence of externalities, too much of the good is produced and in the presence of externalities, too little of the good is produced.

In the presence of negative externalities, is produced and in the presence of positive externalities, is produced.