Question 1

A battery acid producer pollutes the water upstream from the Polar Bear Club,a swimming club.If transactions costs are low,the quantity of pollution will be efficient

Accepted Answer

A) only if Ronald Coase is a member of the Polar Bear Club. 
B) only if Ronald Coase is not a member of the Polar Bear Club. 
C) only if water property rights are assigned to the producer. 
D) only if water property rights are assigned to the Polar Bear Club. 
E) if water property rights are assigned either to the producer or to the Polar Bear Club. 
A) only if Ronald Coase is a member of the Polar Bear Club. 
B) only if Ronald Coase is not a member of the Polar Bear Club. 
C) only if water property rights are assigned to the producer. 
D) only if water property rights are assigned to the Polar Bear Club. 
E) if water property rights are assigned either to the producer or to the Polar Bear Club.

Question 2

In the absence of government intervention,a profit-maximizing firm producing a good with an external cost will produce a quantity at which

Accepted Answer

A) price is greater than marginal private cost. 
B) price is less than marginal revenue. 
C) price is less than marginal private cost. 
D) price equals marginal private cost. 
E) marginal revenue equals marginal social cost. 
A) price is greater than marginal private cost. 
B) price is less than marginal revenue. 
C) price is less than marginal private cost. 
D) price equals marginal private cost. 
E) marginal revenue equals marginal social cost.

Question 3

CoolU has solved its smoking problem by allocating each student 5 smoking permits a day,and allowing trading.This is an example of

Accepted Answer

A) marketable permits. 
B) emission charges. 
C) the Coase theorem. 
D) a pollution tax. 
E) a voucher. 
A) marketable permits. 
B) emission charges. 
C) the Coase theorem. 
D) a pollution tax. 
E) a voucher.

Question 4

Use the figure below to answer the following questions.
   
Figure 16.3.1
-Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then

Accepted Answer

A) the quantity produced is less than the efficient quantity. 
B) the quantity produced is greater than the efficient quantity. 
C) price is greater than marginal social benefit quantity. 
D) the marginal cost curve is horizontal. 
E) none of the above. 
A) the quantity produced is less than the efficient quantity. 
B) the quantity produced is greater than the efficient quantity. 
C) price is greater than marginal social benefit quantity. 
D) the marginal cost curve is horizontal. 
E) none of the above.

Question 5

Use the figure below to answer the following questions.
   
Figure 16.2.2
-Refer to Figure 16.2.2.This figure shows the demand curve,the marginal private cost curve and the marginal social cost curve of good A.Production of the 6th unit of output generates a marginal external

Accepted Answer

A) cost of $1.50. 
B) cost of $3. 
C) cost of $6. 
D) benefit of $3. 
E) benefit of $6. 
A) cost of $1.50. 
B) cost of $3. 
C) cost of $6. 
D) benefit of $3. 
E) benefit of $6.

Question 6

Use the figure below to answer the following questions.
   
Figure 16.3.2
-Refer to Figure 16.3.2.The figure shows the market for good B.What is the efficient quantity of good B?

Accepted Answer

A) 0 units 
B) 3 units 
C) 5 units 
D) 6 units 
E) 9 units 
A) 0 units 
B) 3 units 
C) 5 units 
D) 6 units 
E) 9 units

Question 7

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then
I.there is no pollution
II.resources are used efficiently

Accepted Answer

A) I only 
B) II only 
C) neither I nor II 
D) both I and II 
E) sometimes I and sometimes II, but never both simultaneously 
A) I only 
B) II only 
C) neither I nor II 
D) both I and II 
E) sometimes I and sometimes II, but never both simultaneously

Question 8

Use the table below to answer the following questions.
Table 16.2.1
  
-Refer to Table 16.2.1.Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer.If the market is unregulated,the quantity produced is

Accepted Answer

A) 1 unit. 
B) 2 units. 
C) 3 units. 
D) 4 units. 
E) 5 units. 
A) 1 unit. 
B) 2 units. 
C) 3 units. 
D) 4 units. 
E) 5 units.

Question 9

Consider the problem of carbon dioxide pollution due to the use of coal in electric power production.The discovery of very cheap solar power would lead to

Accepted Answer

A) less carbon dioxide pollution. 
B) more carbon dioxide pollution. 
C) no change in the amount of carbon dioxide pollution. 
D) either more or less carbon dioxide pollution, depending on the amount of solar power pollution. 
E) either no change or more carbon dioxide pollution. 
A) less carbon dioxide pollution. 
B) more carbon dioxide pollution. 
C) no change in the amount of carbon dioxide pollution. 
D) either more or less carbon dioxide pollution, depending on the amount of solar power pollution. 
E) either no change or more carbon dioxide pollution.

Question 10

In recent years,as provincial governments attempt to balance their budgets,they have increased tuition fees considerably.This increase will likely result in

Accepted Answer

A) more students. 
B) fewer students. 
C) under-provision of education compared to the efficient level. 
D) over-provision of education compared to the efficient level. 
E) B and C. 
A) more students. 
B) fewer students. 
C) under-provision of education compared to the efficient level. 
D) over-provision of education compared to the efficient level. 
E) B and C.

Question 11

Use the figure below to answer the following questions.
   
Figure 16.3.3
-Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.If society's external benefit from university graduates is $10,000 each,then

Accepted Answer

A) a subsidy of $10,000 per student paid to the universities achieves efficiency. 
B) a tax of $10,000 per student imposed on the universities achieves efficiency. 
C) 10 million students per year is the efficient number students. 
D) a subsidy of $20,000 per student paid to the universities achieves efficiency. 
E) none of the above answers are correct. 
A) a subsidy of $10,000 per student paid to the universities achieves efficiency. 
B) a tax of $10,000 per student imposed on the universities achieves efficiency. 
C) 10 million students per year is the efficient number students. 
D) a subsidy of $20,000 per student paid to the universities achieves efficiency. 
E) none of the above answers are correct.

Question 12

Use the table below to answer the following questions.
Table 16.3.1
  
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.If production is left to the private market,then

Accepted Answer

A) an efficient quantity is produced. 
B) imposing a tax leads to production of the efficient quantity. 
C) too much fertilizer is produced. 
D) a system of marketable permits leads to production of the efficient quantity. 
E) an inefficient quantity is produced. 
A) an efficient quantity is produced. 
B) imposing a tax leads to production of the efficient quantity. 
C) too much fertilizer is produced. 
D) a system of marketable permits leads to production of the efficient quantity. 
E) an inefficient quantity is produced.

Question 13

If positive externalities exist and production is left to the private market,then at the quantity produced

Accepted Answer

A)  MSC = MSB. 
B)  MSC  MSB. 
D)  MSB = marginal external benefit. 
E)  MSB = 1/MSC. 
A)  MSC = MSB. 
B)  MSC  MSB. 
D)  MSB = marginal external benefit. 
E)  MSB = 1/MSC.

Question 14

Use the table below to answer the following questions.
Table 16.3.1
  
-Refer to Table 16.3.1.The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer.If production is left to the private market,then at the profit-maximizing output level marginal

Accepted Answer

A) social cost equals marginal private benefit. 
B) private cost is less than marginal private benefit. 
C) social cost is less than marginal private benefit. 
D) social cost is greater than marginal private benefit. 
E) social benefit is less than marginal private benefit. 
A) social cost equals marginal private benefit. 
B) private cost is less than marginal private benefit. 
C) social cost is less than marginal private benefit. 
D) social cost is greater than marginal private benefit. 
E) social benefit is less than marginal private benefit.

Question 15

Use the table below to answer the following questions.
Table 16.2.2
Chemical Fertilizer Market
  
-Refer to Table 16.2.2.If the fertilizer market is perfectly competitive and unregulated,output (in tonnes)is

Accepted Answer

A) 1. 
B) 2. 
C) 3. 
D) 4. 
E) 5. 
A) 1. 
B) 2. 
C) 3. 
D) 4. 
E) 5.

Question 16

Consider some type of industrial pollution that generates air pollution.This industry,if left unregulated,will produce

Accepted Answer

A) too much output because they will ignore the marginal external costs. 
B) the efficient level of output. 
C) too little output because they will ignore the marginal external costs. 
D) too little output because they will ignore the marginal external benefits. 
E) too much output because they will ignore the marginal external benefits. 
A) too much output because they will ignore the marginal external costs. 
B) the efficient level of output. 
C) too little output because they will ignore the marginal external costs. 
D) too little output because they will ignore the marginal external benefits. 
E) too much output because they will ignore the marginal external benefits.

Question 17

Use the figure below to answer the following questions.
   
Figure 16.2.1
-Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If a constant per unit tax is imposed that generates an efficient allocation of resources,then the quantity produced is

Accepted Answer

A) zero. 
B) Q1. 
C) Q2. 
D) Q3 
E) greater than Q3. 
A) zero. 
B) Q1. 
C) Q2. 
D) Q3 
E) greater than Q3.

Question 18

When an additional unit of output is produced,the extra cost to society is the

Accepted Answer

A) average total cost. 
B) marginal social cost. 
C) marginal private cost. 
D) marginal external cost. 
E) marginal damage. 
A) average total cost. 
B) marginal social cost. 
C) marginal private cost. 
D) marginal external cost. 
E) marginal damage.

Question 19

Use the table below to answer the following questions.
Table 16.2.2
Chemical Fertilizer Market
  
-Refer to Table 16.2.2.Fertilizer has a marginal

Accepted Answer

A) external cost of $100 a tonne. 
B) social cost of $100 a tonne. 
C) external cost of $30 a tonne. 
D) private cost of $30 a tonne. 
E) external cost of $0. 
A) external cost of $100 a tonne. 
B) social cost of $100 a tonne. 
C) external cost of $30 a tonne. 
D) private cost of $30 a tonne. 
E) external cost of $0.

Question 20

Suppose that recycling rubber for running shoes creates an external benefit of $2.00 per tonne of rubber.There are no external costs.The efficient amount of rubber will be recycled when the government creates a

Accepted Answer

A) subsidy of more than $2.00 per tonne of rubber. 
B) subsidy of $2.00 per tonne of rubber. 
C) tax of more than $2.00 per tonne of rubber. 
D) tax of $2.00 per tonne of rubber. 
E) voucher valued at $2.10 a tonne of rubber. 
A) subsidy of more than $2.00 per tonne of rubber. 
B) subsidy of $2.00 per tonne of rubber. 
C) tax of more than $2.00 per tonne of rubber. 
D) tax of $2.00 per tonne of rubber. 
E) voucher valued at $2.10 a tonne of rubber.

Exam 16: Externalities

A battery acid producer pollutes the water upstream from the Polar Bear Club,a swimming club.If transactions costs are low,the quantity of pollution will be efficient

In the absence of government intervention,a profit-maximizing firm producing a good with an external cost will produce a quantity at which

CoolU has solved its smoking problem by allocating each student 5 smoking permits a day,and allowing trading.This is an example of

Use the figure below to answer the following questions. Figure 16.3.1 -Refer to Figure 16.3.1.The figure shows the marginal private benefit curve,the marginal social benefit curve,and the market supply curve.If production is left to the private market,then

Use the figure below to answer the following questions. Figure 16.2.2 -Refer to Figure 16.2.2.This figure shows the demand curve,the marginal private cost curve and the marginal social cost curve of good A.Production of the 6th unit of output generates a marginal external

Use the figure below to answer the following questions. Figure 16.3.2 -Refer to Figure 16.3.2.The figure shows the market for good B.What is the efficient quantity of good B?

When Good A is produced,pollution is also produced.When the marginal social cost of production of Good A equals marginal social benefit from Good A,then I.there is no pollution II.resources are used efficiently

Consider the problem of carbon dioxide pollution due to the use of coal in electric power production.The discovery of very cheap solar power would lead to

In recent years,as provincial governments attempt to balance their budgets,they have increased tuition fees considerably.This increase will likely result in

Use the figure below to answer the following questions. Figure 16.3.3 -Refer to Figure 16.3.3.The figure shows the marginal private benefit and marginal social cost of a university education.If society's external benefit from university graduates is $10,000 each,then

If positive externalities exist and production is left to the private market,then at the quantity produced

Use the table below to answer the following questions. Table 16.2.2 Chemical Fertilizer Market -Refer to Table 16.2.2.If the fertilizer market is perfectly competitive and unregulated,output (in tonnes)is

Consider some type of industrial pollution that generates air pollution.This industry,if left unregulated,will produce

When an additional unit of output is produced,the extra cost to society is the

Use the table below to answer the following questions. Table 16.2.2 Chemical Fertilizer Market -Refer to Table 16.2.2.Fertilizer has a marginal

Suppose that recycling rubber for running shoes creates an external benefit of $2.00 per tonne of rubber.There are no external costs.The efficient amount of rubber will be recycled when the government creates a

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