Question 1

The marginal social benefit of pollution is always zero.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is usually associated with a positive externality?

Accepted Answer

A)  smoking cigarettes 
B)  listening to a new CD with earbuds 
C)  innovation in the semiconductor industry 
D)  an indoor classical music concert with tickets that cost $50 
A)  smoking cigarettes 
B)  listening to a new CD with earbuds 
C)  innovation in the semiconductor industry 
D)  an indoor classical music concert with tickets that cost $50

Question 3

Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf burning are:

Accepted Answer

A)  Pigouvian taxes. 
B)  internalization of externalities. 
C)  transaction costs. 
D)  environmental standards. 
A)  Pigouvian taxes. 
B)  internalization of externalities. 
C)  transaction costs. 
D)  environmental standards.

Question 4

The additional cost imposed on society as a whole by an additional unit of pollution is:

Accepted Answer

A)  the marginal social benefit of pollution. 
B)  the marginal social cost of pollution. 
C)  the optimal Pigouvian tax. 
D)  a technology spillover. 
A)  the marginal social benefit of pollution. 
B)  the marginal social cost of pollution. 
C)  the optimal Pigouvian tax. 
D)  a technology spillover.

Question 5

Use the following to answer questions:
Figure: Pollution and Efficiency  
-(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose sulfur emissions are a result of production, produced _____ units of emissions, then _____.

Accepted Answer

A)  40; MSB = MSC 
B)  30; MSB < MSC 
C)  40; MSB < MSC 
D)  30; MSC < MSB 
A)  40; MSB = MSC 
B)  30; MSB < MSC 
C)  40; MSB < MSC 
D)  30; MSC < MSB

Question 6

A good is subject to a network externality when:

Accepted Answer

A)  the value of the good to an individual is less when a large number of other people also use the good. 
B)  the value of the good is determined only by marginal private benefits. 
C)  an increase in the number of other people using the good increases its value to an individual. 
D)  a good yields negative externalities. 
A)  the value of the good to an individual is less when a large number of other people also use the good. 
B)  the value of the good is determined only by marginal private benefits. 
C)  an increase in the number of other people using the good increases its value to an individual. 
D)  a good yields negative externalities.

Question 7

Use the following to answer question:  
-(Table: The Marginal Social Benefit of Computer Chips) Look at the table The Marginal Social Benefit of Computer Chips. The production of computer chips generates an external benefit in the form of a technology spillover. If the marginal social benefit is indicated by MSB, the optimal Pigouvian subsidy is equal to $10.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions:  
-(Table: Externalities from Parks) The table Externalities from Parks shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park. If 1 acre is dedicated to the park, the park is:

Accepted Answer

A)  too large. 
B)  the socially optimum size. 
C)  too small. 
D)  the efficient size. 
A)  too large. 
B)  the socially optimum size. 
C)  too small. 
D)  the efficient size.

Question 9

When innovations by one firm are quickly emulated and improved on by rival firms in the same industry or in other industries, this is:

Accepted Answer

A)  industrial espionage. 
B)  illegal under most patents. 
C)  technology spillover. 
D)  technology takeover. 
A)  industrial espionage. 
B)  illegal under most patents. 
C)  technology spillover. 
D)  technology takeover.

Question 10

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:

Accepted Answer

A)  too little of society's resources is being used to produce copper. 
B)  too much of society's resources is being used to produce copper. 
C)  the optimal amount of society's resources is being used to produce copper. 
D)  there is an external benefit to society from copper production. 
A)  too little of society's resources is being used to produce copper. 
B)  too much of society's resources is being used to produce copper. 
C)  the optimal amount of society's resources is being used to produce copper. 
D)  there is an external benefit to society from copper production.

Question 11

If drivers decide to make phone calls without considering the costs imposed on others, the:

Accepted Answer

A)  number of phone calls made while driving will be more than the socially optimal quantity. 
B)  number of phone calls made while driving will be fewer than the socially optimal quantity. 
C)  marginal social cost curve will lie below the marginal cost of production curve. 
D)  marginal social benefit curve will lie below the marginal social cost curve. 
A)  number of phone calls made while driving will be more than the socially optimal quantity. 
B)  number of phone calls made while driving will be fewer than the socially optimal quantity. 
C)  marginal social cost curve will lie below the marginal cost of production curve. 
D)  marginal social benefit curve will lie below the marginal social cost curve.

Question 12

Economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT:

Accepted Answer

A)  reduce pollution enough. 
B)  allow reductions in pollution to be achieved at minimum cost. 
C)  internalize the externality. 
D)  provide for any means of enforcement. 
A)  reduce pollution enough. 
B)  allow reductions in pollution to be achieved at minimum cost. 
C)  internalize the externality. 
D)  provide for any means of enforcement.

Question 13

Markets for the right to pollute are:

Accepted Answer

A)  established by individual firms when they reduce emissions. 
B)  established by government when it issues tradable pollution permits. 
C)  likely to result in fewer incentives to develop and implement technology that reduces pollution. 
D)  a means by which more pollution is encouraged. 
A)  established by individual firms when they reduce emissions. 
B)  established by government when it issues tradable pollution permits. 
C)  likely to result in fewer incentives to develop and implement technology that reduces pollution. 
D)  a means by which more pollution is encouraged.

Question 14

The licenses that can be bought and sold by polluters and that enable the holder to pollute up to a specified amount during a given period are called:

Accepted Answer

A)  emissions taxes. 
B)  Pigouvian taxes. 
C)  tradable emissions permits. 
D)  environmental standards. 
A)  emissions taxes. 
B)  Pigouvian taxes. 
C)  tradable emissions permits. 
D)  environmental standards.

Question 15

Use the following to answer questions:
Figure: Three Firms That Pollute  
-(Figure: Three Firms that Pollute) In the figure Three Firms That Pollute, at what tax rate would firm C produce zero tons of pollution?

Accepted Answer

A)  $400 
B)  $500 
C)  $700 
D)  $400, $500, or $700 
A)  $400 
B)  $500 
C)  $700 
D)  $400, $500, or $700

Question 16

A Pigouvian subsidy is:

Accepted Answer

A)  designed to discourage activities generating externalities. 
B)  designed to encourage activities generating external benefits. 
C)  appropriate when the marginal social cost curve is above the marginal cost of production curve. 
D)  appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level. 
A)  designed to discourage activities generating externalities. 
B)  designed to encourage activities generating external benefits. 
C)  appropriate when the marginal social cost curve is above the marginal cost of production curve. 
D)  appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.

Question 17

Suppose an emissions tax is imposed on all dairy farms in Wisconsin. This tax would:

Accepted Answer

A)  encourage the dairy farmers to lower prices. 
B)  increase the level of emissions. 
C)  reduce the supply of milk in Wisconsin. 
D)  increase the supply of milk in Wisconsin. 
A)  encourage the dairy farmers to lower prices. 
B)  increase the level of emissions. 
C)  reduce the supply of milk in Wisconsin. 
D)  increase the supply of milk in Wisconsin.

Question 18

Damage to the environment occurs because:

Accepted Answer

A)  most businesses just don't care about the environment. 
B)  consumers want goods and services at the lowest prices no matter what other costs may be incurred. 
C)  pollution results from production of goods and services. 
D)  pollution reduces the social cost of production. 
A)  most businesses just don't care about the environment. 
B)  consumers want goods and services at the lowest prices no matter what other costs may be incurred. 
C)  pollution results from production of goods and services. 
D)  pollution reduces the social cost of production.

Question 19

With tradable emissions permits, the price of the permit is determined by:

Accepted Answer

A)  the government. 
B)  the supply of and demand for permits. 
C)  environmental protection organizations. 
D)  the World Trade Organization. 
A)  the government. 
B)  the supply of and demand for permits. 
C)  environmental protection organizations. 
D)  the World Trade Organization.

Question 20

Which of the following statements is CORRECT?

Accepted Answer

A)  An emissions tax is a more efficient way to reduce pollution than an environmental standard, because an emissions tax equalizes the marginal benefit of pollution from all sources. 
B)  An environmental standard is a more efficient way to reduce pollution than an emissions tax, because an environmental standard can be structured to equalize the reduction in pollution from all sources. 
C)  If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters. 
D)  It is easy to set emissions taxes at the "correct" level, since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known. 
A)  An emissions tax is a more efficient way to reduce pollution than an environmental standard, because an emissions tax equalizes the marginal benefit of pollution from all sources. 
B)  An environmental standard is a more efficient way to reduce pollution than an emissions tax, because an environmental standard can be structured to equalize the reduction in pollution from all sources. 
C)  If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters. 
D)  It is easy to set emissions taxes at the "correct" level, since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known.

The marginal social benefit of pollution is always zero.

Which of the following is usually associated with a positive externality?

Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf burning are:

The additional cost imposed on society as a whole by an additional unit of pollution is:

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose sulfur emissions are a result of production, produced _ units of emissions, then _.

A good is subject to a network externality when:

Use the following to answer questions: -(Table: Externalities from Parks) The table Externalities from Parks shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park. If 1 acre is dedicated to the park, the park is:

When innovations by one firm are quickly emulated and improved on by rival firms in the same industry or in other industries, this is:

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:

If drivers decide to make phone calls without considering the costs imposed on others, the:

Economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT:

Markets for the right to pollute are:

The licenses that can be bought and sold by polluters and that enable the holder to pollute up to a specified amount during a given period are called:

Use the following to answer questions: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute) In the figure Three Firms That Pollute, at what tax rate would firm C produce zero tons of pollution?

A Pigouvian subsidy is:

Suppose an emissions tax is imposed on all dairy farms in Wisconsin. This tax would:

Damage to the environment occurs because:

With tradable emissions permits, the price of the permit is determined by:

Which of the following statements is CORRECT?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 16: Externalities

The marginal social benefit of pollution is always zero.

Which of the following is usually associated with a positive externality?

Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf burning are:

The additional cost imposed on society as a whole by an additional unit of pollution is:

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose sulfur emissions are a result of production, produced _____ units of emissions, then _____.

A good is subject to a network externality when:

Use the following to answer questions: -(Table: Externalities from Parks) The table Externalities from Parks shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park. If 1 acre is dedicated to the park, the park is:

When innovations by one firm are quickly emulated and improved on by rival firms in the same industry or in other industries, this is:

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:

If drivers decide to make phone calls without considering the costs imposed on others, the:

Economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT:

Markets for the right to pollute are:

The licenses that can be bought and sold by polluters and that enable the holder to pollute up to a specified amount during a given period are called:

Use the following to answer questions: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute) In the figure Three Firms That Pollute, at what tax rate would firm C produce zero tons of pollution?

A Pigouvian subsidy is:

Suppose an emissions tax is imposed on all dairy farms in Wisconsin. This tax would:

Damage to the environment occurs because:

With tradable emissions permits, the price of the permit is determined by:

Which of the following statements is CORRECT?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose sulfur emissions are a result of production, produced _ units of emissions, then _.