Question 1

Factors that prevent the Coase Theorem from working include all of the following, except :

Accepted Answer

A)  private property rights. 
B)  transaction costs. 
C)  income effects. 
D)  more than two individuals affected. 
A)  private property rights. 
B)  transaction costs. 
C)  income effects. 
D)  more than two individuals affected. A

Question 2

Exhibit 14-3 Impact of flights on house value Each time Orville flies over Wilber's house, the noise reduces the value of Wilbur's house. The table shows the profits to Orville of each flight, and the value of Wilbur's house.
 
As shown in Exhibit 14-3, if Orville has the property right to fly over Wilbur's house, but Wilbur is allowed to negotiate with Orville on the number of flights, what will be the number of flights?

Accepted Answer

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

Question 3

Incentive-based regulatory approaches:

Accepted Answer

A)  are viewed favorably by most economists as a way to control pollution. 
B)  provide less flexibility than the command-and-control approach. 
C)  tend to hurt wealthier people more than poor people. 
D)  require that the government specify certain types of pollution control technology that firms must adopt. 
A)  are viewed favorably by most economists as a way to control pollution. 
B)  provide less flexibility than the command-and-control approach. 
C)  tend to hurt wealthier people more than poor people. 
D)  require that the government specify certain types of pollution control technology that firms must adopt. A

Question 4

A pollution tax is:

Accepted Answer

A)  a positive externality used to offset a negative one. 
B)  a price per unit of discharge of pollution. 
C)  a tax on pollution control equipment. 
D)  itself a form of negative externality. 
A)  a positive externality used to offset a negative one. 
B)  a price per unit of discharge of pollution. 
C)  a tax on pollution control equipment. 
D)  itself a form of negative externality.

Question 5

Command-and-control legislation, as compared to incentive-based regulation:

Accepted Answer

A)  encourages the use of comparative advantage in the short run, and the development of new technology in the long run. 
B)  encourages the use of comparative advantage in the short run, but discourages the development of new technology in the long run. 
C)  discourages the use of comparative advantage in the short run, but encourages the development of new technology in the long run. 
D)  discourages the use of comparative advantage in the short run, and discourages the development of new technology in the long run. 
A)  encourages the use of comparative advantage in the short run, and the development of new technology in the long run. 
B)  encourages the use of comparative advantage in the short run, but discourages the development of new technology in the long run. 
C)  discourages the use of comparative advantage in the short run, but encourages the development of new technology in the long run. 
D)  discourages the use of comparative advantage in the short run, and discourages the development of new technology in the long run.

Question 6

The pig farm industry is perfectly competitive and causes pollution to the surrounding air and water. Which of the following is true ?

Accepted Answer

A)  Since the industry is perfectly competitive, price and quantity are at the socially efficient levels. 
B)  The competitive price is higher and quantity lower than the socially efficient point. 
C)  The competitive price is higher and quantity higher than the socially efficient point. 
D)  The competitive price is lower and quantity higher than the socially efficient point. 
A)  Since the industry is perfectly competitive, price and quantity are at the socially efficient levels. 
B)  The competitive price is higher and quantity lower than the socially efficient point. 
C)  The competitive price is higher and quantity higher than the socially efficient point. 
D)  The competitive price is lower and quantity higher than the socially efficient point.

Question 7

An example of the command-and-control approach to environmental policy is:

Accepted Answer

A)  placing a tax on freon to reduce its use and the corresponding CFC emissions (which contribute to the ozone hole). 
B)  requiring car producers to install new air conditioners that do not use freon. 
C)  allowing coal producers to buy and sell permits to allow CFC emissions. 
D)  allowing individuals to sue freon producers if CFC emissions exceed a government-set standard. 
A)  placing a tax on freon to reduce its use and the corresponding CFC emissions (which contribute to the ozone hole). 
B)  requiring car producers to install new air conditioners that do not use freon. 
C)  allowing coal producers to buy and sell permits to allow CFC emissions. 
D)  allowing individuals to sue freon producers if CFC emissions exceed a government-set standard.

Question 8

People are unlikely to choose to pay extra for a low-emissions automobile, because they:

Accepted Answer

A)  do not fully understand the environmental benefits of lower emissions. 
B)  are better off "free-riding" on others' attempts to reduce emissions. 
C)  would have to sacrifice fuel efficiency and automotive performance. 
D)  cannot afford the extra expense of "green" technology. 
A)  do not fully understand the environmental benefits of lower emissions. 
B)  are better off "free-riding" on others' attempts to reduce emissions. 
C)  would have to sacrifice fuel efficiency and automotive performance. 
D)  cannot afford the extra expense of "green" technology.

Question 9

When negative externalities like pollution exist, competition leads to:

Accepted Answer

A)  a socially efficient outcome. 
B)  too few goods being bought and sold. 
C)  a market equilibrium price that is too high. 
D)  more production than would be efficient. 
A)  a socially efficient outcome. 
B)  too few goods being bought and sold. 
C)  a market equilibrium price that is too high. 
D)  more production than would be efficient.

Question 10

According to Garrett Hardin's view of The Tragedy of the Commons:

Accepted Answer

A)  Externalities will be internalized by the market. 
B)  Individuals will use the commons up to the point where marginal benefits equal marginal social costs. 
C)  Individuals will create institutions to prevent the collapse of the commons. 
D)  Individual will use the commons beyond the socially efficient point. 
A)  Externalities will be internalized by the market. 
B)  Individuals will use the commons up to the point where marginal benefits equal marginal social costs. 
C)  Individuals will create institutions to prevent the collapse of the commons. 
D)  Individual will use the commons beyond the socially efficient point.

Question 11

The socially efficient level of output is determined where:

Accepted Answer

A)  marginal social cost equals marginal social benefit. 
B)  marginal private cost equals marginal social benefit. 
C)  average social cost equals average social benefit. 
D)  average private cost equals average social benefit. 
A)  marginal social cost equals marginal social benefit. 
B)  marginal private cost equals marginal social benefit. 
C)  average social cost equals average social benefit. 
D)  average private cost equals average social benefit.

Question 12

Government regulations that set an environmental goal and dictate how the goal will be achieved are called:

Accepted Answer

A)  effluent-offset regulations. 
B)  incentive-based regulations. 
C)  Coasian regulations. 
D)  command-and-control-regulations. 
A)  effluent-offset regulations. 
B)  incentive-based regulations. 
C)  Coasian regulations. 
D)  command-and-control-regulations.

Question 13

When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n):

Accepted Answer

A)  externality. 
B)  common pool problem. 
C)  nonexcludable resource. 
D)  public good. 
A)  externality. 
B)  common pool problem. 
C)  nonexcludable resource. 
D)  public good.

Question 14

Exhibit 14-1 Private and social cost
 
Use Exhibit 14-1 to answer the following question. To maximize social welfare, the firm should produce at the output rate:

Accepted Answer

A)  zero. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  zero. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 15

According to Elinor Ostrom's view of The Tragedy of the Commons:

Accepted Answer

A)  The only way to prevent the collapse of the commons is government intervention. 
B)  The only way to prevent the collapse of the commons is to privatize the commons so that it is owned by a single individual. 
C)  Individuals will create institutions to prevent the collapse of the commons. 
D)  Individuals will use the commons beyond the socially efficient point. 
A)  The only way to prevent the collapse of the commons is government intervention. 
B)  The only way to prevent the collapse of the commons is to privatize the commons so that it is owned by a single individual. 
C)  Individuals will create institutions to prevent the collapse of the commons. 
D)  Individuals will use the commons beyond the socially efficient point.

Question 16

If government taxes a firm which pollutes this will:

Accepted Answer

A)  increase the demand for the good produced. 
B)  decrease the supply of the good produced. 
C)  increase the equilibrium quantity of the good produced in the market. 
D)  decrease the equilibrium price of the good produced in the market. 
A)  increase the demand for the good produced. 
B)  decrease the supply of the good produced. 
C)  increase the equilibrium quantity of the good produced in the market. 
D)  decrease the equilibrium price of the good produced in the market.

Question 17

Exhibit 14-2 Cigarette smoking data Jack enjoys smoking, while Jill fears that second-hand smoke will shorten her life. The following table shows the value Jack places on each cigarette he smokes, and the value Jill places on her shortened life. Use the table to answer the following question(s):
 
As shown in Exhibit 14-2, if non-smokers have a right to a smoke-free environment, and smokers have the right to negotiate, how many days of life will Jill lose?

Accepted Answer

A)  0. 
B)  1. 
C)  3. 
D)  5. 
A)  0. 
B)  1. 
C)  3. 
D)  5.

Question 18

All of the following are examples of negative externalities except one. Which is the exception?

Accepted Answer

A)  Water pollution. 
B)  Your roommate going on a diet. 
C)  Second-hand smoke. 
D)  Loud conversation in the workplace. 
A)  Water pollution. 
B)  Your roommate going on a diet. 
C)  Second-hand smoke. 
D)  Loud conversation in the workplace.

Question 19

There is a concern that carbon emissions that are a byproduct of the burning of coal and other fuels contributes to global warming. One proposed solution is to tax the use of these fuels based on their carbon content. The following table gives information on the demand and supply of coal: 
   
 What will be the free-market price and quantity, and what will be the price and quantity if the government requires suppliers to pay a $100 tax for each ton of coal produced?

Accepted Answer

The free market balances at Q = 14, P =

Question 20

Suppose a firm wants to build a new factory that would add pollution to an already polluted area. Under an offset program, the firm must:

Accepted Answer

A)  install scrubbers and other government-mandated equipment. 
B)  purchase pollution permits from the government. 
C)  reduce or eliminate an old pollution source in the area. 
D)  pay a tax which depends on the amount of pollution created. 
A)  install scrubbers and other government-mandated equipment. 
B)  purchase pollution permits from the government. 
C)  reduce or eliminate an old pollution source in the area. 
D)  pay a tax which depends on the amount of pollution created.

Exam 14: Environmental Economics

Factors that prevent the Coase Theorem from working include all of the following, except :

Incentive-based regulatory approaches:

A pollution tax is:

Command-and-control legislation, as compared to incentive-based regulation:

The pig farm industry is perfectly competitive and causes pollution to the surrounding air and water. Which of the following is true ?

An example of the command-and-control approach to environmental policy is:

People are unlikely to choose to pay extra for a low-emissions automobile, because they:

When negative externalities like pollution exist, competition leads to:

According to Garrett Hardin's view of The Tragedy of the Commons:

The socially efficient level of output is determined where:

Government regulations that set an environmental goal and dictate how the goal will be achieved are called:

When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n):

Exhibit 14-1 Private and social cost Use Exhibit 14-1 to answer the following question. To maximize social welfare, the firm should produce at the output rate:

According to Elinor Ostrom's view of The Tragedy of the Commons:

If government taxes a firm which pollutes this will:

All of the following are examples of negative externalities except one. Which is the exception?

Suppose a firm wants to build a new factory that would add pollution to an already polluted area. Under an offset program, the firm must:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

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