Question 1

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,

Accepted Answer

A) further reductions will make society better off. 
B) the marginal benefit will rise and the marginal cost will fall as further reductions are made. 
C) economic efficiency will be achieved when emissions are reduced to zero. 
D) private businesses, rather the consumers, should be made to pay for the cost of further reductions. 
A) further reductions will make society better off. 
B) the marginal benefit will rise and the marginal cost will fall as further reductions are made. 
C) economic efficiency will be achieved when emissions are reduced to zero. 
D) private businesses, rather the consumers, should be made to pay for the cost of further reductions.

Question 2

Anyone can purchase sulfur dioxide emission allowances on the Chicago Mercantile Exchange.Several environmental groups have raised money to buy allowances (which they subsequently destroy).As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts.As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever."
Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999.
What would be the impact on the price of the emission allowances in the market if more people buy sulfur emission allowances and destroy them?

Accepted Answer

A) The price rises. 
B) The price falls to zero. 
C) The price falls but not to zero. 
D) The price remains unchanged because the allowances purchased by the environmental groups are destroyed. 
A) The price rises. 
B) The price falls to zero. 
C) The price falls but not to zero. 
D) The price remains unchanged because the allowances purchased by the environmental groups are destroyed.

Question 3

Figure 5-4
   
Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source. Figure 5-4 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 5-4.What is the economically efficient output level?

Accepted Answer

A) Q₁ 
B) Q₂ minus Q₁ 
C) Q₂ 
D) Q₁ plus Q₂ 
A) Q₁ 
B) Q₂ minus Q₁ 
C) Q₂ 
D) Q₁ plus Q₂

Question 4

Haiti was once a heavily forested country.Today, 80 percent of Haiti's public forests have been cut down, primarily to be burned to create charcoal.The reduction in the number of trees has led to devastating floods when it rains heavily.This is an example of

Accepted Answer

A) tragic externalities. 
B) the tragedy of the commons. 
C) human greed. 
D) the consequences of not having a market economic system. 
A) tragic externalities. 
B) the tragedy of the commons. 
C) human greed. 
D) the consequences of not having a market economic system.

Question 5

The Coase theorem asserts that government intervention is a prerequisite for addressing externality problems.

Accepted Answer

A) True 
 B)False

Question 6

Figure 5-1
   
Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-1.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case, the diagram shows

Accepted Answer

A) the effect of a positive externality in the production of a good. 
B) the effect of a negative externality in the production of a good. 
C) the effect of an external cost imposed on a producer. 
D) the effect of an external benefit such as a subsidy granted to consumers of a good. 
A) the effect of a positive externality in the production of a good. 
B) the effect of a negative externality in the production of a good. 
C) the effect of an external cost imposed on a producer. 
D) the effect of an external benefit such as a subsidy granted to consumers of a good.

Question 7

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. 
A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Question 8

Governments can increase the consumption of a product that creates positive externalities by

Accepted Answer

A) subsidizing the production of the product so that the supply is increased and market price is reduced. 
B) taxing the production and consumption of the product. 
C) convincing everyone to consume the product. 
D) assigning property rights to the producers of the product. 
A) subsidizing the production of the product so that the supply is increased and market price is reduced. 
B) taxing the production and consumption of the product. 
C) convincing everyone to consume the product. 
D) assigning property rights to the producers of the product.

Question 9

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

Accepted Answer

A) external costs. 
B) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution. 
A) external costs. 
B) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution.

Question 10

Which of the following is an example of a nonexcludable product?

Accepted Answer

A) college education 
B) a public library 
C) public transportation 
D) Internet service for your home computer 
A) college education 
B) a public library 
C) public transportation 
D) Internet service for your home computer

Question 11

Figure 5-6
   
Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 5-6.Why is there a deadweight loss?

Accepted Answer

A) because the marginal private benefit for each additional unit between Q₁ and Q₂ exceeds the marginal cost 
B) because the marginal private cost for each additional unit between Q₁ and Q₂ exceeds the marginal private benefit 
C) because the marginal social cost for each additional unit between Q₁ and Q₂ exceeds the marginal social benefit 
D) because the marginal social benefit for each additional unit between Q₁ and Q₂ exceeds the marginal cost 
A) because the marginal private benefit for each additional unit between Q₁ and Q₂ exceeds the marginal cost 
B) because the marginal private cost for each additional unit between Q₁ and Q₂ exceeds the marginal private benefit 
C) because the marginal social cost for each additional unit between Q₁ and Q₂ exceeds the marginal social benefit 
D) because the marginal social benefit for each additional unit between Q₁ and Q₂ exceeds the marginal cost

Question 12

A positive externality results when

Accepted Answer

A) economists are sure that a good or service provides benefits to consumers. 
B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C) people who live in one country benefit from the production of a good or service that occurs in another country. 
D) people who are not directly involved in producing or paying for a good or service benefit from it. 
A) economists are sure that a good or service provides benefits to consumers. 
B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C) people who live in one country benefit from the production of a good or service that occurs in another country. 
D) people who are not directly involved in producing or paying for a good or service benefit from it.

Question 13

What does the phrase "internalizing an external cost" mean?

Accepted Answer

A) limiting the extent to which domestic firms can outsource production 
B) prohibiting economic activities that create externalities 
C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output 
D) finding a way to address cross-border pollution 
A) limiting the extent to which domestic firms can outsource production 
B) prohibiting economic activities that create externalities 
C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output 
D) finding a way to address cross-border pollution

Question 14

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Accepted Answer

A) Does the intervention program reduce pollution to zero using the least costly method? 
B) Is the intervention program economically efficient? 
C) Does the intervention program make the amount of economic surplus as large as possible? 
D) Is the damage to the environment from government intervention as small as possible? 
A) Does the intervention program reduce pollution to zero using the least costly method? 
B) Is the intervention program economically efficient? 
C) Does the intervention program make the amount of economic surplus as large as possible? 
D) Is the damage to the environment from government intervention as small as possible?

Question 15

When a negative externality exists, the private market produces

Accepted Answer

A) more than the economically efficient output level. 
B) less than the economically efficient output level. 
C) products at a low opportunity cost. 
D) products at a high opportunity cost. 
A) more than the economically efficient output level. 
B) less than the economically efficient output level. 
C) products at a low opportunity cost. 
D) products at a high opportunity cost.

Question 16

Figure 5-5
   
Figure 5-5 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-5.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does D₁ represent?

Accepted Answer

A) the demand curve reflecting external benefits 
B) the demand curve reflecting social benefits 
C) the demand curve reflecting private benefits 
D) the demand curve reflecting the sum of private and social benefits 
A) the demand curve reflecting external benefits 
B) the demand curve reflecting social benefits 
C) the demand curve reflecting private benefits 
D) the demand curve reflecting the sum of private and social benefits

Question 17

When there is a positive externality in a free market, too much of the good is produced and consumed.

Accepted Answer

A) True 
 B)False

Question 18

A quasi-public good differs from a public good in that unlike a public good, it is possible to keep those who do not pay for the quasi-public good from enjoying the benefits of the good.

Accepted Answer

A) True 
 B)False

Question 19

Figure 5-7
  
-Refer to Figure 5-7.The marginal benefit of reducing pollution curve is the same curve as

Accepted Answer

A) the supply of pollution reduction curve. 
B) the demand for pollution reduction curve. 
C) the positive externality curve. 
D) the external benefit curve. 
A) the supply of pollution reduction curve. 
B) the demand for pollution reduction curve. 
C) the positive externality curve. 
D) the external benefit curve.

Question 20

What is the rationale behind a tradable emission allowance scheme?

Accepted Answer

A) to create a market for externalities: the scheme brings together buyers and sellers of marketable permits 
B) to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance 
C) to raise revenue for the government through the sale of emission permits and at the same time set an emissions target 
D) to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance 
A) to create a market for externalities: the scheme brings together buyers and sellers of marketable permits 
B) to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance 
C) to raise revenue for the government through the sale of emission permits and at the same time set an emissions target 
D) to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,

Haiti was once a heavily forested country.Today, 80 percent of Haiti's public forests have been cut down, primarily to be burned to create charcoal.The reduction in the number of trees has led to devastating floods when it rains heavily.This is an example of

The Coase theorem asserts that government intervention is a prerequisite for addressing externality problems.

How does the construction of a market demand curve for a private good differ from that for a public good?

Governments can increase the consumption of a product that creates positive externalities by

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

Which of the following is an example of a nonexcludable product?

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6.Why is there a deadweight loss?

A positive externality results when

What does the phrase "internalizing an external cost" mean?

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

When a negative externality exists, the private market produces

When there is a positive externality in a free market, too much of the good is produced and consumed.

A quasi-public good differs from a public good in that unlike a public good, it is possible to keep those who do not pay for the quasi-public good from enjoying the benefits of the good.

Figure 5-7 -Refer to Figure 5-7.The marginal benefit of reducing pollution curve is the same curve as

What is the rationale behind a tradable emission allowance scheme?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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Exam 5: Externalities, Environmental Policy, and Public Goods

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,

Haiti was once a heavily forested country.Today, 80 percent of Haiti's public forests have been cut down, primarily to be burned to create charcoal.The reduction in the number of trees has led to devastating floods when it rains heavily.This is an example of

The Coase theorem asserts that government intervention is a prerequisite for addressing externality problems.

How does the construction of a market demand curve for a private good differ from that for a public good?

Governments can increase the consumption of a product that creates positive externalities by

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

Which of the following is an example of a nonexcludable product?

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6.Why is there a deadweight loss?

A positive externality results when

What does the phrase "internalizing an external cost" mean?

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

When a negative externality exists, the private market produces

When there is a positive externality in a free market, too much of the good is produced and consumed.

A quasi-public good differs from a public good in that unlike a public good, it is possible to keep those who do not pay for the quasi-public good from enjoying the benefits of the good.

Figure 5-7 -Refer to Figure 5-7.The marginal benefit of reducing pollution curve is the same curve as

What is the rationale behind a tradable emission allowance scheme?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters