Question 1

If electric utilities continually reduce their emissions of sulfur dioxide

Accepted Answer

A) the utilities will eventually be forced to go out of business. 
B) the marginal benefit of additional emissions will rise. 
C) the marginal cost of further emissions will rise. 
D) the total benefit of sulfur dioxide emissions will fall. 
A) the utilities will eventually be forced to go out of business. 
B) the marginal benefit of additional emissions will rise. 
C) the marginal cost of further emissions will rise. 
D) the total benefit of sulfur dioxide emissions will fall.

Question 2

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

Accepted Answer

A) True 
 B)False

Question 3

Classifying a good as excludable means

Accepted Answer

A) that someone can be barred from consuming the good based on race, creed, or some other irrelevant characteristic. 
B) that anyone who does not pay for the good cannot consume it. 
C) that consumption of the good causes no externalities. 
D) that a producer with patent or copyright protection can exclude any other producer from selling his product. 
A) that someone can be barred from consuming the good based on race, creed, or some other irrelevant characteristic. 
B) that anyone who does not pay for the good cannot consume it. 
C) that consumption of the good causes no externalities. 
D) that a producer with patent or copyright protection can exclude any other producer from selling his product.

Question 4

Ronald Coase is famous for the Coase Theorem, which is based on the premise that there is an economically efficient level of pollution reduction.Many economists believe that the tradable emissions allowance program that has been used to deal with the problem of acid rain has been successful in reducing emissions of sulfur dioxide in an economically efficient manner.Why isn't this program an example of the Coase Theorem?

Accepted Answer

The Coase Theorem states that if transac

Question 5

What are property rights?

Accepted Answer

A) the title to ownership of any physical asset 
B) a legal document verifying ownership of intangible assets 
C) the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it 
D) the right of the government to appropriate private assets for the good of society 
A) the title to ownership of any physical asset 
B) a legal document verifying ownership of intangible assets 
C) the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it 
D) the right of the government to appropriate private assets for the good of society

Question 6

Figure 5-9
   
Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9.An efficient way to get the firm to produce the socially optimal output level is

Accepted Answer

A) for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B) to impose a tax to make the industry bear the external costs it creates. 
C) to grant a subsidy to enable the industry to internalize the external costs of production. 
D) to assign property rights to the firms in the industry. 
A) for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 
B) to impose a tax to make the industry bear the external costs it creates. 
C) to grant a subsidy to enable the industry to internalize the external costs of production. 
D) to assign property rights to the firms in the industry.

Question 7

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.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₂ represent?

Accepted Answer

A) the market supply curve reflecting marginal private cost 
B) the market supply curve reflecting marginal social cost 
C) the market supply curve reflecting external cost 
D) the market supply curve reflecting implicit cost 
A) the market supply curve reflecting marginal private cost 
B) the market supply curve reflecting marginal social cost 
C) the market supply curve reflecting external cost 
D) the market supply curve reflecting implicit cost

Question 8

Figure 5-7
  
-Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Accepted Answer

A) PE 
B) the value of the area QBBEQE 
C) PE × QE 
D) the value of the area BEF 
A) PE 
B) the value of the area QBBEQE 
C) PE × QE 
D) the value of the area BEF

Question 9

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 10

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption.All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 11

Which of the following could be evidence of a market failure?

Accepted Answer

A) Resources in an economy are not fully utilized. 
B) The market price of a product is above the average cost of production. 
C) There are only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs. 
A) Resources in an economy are not fully utilized. 
B) The market price of a product is above the average cost of production. 
C) There are only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs.

Question 12

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

Accepted Answer

Private cost of production is the cost b

Question 13

How does a positive externality in consumption reduce economic efficiency?

Accepted Answer

If there is a positive externality in co

Question 14

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 15

Figure 5-2
   
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Accepted Answer

A) Pₐ. 
B) Pb. 
C) Pc. 
D) Pf. 
A) Pₐ. 
B) Pb. 
C) Pc. 
D) Pf.

Question 16

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.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₁ represent?

Accepted Answer

A) the market supply curve reflecting external cost 
B) the market supply curve reflecting implicit cost 
C) the market supply curve reflecting marginal social cost 
D) the market supply curve reflecting marginal private cost 
A) the market supply curve reflecting external cost 
B) the market supply curve reflecting implicit cost 
C) the market supply curve reflecting marginal social cost 
D) the market supply curve reflecting marginal private cost

Question 17

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Suppose Bella is lazy and a spendthrift and Sefronia suspects that Bella will be willing to pay $80.What is Sefronia likely to do, given that she is as rational as any other person?

Accepted Answer

A) She will correctly rationalize that Bella's laziness and spendthrift ways are irrelevant to the decision at hand. 
B) She might claim that she is not willing to pay for a housecleaner, hoping that Bella would pay the entire $80. 
C) She might offer to do Bella's housecleaning chores if Bella would pay her $50. 
D) She will come clean and tell Bella that since Bella is lazy and a spendthrift she should pay a bigger share of the $80. 
A) She will correctly rationalize that Bella's laziness and spendthrift ways are irrelevant to the decision at hand. 
B) She might claim that she is not willing to pay for a housecleaner, hoping that Bella would pay the entire $80. 
C) She might offer to do Bella's housecleaning chores if Bella would pay her $50. 
D) She will come clean and tell Bella that since Bella is lazy and a spendthrift she should pay a bigger share of the $80.

Question 18

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 19

The cost borne by a producer in the production of a good or service is called

Accepted Answer

A) private cost. 
B) public cost. 
C) social cost. 
D) internal cost. 
A) private cost. 
B) public cost. 
C) social cost. 
D) internal cost.

Question 20

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain then, according to the Coase theorem

Accepted Answer

A) an efficient solution can be reached only if property rights are assigned to the victims of the pollution. 
B) an efficient solution can be reached only if property rights are assigned to the polluters. 
C) an efficient solution can be reached regardless of the initial assignment of property rights. 
D) government intervention is critical to reach an efficient solution. 
A) an efficient solution can be reached only if property rights are assigned to the victims of the pollution. 
B) an efficient solution can be reached only if property rights are assigned to the polluters. 
C) an efficient solution can be reached regardless of the initial assignment of property rights. 
D) government intervention is critical to reach an efficient solution.

If electric utilities continually reduce their emissions of sulfur dioxide

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

Classifying a good as excludable means

What are property rights?

Figure 5-7 -Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

When a negative externality exists, the private market produces

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption.All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would and the equilibrium price of soda would .

Which of the following could be evidence of a market failure?

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

How does a positive externality in consumption reduce economic efficiency?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

The cost borne by a producer in the production of a good or service is called

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain then, according to the Coase theorem

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 More Realistic Setting

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 electric utilities continually reduce their emissions of sulfur dioxide

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

Classifying a good as excludable means

What are property rights?

Figure 5-7 -Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

When a negative externality exists, the private market produces

Which of the following could be evidence of a market failure?

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

How does a positive externality in consumption reduce economic efficiency?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

The cost borne by a producer in the production of a good or service is called

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain then, according to the Coase theorem

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 More Realistic Setting

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