Question 1

Keeping in mind the Coase theorem, in the figure above, if the residents of the town own the lake, how much do they charge the factories to dump waste?

Accepted Answer

A)  $30 per ton of pesticide produced 
B)  $40 per ton of pesticide produced 
C)  $20 per ton of pesticide produced 
D)  Nothing 
A)  $30 per ton of pesticide produced 
B)  $40 per ton of pesticide produced 
C)  $20 per ton of pesticide produced 
D)  Nothing

Question 2

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. Why would overfishing occur in this common market?

Accepted Answer

A)  Fishing occurs until marginal cost per boat equals marginal social benefit which is inefficient. 
B)  Fishing occurs until marginal social cost per boat equals marginal social benefit which is inefficient. 
C)  Fishing occurs until marginal cost per boat equals marginal benefit which is inefficient. 
D)  Fishing occurs until marginal social cost per boat equals marginal cost which is inefficient. 
A)  Fishing occurs until marginal cost per boat equals marginal social benefit which is inefficient. 
B)  Fishing occurs until marginal social cost per boat equals marginal social benefit which is inefficient. 
C)  Fishing occurs until marginal cost per boat equals marginal benefit which is inefficient. 
D)  Fishing occurs until marginal social cost per boat equals marginal cost which is inefficient.

Question 3

What is a cap-and-trade policy? (Be certain to mention marketable permits.) Suppose there are two firms in an area, each emitting tons of sulfur. The government decides on a target level of 200 tons of sulfur, and gives each firm a permit to emit 100 tons of sulfur. Suppose Firm A is very efficient and can reduce pollution by 100 tons with an abatement cost of $500. Firm B has an older plant, so it will cost Firm B $1,000 to reduce emissions by 100 tons. What will occur with marketable permits?

Accepted Answer

A cap-and-trade policy involves the gove

Question 4

Let MC be the marginal private cost per megawatt hour (Mwh) of producing electricity using coal. Let MSC be the marginal social cost per Mwh and T be the tax per Mwh. To achieve efficiency, the tax should be set so that

Accepted Answer

A)  MC = MSC + T. 
B)  MSC = MC + T. 
C)  MC + MSC = T 
D)  MC = T. 
A)  MC = MSC + T. 
B)  MSC = MC + T. 
C)  MC + MSC = T 
D)  MC = T.

Question 5

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. "To ensure this recovery… Ministers agreed a 10 percent cut in days at sea (for North Sea cod)," EU Fisheries Commissioner Joe Borg stated in 2008. What is the goal of this policy?

Accepted Answer

A)  To reduce the number of fishing days to the point where marginal cost per day equals marginal benefit 
B)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal benefit 
C)  To reduce the number of fishing days to the point where marginal social benefit per day equals marginal benefit 
D)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal social benefit 
A)  To reduce the number of fishing days to the point where marginal cost per day equals marginal benefit 
B)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal benefit 
C)  To reduce the number of fishing days to the point where marginal social benefit per day equals marginal benefit 
D)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal social benefit

Question 6

The production of paper creates pollution, an external cost. What happens to the production of paper if the government imposes a tax on paper producers equal to the marginal external cost of the pollution?

Accepted Answer

When the government imposes a tax equal

Question 7

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the equilibrium output is ________ of paper.

Accepted Answer

A)  1,600 tons 
B)  2,400 tons 
C)  3,200 tons 
D)  4,000 tons 
A)  1,600 tons 
B)  2,400 tons 
C)  3,200 tons 
D)  4,000 tons

Question 8

The three main methods that governments use to cope with an external cost of production include all of the following EXCEPT

Accepted Answer

A)  taxes. 
B)  mandating clean technology. 
C)  cap-and-trade 
D)  price floors. 
A)  taxes. 
B)  mandating clean technology. 
C)  cap-and-trade 
D)  price floors.

Question 9

The Atlantic City Expressway is a highway that runs from outside Philadelphia to Atlantic City, New Jersey. It is notoriously congested during the summer weekends when many people are driving to the beach about the same time. The marginal private cost for a driver of driving on the Expressway includes I. the cost of gasoline.
II) the cost of increasing congestion for everyone else.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 10

-The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. The market is efficient when the quantity of steel produced is ________ tons per week.

Accepted Answer

A)  5 
B)  10 
C)  15 
D)  25 
A)  5 
B)  10 
C)  15 
D)  25

Question 11

-The table above shows the marginal costs and marginal benefits of college education. The marginal social benefit of college education at the efficient amount of enrollment is

Accepted Answer

A)  $20,000 per year. 
B)  $16,000 per year. 
C)  $12,000 per year. 
D)  $14,000 per year. 
A)  $20,000 per year. 
B)  $16,000 per year. 
C)  $12,000 per year. 
D)  $14,000 per year.

Question 12

Keeping in mind the Coase theorem, in the figure above if the pesticide factories own the lake, how much pesticide is produced?

Accepted Answer

A)  300 tons per month 
B)  240 tons per month 
C)  180 tons per month 
D)  360 tons per month 
A)  300 tons per month 
B)  240 tons per month 
C)  180 tons per month 
D)  360 tons per month

Question 13

-In the above table, if the market is perfectly competitive and unregulated, at the equilibrium output level

Accepted Answer

A)  resource allocation is efficient. 
B)  resource allocation is inefficient. 
C)  too many units of output are produced. 
D)  consumers pay too low a price. 
A)  resource allocation is efficient. 
B)  resource allocation is inefficient. 
C)  too many units of output are produced. 
D)  consumers pay too low a price.

Question 14

-In the above figure, if the market is competitive and unregulated, then at the equilibrium amount of output the marginal social benefit is

Accepted Answer

A)  less than the marginal cost to producers. 
B)  greater than the marginal social cost. 
C)  equal to the marginal cost to producers. 
D)  equal to the marginal private benefit from consumption. 
A)  less than the marginal cost to producers. 
B)  greater than the marginal social cost. 
C)  equal to the marginal cost to producers. 
D)  equal to the marginal private benefit from consumption.

Question 15

When a forest is logged, it is possible for the logging to create "soil runoff," a situation in which the soil, no longer protected by trees, erodes and silts a river miles downstream from the logging area. Is soil runoff created by logging in Montana that ruins a river an example of a private cost to the lumbering company or an external cost?

Accepted Answer

The soil runoff is an external cost. The

Question 16

The cost of producing one more unit of a good or service that is paid by the producer

Accepted Answer

A)  has to be equal to the benefit that the consumer derives from that good. 
B)  is equal to the cost borne by people other than the producer. 
C)  is the marginal private cost. 
D)  is the marginal external cost. 
A)  has to be equal to the benefit that the consumer derives from that good. 
B)  is equal to the cost borne by people other than the producer. 
C)  is the marginal private cost. 
D)  is the marginal external cost.

Question 17

Producing paper creates pollution. There is no externality in the consumption of paper. The efficient quantity of paper is when the

Accepted Answer

A)  marginal social benefit of paper is equal to zero. 
B)  marginal social cost of the pollution from making paper is equal to zero. 
C)  marginal social benefit of paper is equal to the marginal social cost of paper. 
D)  marginal private cost of the pollution from making paper is equal to zero. 
A)  marginal social benefit of paper is equal to zero. 
B)  marginal social cost of the pollution from making paper is equal to zero. 
C)  marginal social benefit of paper is equal to the marginal social cost of paper. 
D)  marginal private cost of the pollution from making paper is equal to zero.

Question 18

According to the Coase theorem, part of what is needed for private transactions to be efficient is that property rights

Accepted Answer

A)  must be defined, but it does not matter who owns the property. 
B)  must be defined, and it is crucial as to who owns the property. 
C)  need not be defined as long as there are no transactions costs present. 
D)  need to be defined by the government to avoid producers from exploiting high transactions costs. 
A)  must be defined, but it does not matter who owns the property. 
B)  must be defined, and it is crucial as to who owns the property. 
C)  need not be defined as long as there are no transactions costs present. 
D)  need to be defined by the government to avoid producers from exploiting high transactions costs.

Question 19

Consider a market in which there is an external benefit. The inefficient market equilibrium is such that

Accepted Answer

A)  too little output is produced. 
B)  too much output is produced. 
C)  price is too high. 
D)  marginal social cost is greater than marginal social benefit. 
A)  too little output is produced. 
B)  too much output is produced. 
C)  price is too high. 
D)  marginal social cost is greater than marginal social benefit.

Question 20

A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the chemical factory is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced

Accepted Answer

A)  will decrease. 
B)  will stay the same. 
C)  will increase. 
D)  changes, but the direction of the change is ambiguous. 
A)  will decrease. 
B)  will stay the same. 
C)  will increase. 
D)  changes, but the direction of the change is ambiguous.

Keeping in mind the Coase theorem, in the figure above, if the residents of the town own the lake, how much do they charge the factories to dump waste?

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. Why would overfishing occur in this common market?

Let MC be the marginal private cost per megawatt hour (Mwh) of producing electricity using coal. Let MSC be the marginal social cost per Mwh and T be the tax per Mwh. To achieve efficiency, the tax should be set so that

The production of paper creates pollution, an external cost. What happens to the production of paper if the government imposes a tax on paper producers equal to the marginal external cost of the pollution?

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the equilibrium output is ________ of paper.

The three main methods that governments use to cope with an external cost of production include all of the following EXCEPT

-The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. The market is efficient when the quantity of steel produced is ________ tons per week.

-The table above shows the marginal costs and marginal benefits of college education. The marginal social benefit of college education at the efficient amount of enrollment is

Keeping in mind the Coase theorem, in the figure above if the pesticide factories own the lake, how much pesticide is produced?

-In the above table, if the market is perfectly competitive and unregulated, at the equilibrium output level

-In the above figure, if the market is competitive and unregulated, then at the equilibrium amount of output the marginal social benefit is

The cost of producing one more unit of a good or service that is paid by the producer

Producing paper creates pollution. There is no externality in the consumption of paper. The efficient quantity of paper is when the

According to the Coase theorem, part of what is needed for private transactions to be efficient is that property rights

Consider a market in which there is an external benefit. The inefficient market equilibrium is such that

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

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Exam 17: Externalities

Keeping in mind the Coase theorem, in the figure above, if the residents of the town own the lake, how much do they charge the factories to dump waste?

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. Why would overfishing occur in this common market?

Let MC be the marginal private cost per megawatt hour (Mwh) of producing electricity using coal. Let MSC be the marginal social cost per Mwh and T be the tax per Mwh. To achieve efficiency, the tax should be set so that

The production of paper creates pollution, an external cost. What happens to the production of paper if the government imposes a tax on paper producers equal to the marginal external cost of the pollution?

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the equilibrium output is ________ of paper.

The three main methods that governments use to cope with an external cost of production include all of the following EXCEPT

-The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. The market is efficient when the quantity of steel produced is ________ tons per week.

-The table above shows the marginal costs and marginal benefits of college education. The marginal social benefit of college education at the efficient amount of enrollment is

Keeping in mind the Coase theorem, in the figure above if the pesticide factories own the lake, how much pesticide is produced?

-In the above table, if the market is perfectly competitive and unregulated, at the equilibrium output level

-In the above figure, if the market is competitive and unregulated, then at the equilibrium amount of output the marginal social benefit is

The cost of producing one more unit of a good or service that is paid by the producer

Producing paper creates pollution. There is no externality in the consumption of paper. The efficient quantity of paper is when the

According to the Coase theorem, part of what is needed for private transactions to be efficient is that property rights

Consider a market in which there is an external benefit. The inefficient market equilibrium is such that

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters