Question 1

All of the following are choices for the polluter when faced with additional costs to abate the externality EXCEPT

Accepted Answer

A)  ignore the government regulations. 
B)  install pollution abatement equipment. 
C)  reduce the pollution-causing activity. 
D)  pay the price to pollute. 
A)  ignore the government regulations. 
B)  install pollution abatement equipment. 
C)  reduce the pollution-causing activity. 
D)  pay the price to pollute.

Question 2

The crux of the problem of pollution is

Accepted Answer

A)  a poorly run Environmental Protection Agency. 
B)  greed on the part of consumers. 
C)  greed on the part of producers. 
D)  poorly defined property rights are expensive to enforce. 
A)  a poorly run Environmental Protection Agency. 
B)  greed on the part of consumers. 
C)  greed on the part of producers. 
D)  poorly defined property rights are expensive to enforce.

Question 3

Which of the following statements best defines private costs?

Accepted Answer

A)  They are internal in the sense that the firm or household must explicitly take them into account. 
B)  They are costs borne by people other than those who commit the action. 
C)  They are synonymous with social costs. 
D)  They represent explicit costs incurred by business firms in the private sector. 
A)  They are internal in the sense that the firm or household must explicitly take them into account. 
B)  They are costs borne by people other than those who commit the action. 
C)  They are synonymous with social costs. 
D)  They represent explicit costs incurred by business firms in the private sector.

Question 4

When property rights are clearly defined, there is generally a

Accepted Answer

A)  law that must be passed to ensure fairness. 
B)  regulatory agency that handles externalities. 
C)  common property problem. 
D)  voluntary agreement that can be reached. 
A)  law that must be passed to ensure fairness. 
B)  regulatory agency that handles externalities. 
C)  common property problem. 
D)  voluntary agreement that can be reached.

Question 5

In 2005, the European Union began a program to

Accepted Answer

A)  reduce greenhouse gas emissions by 10 percent within 5 years. 
B)  eliminate greenhouse gas emissions by 50 percent within 15 years. 
C)  subsidize firms that pollute more than a given limit. 
D)  allow the trading of carbon-dioxide permits among firms. 
A)  reduce greenhouse gas emissions by 10 percent within 5 years. 
B)  eliminate greenhouse gas emissions by 50 percent within 15 years. 
C)  subsidize firms that pollute more than a given limit. 
D)  allow the trading of carbon-dioxide permits among firms.

Question 6

-Refer to the above figure. The marginal cost of pollution abatement is curve

Accepted Answer

A)  (1). 
B)  (2). 
C)  (3). 
D)  (4). 
A)  (1). 
B)  (2). 
C)  (3). 
D)  (4).

Question 7

In a market for emission permits, firms that emit over their allowed limits

Accepted Answer

A)  are forced to shut down. 
B)  are taxed by the government for the amount of emissions. 
C)  receive a subsidy for the amount of emissions. 
D)  pay a price of these emissions. 
A)  are forced to shut down. 
B)  are taxed by the government for the amount of emissions. 
C)  receive a subsidy for the amount of emissions. 
D)  pay a price of these emissions.

Question 8

Protecting endangered species are likely to be

Accepted Answer

A)  a private cost. 
B)  a public cost. 
C)  both private and public costs. 
D)  neither a private nor public cost. 
A)  a private cost. 
B)  a public cost. 
C)  both private and public costs. 
D)  neither a private nor public cost.

Question 9

Voluntary agreements may not be a feasible method to internalize an externality when

Accepted Answer

A)  the dollar value of the externality is large. 
B)  the externality is negative rather than positive. 
C)  there are significant transaction costs. 
D)  there are high taxes on the firms that cause the externalities. 
A)  the dollar value of the externality is large. 
B)  the externality is negative rather than positive. 
C)  there are significant transaction costs. 
D)  there are high taxes on the firms that cause the externalities.

Question 10

-Refer to the above figure. It represents supply and demand for The Black Ash Steel Company's output. The firm's plant belches large quantities of smelly fumes and black ash into the air. Residents in the surrounding area have higher medical bills as a result. If the firm is forced to pay the full social cost of its production, what will occur?

Accepted Answer

A)  Black Ash's supply curve will shift from SA to SB. 
B)  Demand for the firm's steel will shift to the left. 
C)  The company's supply curve will shift from SB to SA. 
D)  Black Ash will increase its own output to cover the cost increase. 
A)  Black Ash's supply curve will shift from SA to SB. 
B)  Demand for the firm's steel will shift to the left. 
C)  The company's supply curve will shift from SB to SA. 
D)  Black Ash will increase its own output to cover the cost increase.

Question 11

A social cost that is not fully paid by the individual using an automobile is

Accepted Answer

A)  traffic congestion. 
B)  gasoline and oil. 
C)  insurance. 
D)  depreciation of the vehicle. 
A)  traffic congestion. 
B)  gasoline and oil. 
C)  insurance. 
D)  depreciation of the vehicle.

Question 12

The Emission Trading Scheme of the European Union

Accepted Answer

A)  created a market for pollutants. 
B)  sets a cap on the amount of pollutants in each country. 
C)  allowed firms to benefit from emitting pollutants. 
D)  sets the amount of per-unit tax on each pollutant. 
A)  created a market for pollutants. 
B)  sets a cap on the amount of pollutants in each country. 
C)  allowed firms to benefit from emitting pollutants. 
D)  sets the amount of per-unit tax on each pollutant.

Question 13

A large farm uses fertilizer that nearby landowners complain may contaminate their water. Tests are conducted and contaminants are found. The costs resulting from this decision are referred to as

Accepted Answer

A)  implicit costs. 
B)  factor costs. 
C)  external costs. 
D)  opportunity costs. 
A)  implicit costs. 
B)  factor costs. 
C)  external costs. 
D)  opportunity costs.

Question 14

Common property is

Accepted Answer

A)  a resource that everyone is free to use as much as they want. 
B)  property that belongs to both spouses in a marriage. 
C)  property owned by a group such as a club or a church. 
D)  generic property as opposed to specific property. 
A)  a resource that everyone is free to use as much as they want. 
B)  property that belongs to both spouses in a marriage. 
C)  property owned by a group such as a club or a church. 
D)  generic property as opposed to specific property.

Question 15

The idea that it takes 90 percent of your time to clean up the last 10 percent of your house illustrates that

Accepted Answer

A)  the marginal cost of cleaning up slopes downward. 
B)  the marginal cost of cleaning up slopes upward. 
C)  the marginal benefit of cleaning up is constant. 
D)  the marginal benefit of cleaning up slopes upward. 
A)  the marginal cost of cleaning up slopes downward. 
B)  the marginal cost of cleaning up slopes upward. 
C)  the marginal benefit of cleaning up is constant. 
D)  the marginal benefit of cleaning up slopes upward.

Question 16

The best method to reduce pollution is

Accepted Answer

A)  to never start polluting. 
B)  to establish private property rights. 
C)  dependent upon the characteristics of the resources and the transaction costs. 
D)  dependent upon the quality of government bureaucrats and the level of greed in the society. 
A)  to never start polluting. 
B)  to establish private property rights. 
C)  dependent upon the characteristics of the resources and the transaction costs. 
D)  dependent upon the quality of government bureaucrats and the level of greed in the society.

Question 17

-Use the above table. What will the output level be when external costs are internalized with a tax?

Accepted Answer

A)  4 
B)  5 
C)  6 
D)  7 
A)  4 
B)  5 
C)  6 
D)  7

Question 18

Participating nations in the 1997 Kyoto Protocol agreed to reduce overall greenhouse gases emission

Accepted Answer

A)  to as much as 20 percent below the levels of the 1990s through 2020. 
B)  to as much as 10 percent below the levels of the 1990s through 2010. 
C)  to as much as 100 percent below the levels of the 1990s through 2007. 
D)  to as much as 50 percent below the levels of the 1990s through 2100. 
A)  to as much as 20 percent below the levels of the 1990s through 2020. 
B)  to as much as 10 percent below the levels of the 1990s through 2010. 
C)  to as much as 100 percent below the levels of the 1990s through 2007. 
D)  to as much as 50 percent below the levels of the 1990s through 2100.

Question 19

If a firm is not forced to pay for external costs, it will

Accepted Answer

A)  continue to overproduce the good. 
B)  continue to under produce the good. 
C)  request a subsidy from the government. 
D)  raise prices. 
A)  continue to overproduce the good. 
B)  continue to under produce the good. 
C)  request a subsidy from the government. 
D)  raise prices.

Question 20

If social cost exceeds private cost, there is

Accepted Answer

A)  underproduction of a good. 
B)  a negative externality. 
C)  a positive externality. 
D)  too little economic profit in the activity. 
A)  underproduction of a good. 
B)  a negative externality. 
C)  a positive externality. 
D)  too little economic profit in the activity.

Exam 31: Environmental Economics

All of the following are choices for the polluter when faced with additional costs to abate the externality EXCEPT

The crux of the problem of pollution is

Which of the following statements best defines private costs?

When property rights are clearly defined, there is generally a

In 2005, the European Union began a program to

-Refer to the above figure. The marginal cost of pollution abatement is curve

In a market for emission permits, firms that emit over their allowed limits

Protecting endangered species are likely to be

Voluntary agreements may not be a feasible method to internalize an externality when

A social cost that is not fully paid by the individual using an automobile is

The Emission Trading Scheme of the European Union

A large farm uses fertilizer that nearby landowners complain may contaminate their water. Tests are conducted and contaminants are found. The costs resulting from this decision are referred to as

Common property is

The idea that it takes 90 percent of your time to clean up the last 10 percent of your house illustrates that

The best method to reduce pollution is

-Use the above table. What will the output level be when external costs are internalized with a tax?

Participating nations in the 1997 Kyoto Protocol agreed to reduce overall greenhouse gases emission

If a firm is not forced to pay for external costs, it will

If social cost exceeds private cost, there is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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