Question 1

With defined property rights, an externality

Accepted Answer

A)  can only be corrected with government intervention. 
B)  will not lead to a misallocation of resources. 
C)  may be internalized with voluntary contracting, under certain circumstances. 
D)  must lead to society producing inside its production possibilities frontier. 
A)  can only be corrected with government intervention. 
B)  will not lead to a misallocation of resources. 
C)  may be internalized with voluntary contracting, under certain circumstances. 
D)  must lead to society producing inside its production possibilities frontier.

Question 2

"The number of species on earth is decreasing drastically and economic development is the main factor for the problem." Do you agree or disagree? Why?

Accepted Answer

Disagree. First, it is unclear that the

Question 3

When there are no externalities,

Accepted Answer

A)  social costs are greater than private costs. 
B)  social costs are less than private costs. 
C)  private costs are greater than social costs. 
D)  private costs equal social costs. 
A)  social costs are greater than private costs. 
B)  social costs are less than private costs. 
C)  private costs are greater than social costs. 
D)  private costs equal social costs.

Question 4

Social costs are

Accepted Answer

A)  costs that are borne by the government. 
B)  the full cost borne by society whenever a resource use occurs. 
C)  borne by individuals who incur them. 
D)  another term for external costs. 
A)  costs that are borne by the government. 
B)  the full cost borne by society whenever a resource use occurs. 
C)  borne by individuals who incur them. 
D)  another term for external costs.

Question 5

In order to correct the problems associated with external costs,

Accepted Answer

A)  the signals given to the economy must change so that decision-makers will take into account all the costs of their actions. 
B)  the government must take over production of industries that are responsible for most of the pollution. 
C)  standards must be established that make it illegal to pollute. 
D)  the prices of all goods must be raised so people will consume less of the world's resources. 
A)  the signals given to the economy must change so that decision-makers will take into account all the costs of their actions. 
B)  the government must take over production of industries that are responsible for most of the pollution. 
C)  standards must be established that make it illegal to pollute. 
D)  the prices of all goods must be raised so people will consume less of the world's resources.

Question 6

Suppose there are two firms on a river and the production processes of both require clean water. The upstream firm's process dirties the water, which it dumps back into the river. The downstream firm must clean the water before using it in its production process. If the two firms would merge,

Accepted Answer

A)  the external costs of the merged firm would equal the external costs of the upstream firm, which would then be passed on to its customers. 
B)  the total costs of production fall since the external costs disappear. 
C)  the external costs of the upstream firm are private costs after the merger. 
D)  the internal costs of the downstream firm become external costs of the merged firm. 
A)  the external costs of the merged firm would equal the external costs of the upstream firm, which would then be passed on to its customers. 
B)  the total costs of production fall since the external costs disappear. 
C)  the external costs of the upstream firm are private costs after the merger. 
D)  the internal costs of the downstream firm become external costs of the merged firm.

Question 7

Under a cap-and-trade program, what would happen if governments reduce firms' pollution caps?

Accepted Answer

A)  The market clearing price of pollution permits will increase. 
B)  The market cleaning price of pollution permits will decrease. 
C)  The marketing cleaning price of pollution permits will not change. 
D)  The marketing clearing price of pollution permits will cease to exist. 
A)  The market clearing price of pollution permits will increase. 
B)  The market cleaning price of pollution permits will decrease. 
C)  The marketing cleaning price of pollution permits will not change. 
D)  The marketing clearing price of pollution permits will cease to exist.

Question 8

Common property ownership most likely leads to

Accepted Answer

A)  an efficient allocation of resources. 
B)  production at a rate at which price is less than social cost. 
C)  a decrease of externalities. 
D)  an increase in pollution. 
A)  an efficient allocation of resources. 
B)  production at a rate at which price is less than social cost. 
C)  a decrease of externalities. 
D)  an increase in pollution.

Question 9

When a person does not have to pay the full costs for using a scarce resource, then

Accepted Answer

A)  the use of the resource is not affected since society pays for the resource. 
B)  more of the resource will be used. 
C)  the internal costs of using the resource are too high. 
D)  the social costs of the resource are less than they would be if the "correct" amount of the resource were being used. 
A)  the use of the resource is not affected since society pays for the resource. 
B)  more of the resource will be used. 
C)  the internal costs of using the resource are too high. 
D)  the social costs of the resource are less than they would be if the "correct" amount of the resource were being used.

Question 10

Which of the following is an example of an external cost?

Accepted Answer

A)  The cost of labor to a firm 
B)  The pollution caused by automobile exhaust 
C)  The cost of tires for your car 
D)  The opportunity cost of getting a college education 
A)  The cost of labor to a firm 
B)  The pollution caused by automobile exhaust 
C)  The cost of tires for your car 
D)  The opportunity cost of getting a college education

Question 11

If external costs are included and added to a firm's private costs, then

Accepted Answer

A)  the demand curve will shift to the right. 
B)  the demand curve will shift to the left. 
C)  the supply curve will shift to the right. 
D)  the supply curve will shift to the left. 
A)  the demand curve will shift to the right. 
B)  the demand curve will shift to the left. 
C)  the supply curve will shift to the right. 
D)  the supply curve will shift to the left.

Question 12

Private property rights are

Accepted Answer

A)  an externality. 
B)  a social cost. 
C)  property that is owned by everyone and therefore by no one. 
D)  exclusive rights of ownership. 
A)  an externality. 
B)  a social cost. 
C)  property that is owned by everyone and therefore by no one. 
D)  exclusive rights of ownership.

Question 13

If a good is produced by firms that generate external costs, the price consumers pay

Accepted Answer

A)  will be efficient as long as it equals the marginal costs of the firms. 
B)  will be too low. 
C)  will be too high because the consumers end up paying the costs instead of the firm. 
D)  will be the correct price, but the quantity sold of the good will be too large. 
A)  will be efficient as long as it equals the marginal costs of the firms. 
B)  will be too low. 
C)  will be too high because the consumers end up paying the costs instead of the firm. 
D)  will be the correct price, but the quantity sold of the good will be too large.

Question 14

Many ecologists argue that several species of whales are close to extinction. If this is true, the reason is

Accepted Answer

A)  inadequate enforcement of international laws. 
B)  whales are a type of common property. 
C)  the marginal benefit of hunting and killing a whale is greater than zero. 
D)  whale-killing technology is too productive. 
A)  inadequate enforcement of international laws. 
B)  whales are a type of common property. 
C)  the marginal benefit of hunting and killing a whale is greater than zero. 
D)  whale-killing technology is too productive.

Question 15

If the social costs of driving an automobile are greater than the private costs of driving an automobile, then

Accepted Answer

A)  the external costs of auto driving exceed the social costs of auto driving. 
B)  the external costs of auto driving exceed the internal costs. 
C)  the price of automobile driving is too high. 
D)  either people drive their autos too much or more funds should be spent on reducing air pollution. 
A)  the external costs of auto driving exceed the social costs of auto driving. 
B)  the external costs of auto driving exceed the internal costs. 
C)  the price of automobile driving is too high. 
D)  either people drive their autos too much or more funds should be spent on reducing air pollution.

Question 16

Government intervention will not be necessary when voluntary contracting internalizes an externality. Which of the following is NOT a necessary condition for this to occur?

Accepted Answer

A)  Well-defined private property rights 
B)  Low transaction costs 
C)  Large numbers of individuals involved in the transactions 
D)  Low contract enforcement costs 
A)  Well-defined private property rights 
B)  Low transaction costs 
C)  Large numbers of individuals involved in the transactions 
D)  Low contract enforcement costs

Question 17

Which of the following might be a way that an automobile driver's pollution costs could be internalized?

Accepted Answer

A)  The driver could purchase abatement equipment for her car. 
B)  The state could eliminate the gas tax. 
C)  The state could pay a gas subsidy for everyone who drives. 
D)  The state could allow her to drive in the HOV lane. 
A)  The driver could purchase abatement equipment for her car. 
B)  The state could eliminate the gas tax. 
C)  The state could pay a gas subsidy for everyone who drives. 
D)  The state could allow her to drive in the HOV lane.

Question 18

The Framework Convention on Climate Change took place in

Accepted Answer

A)  the 1973-1979 Tokyo Round 
B)  the 1987-1993 Uruguay Round 
C)  the 1997 Kyoto Protocol 
D)  the 2001 Doha Round 
A)  the 1973-1979 Tokyo Round 
B)  the 1987-1993 Uruguay Round 
C)  the 1997 Kyoto Protocol 
D)  the 2001 Doha Round

Question 19

Costs borne solely by the individuals who incur them are

Accepted Answer

A)  private costs. 
B)  social costs. 
C)  internality. 
D)  common property. 
A)  private costs. 
B)  social costs. 
C)  internality. 
D)  common property.

Question 20

When the total external and internal costs of a transaction are taken into consideration, this is known as

Accepted Answer

A)  public costs. 
B)  average total costs. 
C)  social costs. 
D)  marginal costs. 
A)  public costs. 
B)  average total costs. 
C)  social costs. 
D)  marginal costs.

Exam 31: Environmental Economics

With defined property rights, an externality

"The number of species on earth is decreasing drastically and economic development is the main factor for the problem." Do you agree or disagree? Why?

When there are no externalities,

Social costs are

In order to correct the problems associated with external costs,

Suppose there are two firms on a river and the production processes of both require clean water. The upstream firm's process dirties the water, which it dumps back into the river. The downstream firm must clean the water before using it in its production process. If the two firms would merge,

Under a cap-and-trade program, what would happen if governments reduce firms' pollution caps?

Common property ownership most likely leads to

When a person does not have to pay the full costs for using a scarce resource, then

Which of the following is an example of an external cost?

If external costs are included and added to a firm's private costs, then

Private property rights are

If a good is produced by firms that generate external costs, the price consumers pay

Many ecologists argue that several species of whales are close to extinction. If this is true, the reason is

If the social costs of driving an automobile are greater than the private costs of driving an automobile, then

Government intervention will not be necessary when voluntary contracting internalizes an externality. Which of the following is NOT a necessary condition for this to occur?

Which of the following might be a way that an automobile driver's pollution costs could be internalized?

The Framework Convention on Climate Change took place in

Costs borne solely by the individuals who incur them are

When the total external and internal costs of a transaction are taken into consideration, this is known as

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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