Question 1

When the costs of an action are not fully borne by the two parties engaged in a transaction, this is called a(n)

Accepted Answer

A)  externality. 
B)  equilibrium. 
C)  property right. 
D)  internal cost. 
A)  externality. 
B)  equilibrium. 
C)  property right. 
D)  internal cost.

Question 2

When there is a resource for which property rights are not well defined and there is a difference between private costs and social costs, then all but which of the following is a way to close the difference?

Accepted Answer

A)  The free market system 
B)  Taxation 
C)  Subsidization 
D)  Regulation 
A)  The free market system 
B)  Taxation 
C)  Subsidization 
D)  Regulation

Question 3

Voluntary agreements about cleaning up pollution attempt to

Accepted Answer

A)  internalize externalities. 
B)  internalize private costs. 
C)  externalize social costs. 
D)  externalize private costs. 
A)  internalize externalities. 
B)  internalize private costs. 
C)  externalize social costs. 
D)  externalize private costs.

Question 4

-Use the above table. What will the price be before external costs are internalized with a tax?

Accepted Answer

A)  $14 
B)  $13 
C)  $12.20 
D)  $1.80 
A)  $14 
B)  $13 
C)  $12.20 
D)  $1.80

Question 5

The sum of internal and external costs is

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 6

A good which has social costs that exceed private costs has a price

Accepted Answer

A)  equal to marginal social cost. 
B)  that is too low. 
C)  that is too high. 
D)  that is inefficient because price exceeds marginal social cost. 
A)  equal to marginal social cost. 
B)  that is too low. 
C)  that is too high. 
D)  that is inefficient because price exceeds marginal social cost.

Question 7

The marginal benefit of the pollution abatement curve

Accepted Answer

A)  has a zero slope. 
B)  has a positive slope. 
C)  slopes upward. 
D)  slopes downward. 
A)  has a zero slope. 
B)  has a positive slope. 
C)  slopes upward. 
D)  slopes downward.

Question 8

To totally internalize an externality, a government can levy a tax related only to the physical quantity of pollution if

Accepted Answer

A)  the economic damages associated with the pollution are different across different locations. 
B)  the economic damages are too large to be determined. 
C)  the economic damages associated with the pollution are the same across different locations. 
D)  the economic damages are zero. 
A)  the economic damages associated with the pollution are different across different locations. 
B)  the economic damages are too large to be determined. 
C)  the economic damages associated with the pollution are the same across different locations. 
D)  the economic damages are zero.

Question 9

If pollution is bad, why do we still use pollution-causing resources such as coal and oil to generate electricity?

Accepted Answer

A)  Governments lack the political will to enforce the use of pollution free resources. 
B)  The cost of using pollution free resources to generate power in many circumstances is much higher than generating that same power through conventional pollution-causing means. 
C)  Pollution is only a private cost. 
D)  The transaction costs of pollution is too low. 
A)  Governments lack the political will to enforce the use of pollution free resources. 
B)  The cost of using pollution free resources to generate power in many circumstances is much higher than generating that same power through conventional pollution-causing means. 
C)  Pollution is only a private cost. 
D)  The transaction costs of pollution is too low.

Question 10

When an external cost exists that is NOT taken into account in the production of a product,

Accepted Answer

A)  the level of output is too low, and the supply curve should shift to the right to account for the externality. 
B)  the level of output is optimal, and there should be no change in the supply curve. 
C)  the price of the product is too high, and production should be expanded to lower the price. 
D)  the level of output is too high, and the supply curve should shift to the left to account for the externality. 
A)  the level of output is too low, and the supply curve should shift to the right to account for the externality. 
B)  the level of output is optimal, and there should be no change in the supply curve. 
C)  the price of the product is too high, and production should be expanded to lower the price. 
D)  the level of output is too high, and the supply curve should shift to the left to account for the externality.

Question 11

Assuming that pollution cannot be removed from the environment at zero cost, the optimal level of pollution

Accepted Answer

A)  will be zero. 
B)  will be negative. 
C)  will be positive. 
D)  cannot be determined. 
A)  will be zero. 
B)  will be negative. 
C)  will be positive. 
D)  cannot be determined.

Question 12

Common property is

Accepted Answer

A)  property that has mineral or oil deposits. 
B)  a resource that everyone is free to use as much as they want. 
C)  property owned by a group such as a club. 
D)  property that has little economic value. 
A)  property that has mineral or oil deposits. 
B)  a resource that everyone is free to use as much as they want. 
C)  property owned by a group such as a club. 
D)  property that has little economic value.

Question 13

-Use the information in the above table. The external marginal costs are

Accepted Answer

A)  increasing. 
B)  decreasing. 
C)  constant. 
D)  inverse to quantity produced. 
A)  increasing. 
B)  decreasing. 
C)  constant. 
D)  inverse to quantity produced.

Question 14

A situation in where the costs of an action are not fully borne by the two parties engaged in exchange is

Accepted Answer

A)  an externality. 
B)  an internality. 
C)  internal costs. 
D)  a transactions cost. 
A)  an externality. 
B)  an internality. 
C)  internal costs. 
D)  a transactions cost.

Question 15

An externality is a situation in which

Accepted Answer

A)  private costs diverge from social costs. 
B)  internal costs diverge from private costs. 
C)  there are no social costs. 
D)  the cost borne by the consumer is greater than the monetary price. 
A)  private costs diverge from social costs. 
B)  internal costs diverge from private costs. 
C)  there are no social costs. 
D)  the cost borne by the consumer is greater than the monetary price.

Question 16

The sum of internal and external costs is

Accepted Answer

A)  externalities. 
B)  social costs. 
C)  internalities. 
D)  private costs. 
A)  externalities. 
B)  social costs. 
C)  internalities. 
D)  private costs.

Question 17

If a firm is forced to take external costs into account, it will

Accepted Answer

A)  reduce production and charge a higher market price. 
B)  increase production and charge a lower market price. 
C)  reduce prices and hire more workers. 
D)  reduce prices and hire fewer workers. 
A)  reduce production and charge a higher market price. 
B)  increase production and charge a lower market price. 
C)  reduce prices and hire more workers. 
D)  reduce prices and hire fewer workers.

Question 18

The costs of pollution abatement

Accepted Answer

A)  increase at an increasing rate with the increase in pollution abatement. 
B)  increase at a decreasing rate with the increase in pollution abatement. 
C)  decrease at an increasing rate with the increase in pollution abatement. 
D)  decrease at a decreasing rate with the increase in pollution abatement. 
A)  increase at an increasing rate with the increase in pollution abatement. 
B)  increase at a decreasing rate with the increase in pollution abatement. 
C)  decrease at an increasing rate with the increase in pollution abatement. 
D)  decrease at a decreasing rate with the increase in pollution abatement.

Question 19

There are two coal-burning electrical utilities-one in tiny, rural Wanunu, Montana, and another in metropolitan Detroit, Michigan-and each produces the same amount of pollution per unit of output. If a permit tax is going to be used to force these firms to internalize pollution costs, the tax levied should be

Accepted Answer

A)  the same in each city. 
B)  higher in Wanunu than in Detroit. 
C)  higher in Detroit than in Wanunu. 
D)  less than zero in each city. 
A)  the same in each city. 
B)  higher in Wanunu than in Detroit. 
C)  higher in Detroit than in Wanunu. 
D)  less than zero in each city.

Question 20

If coal-burning electrical utility companies fully internalized pollution costs, then we could expect

Accepted Answer

A)  an increase in electricity prices. 
B)  a decrease in electricity prices. 
C)  no change in electricity prices. 
D)  a greater use of coal to produce electricity. 
A)  an increase in electricity prices. 
B)  a decrease in electricity prices. 
C)  no change in electricity prices. 
D)  a greater use of coal to produce electricity.

Exam 31: Environmental Economics

When the costs of an action are not fully borne by the two parties engaged in a transaction, this is called a(n)

When there is a resource for which property rights are not well defined and there is a difference between private costs and social costs, then all but which of the following is a way to close the difference?

Voluntary agreements about cleaning up pollution attempt to

-Use the above table. What will the price be before external costs are internalized with a tax?

The sum of internal and external costs is

A good which has social costs that exceed private costs has a price

The marginal benefit of the pollution abatement curve

To totally internalize an externality, a government can levy a tax related only to the physical quantity of pollution if

If pollution is bad, why do we still use pollution-causing resources such as coal and oil to generate electricity?

When an external cost exists that is NOT taken into account in the production of a product,

Assuming that pollution cannot be removed from the environment at zero cost, the optimal level of pollution

Common property is

-Use the information in the above table. The external marginal costs are

A situation in where the costs of an action are not fully borne by the two parties engaged in exchange is

An externality is a situation in which

The sum of internal and external costs is

If a firm is forced to take external costs into account, it will

The costs of pollution abatement

If coal-burning electrical utility companies fully internalized pollution costs, then we could expect

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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