Question 1

Which of the following statements is correct?

Accepted Answer

A)  The ideal solution to a pollution problem is to reduce pollution until it is technologically impossible to reduce it any further. 
B)  The ideal and fair solution to a pollution problem is to impose identical compliance standards on all polluting firms. 
C)  Charging firms for transferable emissions permits is a more efficient way of dealing with pollution than are compliance standards. 
D)  A per-unit pollution tax is a more efficient way of dealing with pollution than is a system of transferable emissions permits. 
A)  The ideal solution to a pollution problem is to reduce pollution until it is technologically impossible to reduce it any further. 
B)  The ideal and fair solution to a pollution problem is to impose identical compliance standards on all polluting firms. 
C)  Charging firms for transferable emissions permits is a more efficient way of dealing with pollution than are compliance standards. 
D)  A per-unit pollution tax is a more efficient way of dealing with pollution than is a system of transferable emissions permits.

Question 2

A public good is:

Accepted Answer

A)  a good or service for which it is relatively easy to exclude nonpaying customers from consumption. 
B)  a good or service that is consumed by both the paying and nonpaying customers. 
C)  any good or service that is produced by the government. 
D)  a good or service that is consumed by private individuals and financed by private contributions. 
A)  a good or service for which it is relatively easy to exclude nonpaying customers from consumption. 
B)  a good or service that is consumed by both the paying and nonpaying customers. 
C)  any good or service that is produced by the government. 
D)  a good or service that is consumed by private individuals and financed by private contributions.

Question 3

What distinguishes public goods from private goods?

Accepted Answer

Public goods are both nonrival in consum

Question 4

If the production of a product creates external costs,there is an ____ to production of that good which the government can correct for by ____.

Accepted Answer

A)  overallocation of resources; granting a subsidy 
B)  overallocation of resources; imposing a per-unit tax 
C)  underallocation of resources; granting a subsidy 
D)  underallocation of resources; imposing a per-unit tax 
A)  overallocation of resources; granting a subsidy 
B)  overallocation of resources; imposing a per-unit tax 
C)  underallocation of resources; granting a subsidy 
D)  underallocation of resources; imposing a per-unit tax

Question 5

Thousands of Japanese fishermen have used gill nets to catch tuna with great efficiency.Many environmentalists have objected to this practice since many other marine animals (such as dolphins and sharks)are killed by the nets and discarded by the fishermen.Which of the following statements is most accurate?

Accepted Answer

A)  A private solution can be reached through negotiation between the fishermen and the environmentalists. 
B)  A private solution is not practical due to the large number of individuals affected. 
C)  The market price of tuna is higher than the socially optimum price of tuna. 
D)  A private solution to this problem would not affect the price of tuna. 
A)  A private solution can be reached through negotiation between the fishermen and the environmentalists. 
B)  A private solution is not practical due to the large number of individuals affected. 
C)  The market price of tuna is higher than the socially optimum price of tuna. 
D)  A private solution to this problem would not affect the price of tuna.

Question 6

Which of the following activities,if any,represents an external cost?

Accepted Answer

A)  The benefits that accrue to society when an individual receives a college education. 
B)  The increase in property values of vacant lots in an area near where a new amusement park is constructed. 
C)  The pollination of apple trees that occurs when a beekeeper locates next door to an apple orchard. 
D)  None of the above 
A)  The benefits that accrue to society when an individual receives a college education. 
B)  The increase in property values of vacant lots in an area near where a new amusement park is constructed. 
C)  The pollination of apple trees that occurs when a beekeeper locates next door to an apple orchard. 
D)  None of the above

Question 7

An individual insured against a particular cost,

Accepted Answer

A)  has reduced incentives to take precautions against those costs. 
B)  may take on additional risk because he/she is insured. 
C)  faces incentives that can result in higher insurance rates. 
D)  All of the above are true. 
A)  has reduced incentives to take precautions against those costs. 
B)  may take on additional risk because he/she is insured. 
C)  faces incentives that can result in higher insurance rates. 
D)  All of the above are true.

Question 8

If the production of a particular good involves significant external costs,to force the externality to be internalized the government might:

Accepted Answer

A)  impose a tax on production of the good in order to increase production. 
B)  impose a tax on production of the good in order to decrease production. 
C)  offer a subsidy for production of the good in order to increase production. 
D)  offer a subsidy for production of the good in order to decrease production. 
A)  impose a tax on production of the good in order to increase production. 
B)  impose a tax on production of the good in order to decrease production. 
C)  offer a subsidy for production of the good in order to increase production. 
D)  offer a subsidy for production of the good in order to decrease production.

Question 9

The Coase theorem implies that an efficient solution is possible only if property rights are well-defined.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 8-2   Refer to Exhibit 8-2.If the suppliers of steel are not aware of or not responsible for the external costs,they will tend to:

Accepted Answer

A)  apply new technology to reduce external costs. 
B)  produce too much. 
C)  produce too little. 
D)  reduce production to Q2. 
A)  apply new technology to reduce external costs. 
B)  produce too much. 
C)  produce too little. 
D)  reduce production to Q2.

Question 11

Which of the following are true?

Accepted Answer

A)  Negative externalities are real costs, but, unlike the other resources a firm uses in production, no one owns the air, so a firm does not have to pay for its use. 
B)  In the case of external costs, firms tend to produce too much from society's standpoint, causing an efficiency loss due to an overallocation of scarce resources to the production of the good. 
C)  If government could impose a pollution tax equal to the exact size of the external costs imposed by a firm, then the firm would produce at the socially desired level of output. 
D)  All of the above are true. 
A)  Negative externalities are real costs, but, unlike the other resources a firm uses in production, no one owns the air, so a firm does not have to pay for its use. 
B)  In the case of external costs, firms tend to produce too much from society's standpoint, causing an efficiency loss due to an overallocation of scarce resources to the production of the good. 
C)  If government could impose a pollution tax equal to the exact size of the external costs imposed by a firm, then the firm would produce at the socially desired level of output. 
D)  All of the above are true.

Question 12

The concept of the "best" level of pollution suggests that:

Accepted Answer

A)  increased concerns about pollution control shifted the marginal social cost curve to the left. 
B)  the opportunity cost of reducing pollution may sometimes exceed the benefit. 
C)  unregulated markets generally reduce pollution to efficient levels with marginal social cost equal to marginal social benefit. 
D)  none of the above 
A)  increased concerns about pollution control shifted the marginal social cost curve to the left. 
B)  the opportunity cost of reducing pollution may sometimes exceed the benefit. 
C)  unregulated markets generally reduce pollution to efficient levels with marginal social cost equal to marginal social benefit. 
D)  none of the above

Question 13

A tax equal to the external cost on firms that emit pollutants would:

Accepted Answer

A)  provide firms with the incentive to increase the level of activity creating the pollution. 
B)  provide firms with the incentive to decrease the level of activity creating the pollution. 
C)  provide firms with little incentive to search for less environmentally damaging production methods. 
D)  not reduce pollution levels at all. 
A)  provide firms with the incentive to increase the level of activity creating the pollution. 
B)  provide firms with the incentive to decrease the level of activity creating the pollution. 
C)  provide firms with little incentive to search for less environmentally damaging production methods. 
D)  not reduce pollution levels at all.

Question 14

The determination of which goods are public goods depends on:

Accepted Answer

A)  public laws. 
B)  normative considerations. 
C)  whether it is produced directly by the government or produced by a private sector firm. 
D)  whether it is possible to exclude additional users from consuming the good if they do not pay for it. 
A)  public laws. 
B)  normative considerations. 
C)  whether it is produced directly by the government or produced by a private sector firm. 
D)  whether it is possible to exclude additional users from consuming the good if they do not pay for it.

Question 15

A positive externality will cause a market to produce:

Accepted Answer

A)  more than the efficient equilibrium output level. 
B)  less than the efficient equilibrium output level. 
C)  the efficient equilibrium output level. 
D)  None of the above. 
A)  more than the efficient equilibrium output level. 
B)  less than the efficient equilibrium output level. 
C)  the efficient equilibrium output level. 
D)  None of the above.

Question 16

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

Accepted Answer

The decision makers ignore it because it

Question 17

Which of the following statements is true?

Accepted Answer

A)  Externalities can never refer to costs borne by the seller. 
B)  Both external costs and external benefits can never exist for the same good. 
C)  Externalities can never lead to under-production of a specific good. 
D)  External benefits can never exceed external costs. 
A)  Externalities can never refer to costs borne by the seller. 
B)  Both external costs and external benefits can never exist for the same good. 
C)  Externalities can never lead to under-production of a specific good. 
D)  External benefits can never exceed external costs.

Question 18

Which of the following may involve external benefits?

Accepted Answer

A)  drunken driving. 
B)  smoking. 
C)  public education. 
D)  highway congestion. 
A)  drunken driving. 
B)  smoking. 
C)  public education. 
D)  highway congestion.

Question 19

An example of a public good is:

Accepted Answer

A)  a pizza. 
B)  milk. 
C)  a delivery truck. 
D)  national defense. 
A)  a pizza. 
B)  milk. 
C)  a delivery truck. 
D)  national defense.

Question 20

The Coase Theorem suggests that the efficient solution to an externality problem:

Accepted Answer

A)  depends on who owns property rights to the resources. 
B)  is enhanced by government involvement in the negotiations. 
C)  can be enhanced through the use of taxes. 
D)  does not depend on the distribution of property rights. 
A)  depends on who owns property rights to the resources. 
B)  is enhanced by government involvement in the negotiations. 
C)  can be enhanced through the use of taxes. 
D)  does not depend on the distribution of property rights.

Exam 8: Market Failure

Which of the following statements is correct?

A public good is:

What distinguishes public goods from private goods?

If the production of a product creates external costs,there is an ____ to production of that good which the government can correct for by ____.

Which of the following activities,if any,represents an external cost?

An individual insured against a particular cost,

If the production of a particular good involves significant external costs,to force the externality to be internalized the government might:

The Coase theorem implies that an efficient solution is possible only if property rights are well-defined.

Exhibit 8-2 Refer to Exhibit 8-2.If the suppliers of steel are not aware of or not responsible for the external costs,they will tend to:

Which of the following are true?

The concept of the "best" level of pollution suggests that:

A tax equal to the external cost on firms that emit pollutants would:

The determination of which goods are public goods depends on:

A positive externality will cause a market to produce:

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

Which of the following statements is true?

Which of the following may involve external benefits?

An example of a public good is:

The Coase Theorem suggests that the efficient solution to an externality problem:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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If the production of a product creates external costs,there is an to production of that good which the government can correct for by .