Question 1

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Accepted Answer

A) True 
 B)False

Question 2

Figure 5-16   Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 5-16. How much is Bree willing to pay to have 4 street lights installed?

Accepted Answer

A)  $1,500 
B)  $1,800 
C)  $2,700 
D)  $7,200 
A)  $1,500 
B)  $1,800 
C)  $2,700 
D)  $7,200

Question 3

Steven Cheung examined the relationship between beekeepers and apple growers. Cheung noted that: "Pollination contracts usually include stipulations regarding the number and strength of ... [bee] colonies, the rental fee per hive, the time of delivery...the protection of bees from pesticides, and the strategic placing of hives." Cheung suggests that the relationship between beekeepers and apple growers is an example of

Accepted Answer

A)  the Coase Theorem. 
B)  how excessive legal costs can prevent economic efficiency from being achieved. 
C)  negative externalities. 
D)  government intervention improving economic efficiency. 
A)  the Coase Theorem. 
B)  how excessive legal costs can prevent economic efficiency from being achieved. 
C)  negative externalities. 
D)  government intervention improving economic efficiency.

Question 4

Policies that mandate the installation of specific pollution control devices are called

Accepted Answer

A)  command-and-control policies. 
B)  benefit policies. 
C)  welfare policies. 
D)  incentive policies. 
A)  command-and-control policies. 
B)  benefit policies. 
C)  welfare policies. 
D)  incentive policies.

Question 5

Figure 5-4   Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 5-4 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 5-4. What does S1 represent?

Accepted Answer

A)  the market supply curve that reflects social cost 
B)  the market supply curve that reflects only external cost 
C)  the market supply curve that reflects only private benefit 
D)  the market supply curve that reflects private cost 
A)  the market supply curve that reflects social cost 
B)  the market supply curve that reflects only external cost 
C)  the market supply curve that reflects only private benefit 
D)  the market supply curve that reflects private cost

Question 6

Which of the following is an example of a product that is nonexcludable and rival?

Accepted Answer

A)  free concert (with limited seating) in a park 
B)  national defense 
C)  automobiles 
D)  flu vaccinations 
A)  free concert (with limited seating) in a park 
B)  national defense 
C)  automobiles 
D)  flu vaccinations

Question 7

It is difficult for a private market to provide the economically efficient quantity of a public good because

Accepted Answer

A)  by law, governments cannot use cost-benefit analysis to determine this quantity. 
B)  public goods produce positive and negative externalities. 
C)  individual preferences are not revealed in the market for the good. 
D)  it is too expensive to produce the necessary amount of the good. 
A)  by law, governments cannot use cost-benefit analysis to determine this quantity. 
B)  public goods produce positive and negative externalities. 
C)  individual preferences are not revealed in the market for the good. 
D)  it is too expensive to produce the necessary amount of the good.

Question 8

Ronald Coase is famous for the Coase Theorem, which is based on the premise that there is an economically efficient level of pollution reduction. Many economists believe that the tradable emissions allowance program that has been used to deal with the problem of acid rain has been successful in reducing emissions of sulfur dioxide in an economically efficient manner. Why isn't this program an example of the Coase Theorem?

Accepted Answer

The Coase Theorem states that if transac

Question 9

Figure 5-15   Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2.
-Refer to Figure 5-15. The current market equilibrium output is partly the result of overfishing. In that case, what does S2 represent?

Accepted Answer

A)  the private marginal benefit of harvesting salmon 
B)  the social marginal benefit of harvesting salmon 
C)  the private marginal cost of harvesting salmon 
D)  the social marginal cost of harvesting salmon 
A)  the private marginal benefit of harvesting salmon 
B)  the social marginal benefit of harvesting salmon 
C)  the private marginal cost of harvesting salmon 
D)  the social marginal cost of harvesting salmon

Question 10

Which of the following statements about the economically efficient level of air pollution is correct?

Accepted Answer

A)  The economically efficient level of pollution is zero. 
B)  The economically efficient level of pollution occurs where all social costs equal all social benefits. 
C)  The economically efficient level of pollution occurs where the marginal cost of pollution reduction equals the marginal social benefit of reduction. 
D)  The economically efficient level of pollution occurs where total benefits of pollution reduction are maximized. 
A)  The economically efficient level of pollution is zero. 
B)  The economically efficient level of pollution occurs where all social costs equal all social benefits. 
C)  The economically efficient level of pollution occurs where the marginal cost of pollution reduction equals the marginal social benefit of reduction. 
D)  The economically efficient level of pollution occurs where total benefits of pollution reduction are maximized.

Question 11

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service. The value of the service to each of them is $50 and it costs $80 to hire a housecleaner. Should they hire a housecleaner?

Accepted Answer

A)  Yes, if each contributes $50, then each stands to gain a consumer surplus. 
B)  No, because each will wait for the other to hire the housecleaner. 
C)  Yes, but only if a housecleaner will accept $50 so that each can take turns to pay the housecleaner. 
D)  No, because it will be difficult for them to agree on which housecleaning service to use. 
A)  Yes, if each contributes $50, then each stands to gain a consumer surplus. 
B)  No, because each will wait for the other to hire the housecleaner. 
C)  Yes, but only if a housecleaner will accept $50 so that each can take turns to pay the housecleaner. 
D)  No, because it will be difficult for them to agree on which housecleaning service to use.

Question 12

Congress passed the Clean Air Act in 1970. Since this act was passed, emissions of the six main air pollutants

Accepted Answer

A)  have fallen by more than one-half. 
B)  have increased significantly due to the growth of the U.S. economy. 
C)  cannot be measured since Congress failed to appropriate money to monitor the level of emissions. 
D)  have remained essentially constant, even though significant economic growth has occurred in the United States since 1970. 
A)  have fallen by more than one-half. 
B)  have increased significantly due to the growth of the U.S. economy. 
C)  cannot be measured since Congress failed to appropriate money to monitor the level of emissions. 
D)  have remained essentially constant, even though significant economic growth has occurred in the United States since 1970.

Question 13

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Accepted Answer

A)  access to the commons can be restricted through community norms and laws 
B)  offer subsidies to consumers 
C)  force people to move away from the commons 
D)  persuade people to use less of the scarce resource through an advertising campaign 
A)  access to the commons can be restricted through community norms and laws 
B)  offer subsidies to consumers 
C)  force people to move away from the commons 
D)  persuade people to use less of the scarce resource through an advertising campaign

Question 14

Figure 5-10   Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-10.
-Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Accepted Answer

A)  the Pigovian method of pollution control. 
B)  command and control approach to pollution reduction. 
C)  Coasian solution to pollution reduction. 
D)  a tradable emission allowance system of pollution control. 
A)  the Pigovian method of pollution control. 
B)  command and control approach to pollution reduction. 
C)  Coasian solution to pollution reduction. 
D)  a tradable emission allowance system of pollution control.

Question 15

How does a positive externality in consumption reduce economic efficiency?

Accepted Answer

If there is a positive externality in co

Question 16

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

Accepted Answer

A) True 
 B)False

Question 17

Article Summary
According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities.
Source: Meg Handley, "Study: Proximity to Public Transit Boosts Home Values," U.S. News & World Report, March 22, 2013.
-Refer to the Article Summary. Higher home values which result from close proximity to public transportation are an example of a ________ due to the public transportation.

Accepted Answer

A)  positive externality. 
B)  negative externality. 
C)  private cost. 
D)  social cost. 
A)  positive externality. 
B)  negative externality. 
C)  private cost. 
D)  social cost.

Question 18

Article Summary
According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities.
Source: Meg Handley, "Study: Proximity to Public Transit Boosts Home Values," U.S. News & World Report, March 22, 2013.
-An externality is an example of a market failure.

Accepted Answer

A) True 
 B)False

Question 19

Private costs

Accepted Answer

A)  are borne by producers of a good, while social costs are borne by government. 
B)  are borne by consumers of a good, while social costs are borne by government. 
C)  are borne by producers of a good, while social costs are borne by society at large. 
D)  are borne by producers of a good, while social costs are borne by those who cannot afford to purchase the good. 
A)  are borne by producers of a good, while social costs are borne by government. 
B)  are borne by consumers of a good, while social costs are borne by government. 
C)  are borne by producers of a good, while social costs are borne by society at large. 
D)  are borne by producers of a good, while social costs are borne by those who cannot afford to purchase the good.

Question 20

Which of the following must be present to reach a private solution to an externality problem?

Accepted Answer

A)  A majority of the parties affected by the externality must agree to a solution. 
B)  The transaction costs to negotiate a solution must be relatively low. 
C)  The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution. 
D)  The government must approve the solution for it to be a legal solution. 
A)  A majority of the parties affected by the externality must agree to a solution. 
B)  The transaction costs to negotiate a solution must be relatively low. 
C)  The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution. 
D)  The government must approve the solution for it to be a legal solution.

Exam 5: Externalities, Environmental Policy, and Public Goods

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Policies that mandate the installation of specific pollution control devices are called

Which of the following is an example of a product that is nonexcludable and rival?

It is difficult for a private market to provide the economically efficient quantity of a public good because

Which of the following statements about the economically efficient level of air pollution is correct?

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service. The value of the service to each of them is $50 and it costs $80 to hire a housecleaner. Should they hire a housecleaner?

Congress passed the Clean Air Act in 1970. Since this act was passed, emissions of the six main air pollutants

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

How does a positive externality in consumption reduce economic efficiency?

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

Private costs

Which of the following must be present to reach a private solution to an externality problem?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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