Question 1

The efficient level of paper production will occur where the

Accepted Answer

A)  marginal private benefit from consuming paper is equal to the marginal social cost of production. 
B)  marginal social benefit from consuming paper is equal to the marginal social cost of production. 
C)  economically efficient level of the output of paper is equal to the economically efficient level of inputs. 
D)  production of paper no longer produces negative externalities. 
A)  marginal private benefit from consuming paper is equal to the marginal social cost of production. 
B)  marginal social benefit from consuming paper is equal to the marginal social cost of production. 
C)  economically efficient level of the output of paper is equal to the economically efficient level of inputs. 
D)  production of paper no longer produces negative externalities.

Question 2

Which of the following describes a positive externality?

Accepted Answer

A)  John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale. 
B)  People who do not attend college still benefit from others who receive a college education. 
C)  The government imposes a tax on cigarettes in order to discourage smoking among teenagers. 
D)  Mary volunteers to drive her neighbor's children to soccer practice. 
A)  John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale. 
B)  People who do not attend college still benefit from others who receive a college education. 
C)  The government imposes a tax on cigarettes in order to discourage smoking among teenagers. 
D)  Mary volunteers to drive her neighbor's children to soccer practice.

Question 3

When there is a positive externality,

Accepted Answer

A)  the private benefit received by consumers is greater than the external benefit. 
B)  the social benefit received by consumers is greater than the private benefit. 
C)  the private benefit received by consumers is greater than the private cost. 
D)  the private benefit received by consumers is greater than the social benefit. 
A)  the private benefit received by consumers is greater than the external benefit. 
B)  the social benefit received by consumers is greater than the private benefit. 
C)  the private benefit received by consumers is greater than the private cost. 
D)  the private benefit received by consumers is greater than the social benefit.

Question 4

Overuse of a common resource may be avoided by all of the following methods except

Accepted Answer

A)  charging for the use of a common resource. 
B)  issuing tradable permits for the use of a common resource. 
C)  government taking over ownership of all private common resources. 
D)  setting quotas or legal limits on the quantity consumed of the common resource. 
A)  charging for the use of a common resource. 
B)  issuing tradable permits for the use of a common resource. 
C)  government taking over ownership of all private common resources. 
D)  setting quotas or legal limits on the quantity consumed of the common resource.

Question 5

Congressman Murphy made the following proposal: "We should establish policies that completely eliminate air pollution. This is the only way to ensure that none of our citizens suffers the negative effects of air pollution." If Congressman Murphy's proposal was adopted and all forms of air pollution were eliminated, which of the following would be true?

Accepted Answer

A)  The total cost of pollution reductions would equal the total benefit to society. 
B)  Economic efficiency would be maximized. 
C)  The total benefit to society from reductions in air pollution would be maximized. 
D)  The marginal cost from pollution reductions would exceed the marginal benefit. 
A)  The total cost of pollution reductions would equal the total benefit to society. 
B)  Economic efficiency would be maximized. 
C)  The total benefit to society from reductions in air pollution would be maximized. 
D)  The marginal cost from pollution reductions would exceed the marginal benefit.

Question 6

Alternative approaches for reducing carbon dioxide emissions are

Accepted Answer

A)  carbon taxes and carbon scrubbing. 
B)  carbon trading and carbon subsidies. 
C)  carbon taxes and carbon trading. 
D)  burning low carbon coal and deforestation. 
A)  carbon taxes and carbon scrubbing. 
B)  carbon trading and carbon subsidies. 
C)  carbon taxes and carbon trading. 
D)  burning low carbon coal and deforestation.

Question 7

Figure 5-2   Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2. The private profit maximizing quantity for the firm is

Accepted Answer

A)  Qa. 
B)  Qb. 
C)  Qb - Qd. 
D)  Qd. 
A)  Qa. 
B)  Qb. 
C)  Qb - Qd. 
D)  Qd.

Question 8

Which of the following is an example of a Pigovian tax?

Accepted Answer

A)  payments by utilities to obtain tradable emissions allowances 
B)  a payroll tax 
C)  payments for licenses to pollute 
D)  a tax imposed on a utility that internalizes the cost of externalities caused by the utility 
A)  payments by utilities to obtain tradable emissions allowances 
B)  a payroll tax 
C)  payments for licenses to pollute 
D)  a tax imposed on a utility that internalizes the cost of externalities caused by the utility

Question 9

Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 10

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

Accepted Answer

A)  would be significantly less than if the owners of the smelter were legally liable for damages. 
B)  would be less than the amount at which the marginal benefit of pollution reduction equaled the marginal cost. 
C)  would be the same as if it would be if the owners of the smelter were legally liable. 
D)  would be too small; the government would have to intervene to bring about an efficient outcome. 
A)  would be significantly less than if the owners of the smelter were legally liable for damages. 
B)  would be less than the amount at which the marginal benefit of pollution reduction equaled the marginal cost. 
C)  would be the same as if it would be if the owners of the smelter were legally liable. 
D)  would be too small; the government would have to intervene to bring about an efficient outcome.

Question 11

Which of the following displays these two characteristics: rivalry and nonexcludability?

Accepted Answer

A)  a public good 
B)  a private good 
C)  a quasi-public good 
D)  a common resource 
A)  a public good 
B)  a private good 
C)  a quasi-public good 
D)  a common resource

Question 12

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Accepted Answer

A)  Does the intervention program reduce pollution to zero using the least costly method? 
B)  Is the intervention program economically efficient? 
C)  Does the intervention program make the amount of economic surplus as large as possible? 
D)  Is the damage to the environment from government intervention as small as possible? 
A)  Does the intervention program reduce pollution to zero using the least costly method? 
B)  Is the intervention program economically efficient? 
C)  Does the intervention program make the amount of economic surplus as large as possible? 
D)  Is the damage to the environment from government intervention as small as possible?

Question 13

Which of the following is an example of the U.S. government's use of a "command and control" approach to reducing pollution?

Accepted Answer

A)  In 1990, Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010. 
B)  The U.S. government imposed a tax on electric utilities to reduce damages from acid rain. 
C)  The government issued electric utilities tradable emissions allowances in order to reduce emissions of nitrogen oxide. 
D)  In the 1980s, the U.S. government required the installation of catalytic converters to reduce emissions from all new automobiles. 
A)  In 1990, Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010. 
B)  The U.S. government imposed a tax on electric utilities to reduce damages from acid rain. 
C)  The government issued electric utilities tradable emissions allowances in order to reduce emissions of nitrogen oxide. 
D)  In the 1980s, the U.S. government required the installation of catalytic converters to reduce emissions from all new automobiles.

Question 14

Figure 5-1   Figure 5-1 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2.
-Refer to Figure 5-1. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S2 represent?

Accepted Answer

A)  the market supply curve reflecting private cost 
B)  the market supply curve reflecting social cost 
C)  the market supply curve reflecting external cost 
D)  the market supply curve reflecting implicit cost 
A)  the market supply curve reflecting private cost 
B)  the market supply curve reflecting social cost 
C)  the market supply curve reflecting external cost 
D)  the market supply curve reflecting implicit cost

Question 15

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

Accepted Answer

A)  equal to the marginal external cost at the economically efficient level of pollution. 
B)  equal to the marginal private cost of production at the economically efficient level of pollution. 
C)  equal to the amount of the deadweight loss created in the absence of a pollution tax. 
D)  at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product. 
A)  equal to the marginal external cost at the economically efficient level of pollution. 
B)  equal to the marginal private cost of production at the economically efficient level of pollution. 
C)  equal to the amount of the deadweight loss created in the absence of a pollution tax. 
D)  at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

Question 16

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 17

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Accepted Answer

A)  enforcement costs. 
B)  implicit costs. 
C)  explicit costs. 
D)  transaction costs. 
A)  enforcement costs. 
B)  implicit costs. 
C)  explicit costs. 
D)  transaction costs.

Question 18

What is a market failure?

Accepted Answer

A)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
B)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
D)  It refers to a breakdown in a market economy because of widespread corruption in government. 
A)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
B)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
D)  It refers to a breakdown in a market economy because of widespread corruption in government.

Question 19

A product is considered to be rival if

Accepted Answer

A)  you can keep those who did not pay for the item from enjoying its benefits. 
B)  you cannot keep those who did not pay for the item from enjoying its benefits. 
C)  your consumption of the product reduces the quantity available for others to consume. 
D)  it is jointly owned by all members of a community. 
A)  you can keep those who did not pay for the item from enjoying its benefits. 
B)  you cannot keep those who did not pay for the item from enjoying its benefits. 
C)  your consumption of the product reduces the quantity available for others to consume. 
D)  it is jointly owned by all members of a community.

Question 20

How does a negative externality in production reduce economic efficiency?

Accepted Answer

If there is a negative externality in pr

Exam 5: Externalities, Environmental Policy, and Public Goods

The efficient level of paper production will occur where the

Which of the following describes a positive externality?

When there is a positive externality,

Overuse of a common resource may be avoided by all of the following methods except

Alternative approaches for reducing carbon dioxide emissions are

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The private profit maximizing quantity for the firm is

Which of the following is an example of a Pigovian tax?

Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

Which of the following displays these two characteristics: rivalry and nonexcludability?

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Which of the following is an example of the U.S. government's use of a "command and control" approach to reducing pollution?

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

What is a market failure?

A product is considered to be rival if

How does a negative externality in production reduce economic efficiency?

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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