Question 1

Figure 5-4  
-Refer to Figure 5-4.Which of the following statements is true?

Accepted Answer

A)  At QE the benefits of reducing pollution outweighs the cost of pollution reduction. 
B)  At QB society is under allocating resources to pollution reduction. 
C)  The optimal quantity of pollution reduction is QB. 
D)  The optimal quantity of pollution reduction is QE. 
A)  At QE the benefits of reducing pollution outweighs the cost of pollution reduction. 
B)  At QB society is under allocating resources to pollution reduction. 
C)  The optimal quantity of pollution reduction is QB. 
D)  The optimal quantity of pollution reduction is QE.

Question 2

The 2005 European Union Emission Trading Scheme is an agreement among 24 European Union nations to

Accepted Answer

A)  eliminate air pollution and greenhouse gases by the year 2020. 
B)  reduce carbon dioxide emissions. 
C)  provide fast growing developing countries such as India and China with the technology to reduce their carbon emissions. 
D)  impose a carbon tax by the year 2020 on all industries that emit carbon dioxide. 
A)  eliminate air pollution and greenhouse gases by the year 2020. 
B)  reduce carbon dioxide emissions. 
C)  provide fast growing developing countries such as India and China with the technology to reduce their carbon emissions. 
D)  impose a carbon tax by the year 2020 on all industries that emit carbon dioxide.

Question 3

Which of the following displays these two characteristics: nonrivalry and excludability?

Accepted Answer

A)  public goods 
B)  private goods 
C)  quasi-public goods 
D)  common resources 
A)  public goods 
B)  private goods 
C)  quasi-public goods 
D)  common resources

Question 4

Consider the following characteristics: 
a.low transaction costs
b.small levels of pollution
c.high levels of pollution
d.clear assignment of property rights.
Which of the above are assumptions behind the Coase Theorem?

Accepted Answer

A)  a, b, and d 
B)  a, c, and d 
C)  a and d 
D)  a only 
A)  a, b, and d 
B)  a, c, and d 
C)  a and d 
D)  a only

Question 5

Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange.Several environmental groups have raised money to buy allowances (which they subsequently destroy).As part of their fund-raising,these groups have urged contributors to buy the allowances as gifts.As one newspaper story put it,"For the environmentalist in your life,here's a gift that is sold by the ton,fits in an envelope and will last forever." Source for quote: Randall Edwards,"Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch,December 19,1999.
What would be the impact on the price of the emission allowances in the market?

Accepted Answer

A)  The price rises. 
B)  The price falls to zero. 
C)  The price falls but not to zero. 
D)  The price remains unchanged because the allowances purchased by the environmental groups are destroyed. 
A)  The price rises. 
B)  The price falls to zero. 
C)  The price falls but not to zero. 
D)  The price remains unchanged because the allowances purchased by the environmental groups are destroyed.

Question 6

In economics,the term "free rider" refers to

Accepted Answer

A)  a person who evades taxes. 
B)  a supervisor who delegates menial time-consuming activities to others. 
C)  one who volunteers her services. 
D)  one who waits for others to produce a good and then enjoys its benefits without paying for it. 
A)  a person who evades taxes. 
B)  a supervisor who delegates menial time-consuming activities to others. 
C)  one who volunteers her services. 
D)  one who waits for others to produce a good and then enjoys its benefits without paying for it.

Question 7

Figure 5-2  
 Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Accepted Answer

A)  Pa. 
B)  Pb. 
C)  Pc. 
D)  Pf. 
A)  Pa. 
B)  Pb. 
C)  Pc. 
D)  Pf.

Question 8

Which of the following displays rivalry and excludability in consumption?

Accepted Answer

A)  public goods 
B)  private goods 
C)  quasi-public goods 
D)  common resources 
A)  public goods 
B)  private goods 
C)  quasi-public goods 
D)  common resources

Question 9

Figure 5-1  
 Figure 5-1 shows a market with an externality. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 5-1.Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality.The economically efficient output is Q2.In that case,the diagram shows

Accepted Answer

A)  the effect of a positive externality in the production of a good. 
B)  the effect of a negative externality in the production of a good. 
C)  the effect of an external cost imposed on a producer. 
D)  the effect of an external benefit such as a subsidy granted to consumers of a good. 
A)  the effect of a positive externality in the production of a good. 
B)  the effect of a negative externality in the production of a good. 
C)  the effect of an external cost imposed on a producer. 
D)  the effect of an external benefit such as a subsidy granted to consumers of a good.

Question 10

Figure 5-7  
 Figure 5-7 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 5-7.The current market equilibrium output is partly the result of overfishing.In that case,what does S1 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 11

Figure 5-4  
-Refer to Figure 5-4.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Accepted Answer

A)  PE 
B)  the value of the area QBBEQE 
C)  PE × QE 
D)  the value of the area BEF 
A)  PE 
B)  the value of the area QBBEQE 
C)  PE × QE 
D)  the value of the area BEF

Question 12

The tragedy of the commons was avoided in the Middle Ages by

Accepted Answer

A)  selling common grounds to individuals. 
B)  the local police who monitored entry into the commons. 
C)  social pressure to uphold traditionally accepted limits on family use of the commons. 
D)  the government which imposed a tax for the use of the commons. 
A)  selling common grounds to individuals. 
B)  the local police who monitored entry into the commons. 
C)  social pressure to uphold traditionally accepted limits on family use of the commons. 
D)  the government which imposed a tax for the use of the commons.

Question 13

Economists argue that the level of pollution should be

Accepted Answer

A)  reduced completely to zero because by definition, it is a negative external effect. 
B)  ignored because it has always been present since the beginning of history. 
C)  reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. 
D)  best determined by elected officials who can speak on behalf of the public. 
A)  reduced completely to zero because by definition, it is a negative external effect. 
B)  ignored because it has always been present since the beginning of history. 
C)  reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. 
D)  best determined by elected officials who can speak on behalf of the public.

Question 14

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 15

When a negative externality exists,the private market produces

Accepted Answer

A)  more than the economically efficient output level. 
B)  less than the economically efficient output level. 
C)  products at a low opportunity cost. 
D)  products at a high opportunity cost. 
A)  more than the economically efficient output level. 
B)  less than the economically efficient output level. 
C)  products at a low opportunity cost. 
D)  products at a high opportunity cost.

Question 16

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms "rivalry" and "excludability" as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.

Accepted Answer

Rivalry occurs when one person's consumi

Question 17

For the Coase theorem to work there must be clear assignment of property rights.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following exemplifies the tragedy of the commons?

Accepted Answer

A)  Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. 
B)  The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. 
C)  Canadian citizens receive free universal health care administered by provincial governments. 
D)  The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide. 
A)  Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. 
B)  The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. 
C)  Canadian citizens receive free universal health care administered by provincial governments. 
D)  The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

Question 19

Figure 5-2  
 Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The size of marginal external costs can be determined by

Accepted Answer

A)  S2 + S1 at each output level. 
B)  S2 - S1 at each output level. 
C)  the supply curve S2. 
D)  the supply curve S1. 
A)  S2 + S1 at each output level. 
B)  S2 - S1 at each output level. 
C)  the supply curve S2. 
D)  the supply curve S1.

Question 20

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Accepted Answer

A) True 
 B)False

Exam 5: Externalities, environmental Policy, and Public Goods

Figure 5-4 -Refer to Figure 5-4.Which of the following statements is true?

The 2005 European Union Emission Trading Scheme is an agreement among 24 European Union nations to

Which of the following displays these two characteristics: nonrivalry and excludability?

Consider the following characteristics: a.low transaction costs b.small levels of pollution c.high levels of pollution d.clear assignment of property rights. Which of the above are assumptions behind the Coase Theorem?

In economics,the term "free rider" refers to

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Which of the following displays rivalry and excludability in consumption?

Figure 5-4 -Refer to Figure 5-4.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

The tragedy of the commons was avoided in the Middle Ages by

Economists argue that the level of pollution should be

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

When a negative externality exists,the private market produces

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms "rivalry" and "excludability" as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.

For the Coase theorem to work there must be clear assignment of property rights.

Which of the following exemplifies the tragedy of the commons?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The size of marginal external costs can be determined by

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

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

Filters

Figure 5-4 -Refer to Figure 5-4.What is the incremental cost of increasing the quantity of pollution reduction from Q_B to Q_E units?