Question 1

When both internal and external costs for using a scarce resource are included, then there is

Accepted Answer

A)  an increase in the production of the good. 
B)  a negative externality. 
C)  an increase in the price of the good. 
D)  a positive externality. 
A)  an increase in the production of the good. 
B)  a negative externality. 
C)  an increase in the price of the good. 
D)  a positive externality.

Question 2

The costs associated with the negotiation and enforcement of an agreement are

Accepted Answer

A)  property costs. 
B)  resource factor costs. 
C)  transaction costs. 
D)  opportunity costs. 
A)  property costs. 
B)  resource factor costs. 
C)  transaction costs. 
D)  opportunity costs.

Question 3

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 4

In a situation in which internal costs differ from social costs, we say that there exists a(n)

Accepted Answer

A)  welfare loss. 
B)  welfare benefit. 
C)  internality. 
D)  externality. 
A)  welfare loss. 
B)  welfare benefit. 
C)  internality. 
D)  externality.

Question 5

There is "too much" steel production if the

Accepted Answer

A)  social costs of steel production are significantly lower than the private costs. 
B)  social benefits of steel production are declining. 
C)  social costs of steel production are significantly higher than the private costs. 
D)  social costs of steel production are declining. 
A)  social costs of steel production are significantly lower than the private costs. 
B)  social benefits of steel production are declining. 
C)  social costs of steel production are significantly higher than the private costs. 
D)  social costs of steel production are declining.

Question 6

Externalities exist because

Accepted Answer

A)  private costs differ from social costs. 
B)  private costs are equal to social costs. 
C)  low productivity of workers in production. 
D)  too much government interference in the market. 
A)  private costs differ from social costs. 
B)  private costs are equal to social costs. 
C)  low productivity of workers in production. 
D)  too much government interference in the market.

Question 7

Explain why the buffalo almost became extinct while cattle did not, even though both provide similar goods for people.

Accepted Answer

Cattle have been privately owned for mos

Question 8

If the external costs of production are NOT taken into account, then production will

Accepted Answer

A)  be less than socially desirable. 
B)  be more than socially desirable. 
C)  be the same since only prices are affected by externalities. 
D)  cease. 
A)  be less than socially desirable. 
B)  be more than socially desirable. 
C)  be the same since only prices are affected by externalities. 
D)  cease.

Question 9

The marginal benefit from pollution abatement

Accepted Answer

A)  increases as pollution abatement increases because people learn to want an even cleaner environment as the environment gets cleaner. 
B)  decreases as pollution abatement increases because of the law of diminishing marginal product. 
C)  is constant as pollution abatement increases because pollution abatement is valued for its own sake and not for the utility it provides. 
D)  decreases as pollution abatement increases because of the law of diminishing marginal utility. 
A)  increases as pollution abatement increases because people learn to want an even cleaner environment as the environment gets cleaner. 
B)  decreases as pollution abatement increases because of the law of diminishing marginal product. 
C)  is constant as pollution abatement increases because pollution abatement is valued for its own sake and not for the utility it provides. 
D)  decreases as pollution abatement increases because of the law of diminishing marginal utility.

Question 10

Government intervention will not be necessary when voluntary contracting internalizes an externality. Which of the following is NOT a necessary condition for this to occur?

Accepted Answer

A)  well-defined private property rights 
B)  low transaction costs 
C)  large numbers of individuals involved in the transactions 
D)  low contract enforcement costs 
A)  well-defined private property rights 
B)  low transaction costs 
C)  large numbers of individuals involved in the transactions 
D)  low contract enforcement costs

Question 11

Where pollution is concerned, if an automobile driver considers only the internal costs of his actions, he is apt to

Accepted Answer

A)  use resources very carefully and in small quantities. 
B)  garage his car and drive very seldom. 
C)  be making a positive contribution to the greater community. 
D)  drive too much and use up more scarce resources than he would if he had to cover all his costs. 
A)  use resources very carefully and in small quantities. 
B)  garage his car and drive very seldom. 
C)  be making a positive contribution to the greater community. 
D)  drive too much and use up more scarce resources than he would if he had to cover all his costs.

Question 12

-In the above figure

Accepted Answer

A)  the optimal degree of air cleanliness is less than 100 percent. 
B)  the marginal cost curve slopes up because of the law of diminishing returns. 
C)  Neither A nor B are correct. 
D)  Both A and B are correct. 
A)  the optimal degree of air cleanliness is less than 100 percent. 
B)  the marginal cost curve slopes up because of the law of diminishing returns. 
C)  Neither A nor B are correct. 
D)  Both A and B are correct.

Question 13

-In the above figure, if a firm is cleaning up Q2 units of pollution, it is an

Accepted Answer

A)  efficient solution, because marginal social benefits are greater than marginal social costs. 
B)  efficient solution, because marginal social benefits are equal to marginal social costs. 
C)  inefficient solution, because marginal social benefits are greater than marginal social costs. 
D)  inefficient solution, because marginal social costs are greater than marginal social benefits. 
A)  efficient solution, because marginal social benefits are greater than marginal social costs. 
B)  efficient solution, because marginal social benefits are equal to marginal social costs. 
C)  inefficient solution, because marginal social benefits are greater than marginal social costs. 
D)  inefficient solution, because marginal social costs are greater than marginal social benefits.

Question 14

From an economic standpoint, the amount of pollution should be

Accepted Answer

A)  zero. 
B)  the amount that allows firms to maximize profits. 
C)  the amount where firms are earning a normal rate of return on investment. 
D)  at the point at which the marginal benefit from further reduction equals the marginal cost of further reduction. 
A)  zero. 
B)  the amount that allows firms to maximize profits. 
C)  the amount where firms are earning a normal rate of return on investment. 
D)  at the point at which the marginal benefit from further reduction equals the marginal cost of further reduction.

Question 15

Many ecologists argue that several species of whales are close to extinction. If this is TRUE, the reason is

Accepted Answer

A)  inadequate enforcement of international laws. 
B)  whales are a type of common property. 
C)  the marginal benefit of hunting and killing a whale is greater than zero. 
D)  whale-killing technology is too productive. 
A)  inadequate enforcement of international laws. 
B)  whales are a type of common property. 
C)  the marginal benefit of hunting and killing a whale is greater than zero. 
D)  whale-killing technology is too productive.

Question 16

The Emission Trading Scheme of the European Union

Accepted Answer

A)  created a market for pollutants. 
B)  sets a cap on the amount of pollutants in each country. 
C)  allowed firms to benefit from emitting pollutants. 
D)  sets the amount of per-unit tax on each pollutant. 
A)  created a market for pollutants. 
B)  sets a cap on the amount of pollutants in each country. 
C)  allowed firms to benefit from emitting pollutants. 
D)  sets the amount of per-unit tax on each pollutant.

Question 17

If all firms had to bear all the social costs of their actions, we should observe marginal cost curves

Accepted Answer

A)  of all firms shifting up. 
B)  of some firms shifting up, of some others shifting down, and of the rest not shifting at all. 
C)  of all firms that had generated externalities shifting up while there would be no change for the rest of the firms. 
D)  of some firms shifting up and of the rest shifting down. 
A)  of all firms shifting up. 
B)  of some firms shifting up, of some others shifting down, and of the rest not shifting at all. 
C)  of all firms that had generated externalities shifting up while there would be no change for the rest of the firms. 
D)  of some firms shifting up and of the rest shifting down.

Question 18

If the market price of a good does NOT include all of the costs and benefits that arise from the production or consumption of the good, then

Accepted Answer

A)  the market is perfectly competitive. 
B)  an externality is present. 
C)  society is consuming and producing the optimal amount of the good. 
D)  resources are properly allocated. 
A)  the market is perfectly competitive. 
B)  an externality is present. 
C)  society is consuming and producing the optimal amount of the good. 
D)  resources are properly allocated.

Question 19

An example of a situation in which the social costs are greater than the private costs would be

Accepted Answer

A)  a new restaurant takes business away from an established restaurant. 
B)  hand-held calculators putting slide rule manufacturers out of business. 
C)  when a member of a rock band's ability to hear deteriorates from performing in so many loud concerts. 
D)  a physician who cannot examine patients with a stethoscope in an examination room adjacent to an airport. 
A)  a new restaurant takes business away from an established restaurant. 
B)  hand-held calculators putting slide rule manufacturers out of business. 
C)  when a member of a rock band's ability to hear deteriorates from performing in so many loud concerts. 
D)  a physician who cannot examine patients with a stethoscope in an examination room adjacent to an airport.

Question 20

Internal costs are

Accepted Answer

A)  costs borne solely by the individuals who incur them. 
B)  costs borne by people in the same society as those who incur them. 
C)  costs borne by people working in the firm that incurs them. 
D)  costs that are incurred by the producers but buyers do not pay for them. 
A)  costs borne solely by the individuals who incur them. 
B)  costs borne by people in the same society as those who incur them. 
C)  costs borne by people working in the firm that incurs them. 
D)  costs that are incurred by the producers but buyers do not pay for them.

Exam 31: Environmental Economics

When both internal and external costs for using a scarce resource are included, then there is

The costs associated with the negotiation and enforcement of an agreement are

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

In a situation in which internal costs differ from social costs, we say that there exists a(n)

There is "too much" steel production if the

Externalities exist because

Explain why the buffalo almost became extinct while cattle did not, even though both provide similar goods for people.

If the external costs of production are NOT taken into account, then production will

The marginal benefit from pollution abatement

Government intervention will not be necessary when voluntary contracting internalizes an externality. Which of the following is NOT a necessary condition for this to occur?

Where pollution is concerned, if an automobile driver considers only the internal costs of his actions, he is apt to

-In the above figure

-In the above figure, if a firm is cleaning up Q2 units of pollution, it is an

From an economic standpoint, the amount of pollution should be

Many ecologists argue that several species of whales are close to extinction. If this is TRUE, the reason is

The Emission Trading Scheme of the European Union

If all firms had to bear all the social costs of their actions, we should observe marginal cost curves

If the market price of a good does NOT include all of the costs and benefits that arise from the production or consumption of the good, then

An example of a situation in which the social costs are greater than the private costs would be

Internal costs are

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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