Question 1

What is common property? What does common property have to do with externalities?

Accepted Answer

Common property is property that is owne

Question 2

One difficulty in using voluntary transactions to internalize externalities is that

Accepted Answer

A)  people are motivated by self-interest and are often unwilling to engage in a transaction that might make another person better off. 
B)  the government usually will not enforce contracts of this type. 
C)  transaction costs of coming to an agreement can be very large when numerous people are involved. 
D)  people usually don't understand what the real opportunity costs are that they face. 
A)  people are motivated by self-interest and are often unwilling to engage in a transaction that might make another person better off. 
B)  the government usually will not enforce contracts of this type. 
C)  transaction costs of coming to an agreement can be very large when numerous people are involved. 
D)  people usually don't understand what the real opportunity costs are that they face.

Question 3

The exclusive rights of ownership that allow the use, transfer, and exchange of property are called

Accepted Answer

A)  common property rights. 
B)  private property rights. 
C)  transaction costs. 
D)  social benefits. 
A)  common property rights. 
B)  private property rights. 
C)  transaction costs. 
D)  social benefits.

Question 4

In 2005, the European Union began a program to

Accepted Answer

A)  reduce greenhouse gas emissions by 10 percent within 5 years. 
B)  eliminate greenhouse gas emissions by 50 percent within 15 years. 
C)  subsidize firms that pollute more than a given limit. 
D)  allow the trading of carbon-dioxide permits among firms. 
A)  reduce greenhouse gas emissions by 10 percent within 5 years. 
B)  eliminate greenhouse gas emissions by 50 percent within 15 years. 
C)  subsidize firms that pollute more than a given limit. 
D)  allow the trading of carbon-dioxide permits among firms.

Question 5

-Use the information in the above table. The external marginal costs are

Accepted Answer

A)  increasing. 
B)  decreasing. 
C)  constant. 
D)  inverse to quantity produced. 
A)  increasing. 
B)  decreasing. 
C)  constant. 
D)  inverse to quantity produced.

Question 6

All of the following are choices for the polluter when faced with additional costs to abate the externality EXCEPT

Accepted Answer

A)  ignore the government regulations. 
B)  install pollution abatement equipment. 
C)  reduce the pollution-causing activity. 
D)  pay the price to pollute. 
A)  ignore the government regulations. 
B)  install pollution abatement equipment. 
C)  reduce the pollution-causing activity. 
D)  pay the price to pollute.

Question 7

-Use the above table. What will the output level be when external costs are internalized with a tax?

Accepted Answer

A)  4 
B)  5 
C)  6 
D)  7 
A)  4 
B)  5 
C)  6 
D)  7

Question 8

The problem of overfishing in waters that are commonly owned can be solved by

Accepted Answer

A)  the use of the Coase Theorem. 
B)  establishing property rights for fishing in the waters. 
C)  subsidizing fishing. 
D)  allowing the market to ration fish. 
A)  the use of the Coase Theorem. 
B)  establishing property rights for fishing in the waters. 
C)  subsidizing fishing. 
D)  allowing the market to ration fish.

Question 9

An externality occurs whenever

Accepted Answer

A)  private costs are the same as social costs. 
B)  private costs are the same as internal costs. 
C)  private costs diverge from social costs. 
D)  private costs plus internal costs equal social costs. 
A)  private costs are the same as social costs. 
B)  private costs are the same as internal costs. 
C)  private costs diverge from social costs. 
D)  private costs plus internal costs equal social costs.

Question 10

Why is the optimal quantity of pollution not less than the point at which the marginal benefit equals the marginal cost?

Accepted Answer

A)  The point of intersection occurs at a low level of pollution. 
B)  There are no external costs below that level. 
C)  Below that point firms will have to reduce the quantity that they are currently producing and lower the price. 
D)  Below that point the value that people place on less pollution is less than the cost of reducing the pollution. 
A)  The point of intersection occurs at a low level of pollution. 
B)  There are no external costs below that level. 
C)  Below that point firms will have to reduce the quantity that they are currently producing and lower the price. 
D)  Below that point the value that people place on less pollution is less than the cost of reducing the pollution.

Question 11

If crop dusting on your farm causes your neighbors to have sore throats, then crop dusting is creating

Accepted Answer

A)  only explicit costs. 
B)  opportunity costs. 
C)  external costs. 
D)  internal costs. 
A)  only explicit costs. 
B)  opportunity costs. 
C)  external costs. 
D)  internal costs.

Question 12

A uniform tax according to the physical quantities of pollution may not be the appropriate way to correct for an externality because

Accepted Answer

A)  it places a unfair burden on small producers. 
B)  a uniform tax can only account for social costs and not external costs. 
C)  a firm will reduce production. 
D)  it may not adequately account for economic damages. 
A)  it places a unfair burden on small producers. 
B)  a uniform tax can only account for social costs and not external costs. 
C)  a firm will reduce production. 
D)  it may not adequately account for economic damages.

Question 13

Common property is

Accepted Answer

A)  a resource that everyone is free to use as much as they want. 
B)  property that belongs to both spouses in a marriage. 
C)  property owned by a group such as a club or a church. 
D)  generic property as opposed to specific property. 
A)  a resource that everyone is free to use as much as they want. 
B)  property that belongs to both spouses in a marriage. 
C)  property owned by a group such as a club or a church. 
D)  generic property as opposed to specific property.

Question 14

The marginal benefit of the pollution abatement curve

Accepted Answer

A)  has a zero slope. 
B)  has a positive slope up to a certain point and then a negative slope. 
C)  slopes upward. 
D)  slopes downward. 
A)  has a zero slope. 
B)  has a positive slope up to a certain point and then a negative slope. 
C)  slopes upward. 
D)  slopes downward.

Question 15

Which of the following statements is TRUE about the optimal quantity of pollution?

Accepted Answer

A)  It equals zero. 
B)  Pollution abatement should continue up to the point where marginal cost equals the average total cost. 
C)  Trade-offs exist between producing a cleaner environment and producing other goods and services. 
D)  Firms should be allowed to determine the profit-maximizing amount of pollution abatement. 
A)  It equals zero. 
B)  Pollution abatement should continue up to the point where marginal cost equals the average total cost. 
C)  Trade-offs exist between producing a cleaner environment and producing other goods and services. 
D)  Firms should be allowed to determine the profit-maximizing amount of pollution abatement.

Question 16

If firms were forced to take into account the full social costs of production, then

Accepted Answer

A)  output would decrease but pollution levels would probably remain at the same levels. 
B)  output would be unaffected but pollution levels would come down. 
C)  output and pollution levels would decrease. 
D)  output could be increased and pollution levels would decrease. 
A)  output would decrease but pollution levels would probably remain at the same levels. 
B)  output would be unaffected but pollution levels would come down. 
C)  output and pollution levels would decrease. 
D)  output could be increased and pollution levels would decrease.

Question 17

If coal-burning electrical utility companies fully internalized pollution costs, then we could expect

Accepted Answer

A)  an increase in electricity prices. 
B)  a decrease in electricity prices. 
C)  no change in electricity prices. 
D)  a greater use of coal to produce electricity. 
A)  an increase in electricity prices. 
B)  a decrease in electricity prices. 
C)  no change in electricity prices. 
D)  a greater use of coal to produce electricity.

Question 18

There are two coal-burning electrical utilities-one in tiny, rural Wanunu, Montana, and another in metropolitan Detroit, Michigan-and each produces the same amount of pollution per unit of output. If a permit tax is going to be used to force these firms to internalize pollution costs, the tax levied should be

Accepted Answer

A)  the same in each city. 
B)  higher in Wanunu than in Detroit. 
C)  higher in Detroit than in Wanunu. 
D)  less than zero in each city. 
A)  the same in each city. 
B)  higher in Wanunu than in Detroit. 
C)  higher in Detroit than in Wanunu. 
D)  less than zero in each city.

Question 19

The Clear Plastic Company's plant discharges large quantities of toxic chemicals into some groundwater sources. Residents in the surrounding area have higher medical bills because of Clear Plastic's pollution. If the firm is forced to pay the social costs of its production

Accepted Answer

A)  the amount of steel it produces will increase in order to pay the additional costs. 
B)  the price it charges for its steel will decrease. 
C)  its supply curve will shift to the right. 
D)  it will produce less and charge more for its steel. 
A)  the amount of steel it produces will increase in order to pay the additional costs. 
B)  the price it charges for its steel will decrease. 
C)  its supply curve will shift to the right. 
D)  it will produce less and charge more for its steel.

Question 20

Which of the following constitutes an external cost of driving an automobile?

Accepted Answer

A)  insurance 
B)  fuel 
C)  pollution 
D)  license 
A)  insurance 
B)  fuel 
C)  pollution 
D)  license

Exam 31: Environmental Economics

What is common property? What does common property have to do with externalities?

One difficulty in using voluntary transactions to internalize externalities is that

The exclusive rights of ownership that allow the use, transfer, and exchange of property are called

In 2005, the European Union began a program to

-Use the information in the above table. The external marginal costs are

All of the following are choices for the polluter when faced with additional costs to abate the externality EXCEPT

-Use the above table. What will the output level be when external costs are internalized with a tax?

The problem of overfishing in waters that are commonly owned can be solved by

An externality occurs whenever

Why is the optimal quantity of pollution not less than the point at which the marginal benefit equals the marginal cost?

If crop dusting on your farm causes your neighbors to have sore throats, then crop dusting is creating

A uniform tax according to the physical quantities of pollution may not be the appropriate way to correct for an externality because

Common property is

The marginal benefit of the pollution abatement curve

Which of the following statements is TRUE about the optimal quantity of pollution?

If firms were forced to take into account the full social costs of production, then

If coal-burning electrical utility companies fully internalized pollution costs, then we could expect

The Clear Plastic Company's plant discharges large quantities of toxic chemicals into some groundwater sources. Residents in the surrounding area have higher medical bills because of Clear Plastic's pollution. If the firm is forced to pay the social costs of its production

Which of the following constitutes an external cost of driving an automobile?

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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