Question 1

Voluntary agreements may not be a feasible method to internalize an externality when

Accepted Answer

A)  the dollar value of the externality is large. 
B)  the externality is negative rather than positive. 
C)  there are significant transaction costs. 
D)  there are high taxes on the firms that cause the externalities. 
A)  the dollar value of the externality is large. 
B)  the externality is negative rather than positive. 
C)  there are significant transaction costs. 
D)  there are high taxes on the firms that cause the externalities.

Question 2

Which type of property would be the most likely to experience pollution?

Accepted Answer

A)  common property 
B)  private property 
C)  property held in partnership 
D)  corporate property 
A)  common property 
B)  private property 
C)  property held in partnership 
D)  corporate property

Question 3

In a situation in which property rights are not well-defined and social costs exceed private costs, government can use all of the following to induce producers to bring private costs into alignment with social costs EXCEPT

Accepted Answer

A)  taxing production. 
B)  coercive limits on production. 
C)  subsidization of production. 
D)  regulation of production. 
A)  taxing production. 
B)  coercive limits on production. 
C)  subsidization of production. 
D)  regulation of production.

Question 4

Noise from a hard rock concert is an example of a situation in which

Accepted Answer

A)  social costs are greater than private costs. 
B)  social costs are less than private costs. 
C)  social costs are equal to private costs. 
D)  social costs that are not external costs. 
A)  social costs are greater than private costs. 
B)  social costs are less than private costs. 
C)  social costs are equal to private costs. 
D)  social costs that are not external costs.

Question 5

Suppose there are two identical factories on a river. Both require clean water for their production processes. The upstream firm gets clean water from the river and dumps dirty water into the river. The downstream firm must clean the water it gets from the river before it can use the water and later it dumps dirty water into the river. In this situation

Accepted Answer

A)  the private costs of the two firms are the same since both dump dirty water into the river. 
B)  the upstream factory's private costs are lower than its social costs since it passes the costs of the dirty water on to the downstream firm. For the downstream firms, private costs equal social costs. 
C)  the private costs of the downstream firm are greater than the private costs of the upstream firm and the social costs are less than the private costs for both firms. 
D)  the private costs of the upstream firm are less than its social costs while the social costs of the downstream firm are less than its private costs. 
A)  the private costs of the two firms are the same since both dump dirty water into the river. 
B)  the upstream factory's private costs are lower than its social costs since it passes the costs of the dirty water on to the downstream firm. For the downstream firms, private costs equal social costs. 
C)  the private costs of the downstream firm are greater than the private costs of the upstream firm and the social costs are less than the private costs for both firms. 
D)  the private costs of the upstream firm are less than its social costs while the social costs of the downstream firm are less than its private costs.

Question 6

When social and private costs differ, economists state that

Accepted Answer

A)  there will be economic profit in the society. 
B)  the society will produce inside the production possibilities frontier. 
C)  there is an externality. 
D)  there is not an efficiency problem but an equity problem. 
A)  there will be economic profit in the society. 
B)  the society will produce inside the production possibilities frontier. 
C)  there is an externality. 
D)  there is not an efficiency problem but an equity problem.

Question 7

The marginal cost curve of pollution abatement

Accepted Answer

A)  slopes upward because of the law of diminishing product. 
B)  slopes upward because firms will maximize profits. 
C)  slopes downward because of the law of diminishing marginal utility. 
D)  slopes downward because of the law of diminishing returns. 
A)  slopes upward because of the law of diminishing product. 
B)  slopes upward because firms will maximize profits. 
C)  slopes downward because of the law of diminishing marginal utility. 
D)  slopes downward because of the law of diminishing returns.

Question 8

Which of the following would be viewed as a common property problem?

Accepted Answer

A)  Your property is burglarized. 
B)  Vandals damage your property. 
C)  People pick all of the flowers in a public park. 
D)  To be safe you must lock your door at night. 
A)  Your property is burglarized. 
B)  Vandals damage your property. 
C)  People pick all of the flowers in a public park. 
D)  To be safe you must lock your door at night.

Question 9

Social costs of a good are equal to

Accepted Answer

A)  external costs minus private costs. 
B)  private costs minus external costs. 
C)  private costs plus external costs. 
D)  external costs divided by the private costs. 
A)  external costs minus private costs. 
B)  private costs minus external costs. 
C)  private costs plus external costs. 
D)  external costs divided by the private costs.

Question 10

Costs borne solely by the individuals who incur them are

Accepted Answer

A)  private costs. 
B)  social costs. 
C)  internality. 
D)  common property. 
A)  private costs. 
B)  social costs. 
C)  internality. 
D)  common property.

Question 11

When a person smokes a cigarette in his car and throws the butt out of the window, this is a(n)

Accepted Answer

A)  marginal cost. 
B)  external cost. 
C)  marginal personal benefit. 
D)  internal benefit. 
A)  marginal cost. 
B)  external cost. 
C)  marginal personal benefit. 
D)  internal benefit.

Question 12

-In the above figure, if a firm is cleaning up Q3 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 13

Which of the following is most likely to be private property?

Accepted Answer

A)  bees 
B)  house flies 
C)  farm raised shrimps 
D)  winds 
A)  bees 
B)  house flies 
C)  farm raised shrimps 
D)  winds

Question 14

When a person drives an automobile, that individual is creating

Accepted Answer

A)  internal costs only. 
B)  private costs only because the individual pays for the insurance, gas etc. 
C)  external costs only. 
D)  social costs. 
A)  internal costs only. 
B)  private costs only because the individual pays for the insurance, gas etc. 
C)  external costs only. 
D)  social costs.

Question 15

In the Kyoto Protocol, participating nations agreed to

Accepted Answer

A)  trade carbon-dioxide permits. 
B)  eliminate all emissions of greenhouse gases by 2020. 
C)  reduce their overall emissions of greenhouse gases between 1997 and 2020 to as much as 20 percent below 1990 levels. 
D)  buy greenhouse gas emission permits from developing nations. 
A)  trade carbon-dioxide permits. 
B)  eliminate all emissions of greenhouse gases by 2020. 
C)  reduce their overall emissions of greenhouse gases between 1997 and 2020 to as much as 20 percent below 1990 levels. 
D)  buy greenhouse gas emission permits from developing nations.

Question 16

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. As long as Clear Plastic Company is allowed to emit pollution and ignore any externalities, the firm will

Accepted Answer

A)  overproduce. 
B)  under produce. 
C)  charge too high a price for its output. 
D)  be absorbing the full value of its social costs. 
A)  overproduce. 
B)  under produce. 
C)  charge too high a price for its output. 
D)  be absorbing the full value of its social costs.

Question 17

The optimal amount of air pollution is

Accepted Answer

A)  found by equating the marginal benefits from reducing pollution by one more unit with the marginal costs of reducing pollution by an additional unit. 
B)  found by equating the total benefits from reducing pollution by one more unit with the total costs of reducing pollution by an additional unit. 
C)  found by setting the marginal benefits from reducing pollution by one more unit equal to zero. 
D)  a meaningless concept since we cannot monetize the environment. 
A)  found by equating the marginal benefits from reducing pollution by one more unit with the marginal costs of reducing pollution by an additional unit. 
B)  found by equating the total benefits from reducing pollution by one more unit with the total costs of reducing pollution by an additional unit. 
C)  found by setting the marginal benefits from reducing pollution by one more unit equal to zero. 
D)  a meaningless concept since we cannot monetize the environment.

Question 18

When the costs of an action are NOT fully borne by the two parties engaged in a transaction, this is called a(n)

Accepted Answer

A)  externality. 
B)  opportunity cost. 
C)  property right. 
D)  internal cost. 
A)  externality. 
B)  opportunity cost. 
C)  property right. 
D)  internal cost.

Question 19

The total benefits to society from pollution abatement

Accepted Answer

A)  increase at an increasing rate with the increase of pollution abatement. 
B)  increase at a decreasing rate with the increase of pollution abatement. 
C)  decrease at an increasing rate with the increase of pollution abatement. 
D)  decrease at a decreasing rate with the increase of pollution abatement. 
A)  increase at an increasing rate with the increase of pollution abatement. 
B)  increase at a decreasing rate with the increase of pollution abatement. 
C)  decrease at an increasing rate with the increase of pollution abatement. 
D)  decrease at a decreasing rate with the increase of pollution abatement.

Question 20

Which of the following statements best defines private costs?

Accepted Answer

A)  They are internal in the sense that the buyer or seller must explicitly take them into account. 
B)  They are costs borne by people other than those who commit the action. 
C)  They are synonymous with social costs. 
D)  They represent explicit costs incurred by producers in the private sector. 
A)  They are internal in the sense that the buyer or seller must explicitly take them into account. 
B)  They are costs borne by people other than those who commit the action. 
C)  They are synonymous with social costs. 
D)  They represent explicit costs incurred by producers in the private sector.

Exam 31: Environmental Economics

Voluntary agreements may not be a feasible method to internalize an externality when

Which type of property would be the most likely to experience pollution?

In a situation in which property rights are not well-defined and social costs exceed private costs, government can use all of the following to induce producers to bring private costs into alignment with social costs EXCEPT

Noise from a hard rock concert is an example of a situation in which

When social and private costs differ, economists state that

The marginal cost curve of pollution abatement

Which of the following would be viewed as a common property problem?

Social costs of a good are equal to

Costs borne solely by the individuals who incur them are

When a person smokes a cigarette in his car and throws the butt out of the window, this is a(n)

-In the above figure, if a firm is cleaning up Q3 units of pollution, it is an

Which of the following is most likely to be private property?

When a person drives an automobile, that individual is creating

In the Kyoto Protocol, participating nations agreed to

The optimal amount of air pollution is

When the costs of an action are NOT fully borne by the two parties engaged in a transaction, this is called a(n)

The total benefits to society from pollution abatement

Which of the following statements best defines private costs?

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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