Question 1

If mining companies are able to shift some of their production costs onto outside parties, the actual output of mines is likely to fall short of society's ideal.

Accepted Answer

A) True 
 B)False

Question 2

In a competitive economy with no government sector:

Accepted Answer

A) ​goods with spillover benefits will not be produced at all. 
B) ​there will be too few public goods produced. 
C) ​goods with spillover costs will be underproduced. 
D) ​too few resources be allocated to each industry. 
A) ​goods with spillover benefits will not be produced at all. 
B) ​there will be too few public goods produced. 
C) ​goods with spillover costs will be underproduced. 
D) ​too few resources be allocated to each industry.

Question 3

A corrective tax equal to the external cost imposed on third parties levied on polluters will:

Accepted Answer

A) ​eliminate all pollution. 
B) ​increase the level of pollution. 
C) ​force polluters to internalize the external cost resulting from their actions. 
D) ​usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government. 
A) ​eliminate all pollution. 
B) ​increase the level of pollution. 
C) ​force polluters to internalize the external cost resulting from their actions. 
D) ​usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government.

Question 4

If the government imposes a pollution tax on gasoline refineries:

Accepted Answer

A) ​the supply of gasoline will shift to the right. 
B) ​the demand for gasoline will shift to the right. 
C) ​the supply of gasoline will shift to the left. 
D) ​the demand for gasoline will shift to the left. 
A) ​the supply of gasoline will shift to the right. 
B) ​the demand for gasoline will shift to the right. 
C) ​the supply of gasoline will shift to the left. 
D) ​the demand for gasoline will shift to the left.

Question 5

Exhibit 8-2 ​  
-Refer to Exhibit 8-2. If the suppliers of steel are not aware of or not responsible for the external costs, they will tend to:

Accepted Answer

A) ​apply new technology to reduce external costs. 
B) produce too much. 
C) ​produce too little. 
D) ​reduce production to Q2. 
A) ​apply new technology to reduce external costs. 
B) produce too much. 
C) ​produce too little. 
D) ​reduce production to Q2.

Question 6

Which of the following is true?

Accepted Answer

A) ​The nature of public goods is such that the government cannot accurately assess the benefits of those affected. 
B) ​National defense and flood control are illustrations of public goods. 
C) ​Just as in the case of external costs, public goods tend to be underprovided by the private sector. 
D) ​All of the above are true. 
A) ​The nature of public goods is such that the government cannot accurately assess the benefits of those affected. 
B) ​National defense and flood control are illustrations of public goods. 
C) ​Just as in the case of external costs, public goods tend to be underprovided by the private sector. 
D) ​All of the above are true.

Question 7

Which of the following would be an example of a nongovernmental solution to a problem associated with externalities?

Accepted Answer

A) ​society's preference to drive large cars and SUVs 
B) ​new stricter anti-litter laws 
C) ​a general moral commitment against using sprinklers during a drought 
D) ​tax credits for the purchase of hybrid autos 
A) ​society's preference to drive large cars and SUVs 
B) ​new stricter anti-litter laws 
C) ​a general moral commitment against using sprinklers during a drought 
D) ​tax credits for the purchase of hybrid autos

Question 8

Which of the following allows the greatest value to be generated with a given amount of pollution?

Accepted Answer

A) ​Pollution tax 
B) ​Regulatory guidelines 
C) ​Compliance standards 
D) ​Pollution rights 
A) ​Pollution tax 
B) ​Regulatory guidelines 
C) ​Compliance standards 
D) ​Pollution rights

Question 9

How could transferable pollution rights lead to pollution being reduced at the lowest possible opportunity cost?

Accepted Answer

A policy allowing tradable pollution rig

Question 10

The theory that private negotiations have the potential to make some people better off without making anyone worse off when negative externalities are present is known as:

Accepted Answer

A) ​the Negative Externality Theorem. 
B) ​the Sexton Theorem. 
C) ​the Coase Theorem. 
D) ​the Abatement Theorem. 
A) ​the Negative Externality Theorem. 
B) ​the Sexton Theorem. 
C) ​the Coase Theorem. 
D) ​the Abatement Theorem.

Question 11

Exhibit 8-2 ​  
-Refer to Exhibit 8-2. Which of the following observations is correct?

Accepted Answer

A) ​The equilibrium at P2 and Q2 is inefficient. 
B) From society's standpoint, Q1 is the efficient level of output. 
C) ​The social opportunity cost is above the demand curve at Q1. 
D) ​The equilibrium at P1 and Q1 is efficient. 
A) ​The equilibrium at P2 and Q2 is inefficient. 
B) From society's standpoint, Q1 is the efficient level of output. 
C) ​The social opportunity cost is above the demand curve at Q1. 
D) ​The equilibrium at P1 and Q1 is efficient.

Question 12

Assume your roommate is very untidy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she/he gets a $200 benefit from being untidy but imposes a $100 cost on you. The Coase Theorem would suggest an efficient solution can be reached where:

Accepted Answer

A) ​you continue to live with your messy roommate until you are able to make other living arrangements elsewhere. 
B) ​your roommate stops her/his messy habits or you force her/him to move out. 
C) ​you pay your roommate at least $100 but no more than $200 to clean up after (her)himself. 
D) ​your roommate pays you at least $100 but no more than $200 for the right to be untidy (or to have you clean up after her/him). 
A) ​you continue to live with your messy roommate until you are able to make other living arrangements elsewhere. 
B) ​your roommate stops her/his messy habits or you force her/him to move out. 
C) ​you pay your roommate at least $100 but no more than $200 to clean up after (her)himself. 
D) ​your roommate pays you at least $100 but no more than $200 for the right to be untidy (or to have you clean up after her/him).

Question 13

If pollution is reduced below the socially efficient level:

Accepted Answer

A) ​the marginal cost of pollution abatement exceeds the marginal benefit of pollution abatement. 
B) ​the marginal cost of pollution abatement is less than the marginal benefit of pollution abatement. 
C) ​the marginal cost of pollution abatement equals the marginal benefit of pollution abatement. 
D) ​nothing can be said about the relationship between the marginal cost and marginal benefit of pollution abatement. 
A) ​the marginal cost of pollution abatement exceeds the marginal benefit of pollution abatement. 
B) ​the marginal cost of pollution abatement is less than the marginal benefit of pollution abatement. 
C) ​the marginal cost of pollution abatement equals the marginal benefit of pollution abatement. 
D) ​nothing can be said about the relationship between the marginal cost and marginal benefit of pollution abatement.

Question 14

A chemical manufacturer dumps waste into a river, which harms owners of resorts downstream from the chemical factory. Which of the following best describes the situation?​

Accepted Answer

A) ​The socially efficient level of output exceeds the chemical firm's privately optimal output level. 
B) ​River pollution should be reduced until it is technologically impossible to reduce it further. 
C) ​The firm's privately optimal output level exceeds the socially efficient level of output. 
D) ​If the firm were forced to bear the external costs of dumping chemicals into the river, it would increase its production of output. 
A) ​The socially efficient level of output exceeds the chemical firm's privately optimal output level. 
B) ​River pollution should be reduced until it is technologically impossible to reduce it further. 
C) ​The firm's privately optimal output level exceeds the socially efficient level of output. 
D) ​If the firm were forced to bear the external costs of dumping chemicals into the river, it would increase its production of output.

Question 15

If positive externalities are present in the production of a good, then society will:

Accepted Answer

A) ​produce too much of the good since the marginal private benefit to consumers is less than the marginal social benefit. 
B) ​produce too little of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
C) ​produce too much of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
D) ​produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit. 
A) ​produce too much of the good since the marginal private benefit to consumers is less than the marginal social benefit. 
B) ​produce too little of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
C) ​produce too much of the good since the marginal private benefit to consumers is greater than the marginal social benefit. 
D) ​produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit.

Question 16

In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will not happen?

Accepted Answer

A) ​Inefficiencies will occur. 
B) ​Negative externalities will be observed. 
C) ​The market prices of products produced by firms will be too low relative to the social optimum. 
D) ​Output of the good being produced will be too low. 
A) ​Inefficiencies will occur. 
B) ​Negative externalities will be observed. 
C) ​The market prices of products produced by firms will be too low relative to the social optimum. 
D) ​Output of the good being produced will be too low.

Question 17

When city beautification programs are funded privately:

Accepted Answer

A) ​only contributing citizens are likely to benefit from a more beautiful city. 
B) ​only free riders are likely to benefit from a more beautiful city. 
C) ​an underallocation of resources toward the beautification project is likely to occur relative to what is socially efficient. 
D) ​none of the above 
A) ​only contributing citizens are likely to benefit from a more beautiful city. 
B) ​only free riders are likely to benefit from a more beautiful city. 
C) ​an underallocation of resources toward the beautification project is likely to occur relative to what is socially efficient. 
D) ​none of the above

Question 18

The presence of negative externalities leads to a misallocation of societal resources because:

Accepted Answer

A) ​whenever external costs are imposed on outside parties, the good should not be produced at all. 
B) ​less of the good than is ideal for society is produced. 
C) ​there are some costs associated with production that the producer fails to take into consideration. 
D) ​the government always intervenes in markets when negative externalities are present, and the government is inherently inefficient. 
A) ​whenever external costs are imposed on outside parties, the good should not be produced at all. 
B) ​less of the good than is ideal for society is produced. 
C) ​there are some costs associated with production that the producer fails to take into consideration. 
D) ​the government always intervenes in markets when negative externalities are present, and the government is inherently inefficient.

Question 19

Public goods ____ rival ____ excludable.

Accepted Answer

A) Are, and are 
B) ​Are, but are not 
C) Are not, but are 
D) Are not, and are not 
A) Are, and are 
B) ​Are, but are not 
C) Are not, but are 
D) Are not, and are not

Question 20

Firms buy and sell the right to pollute:

Accepted Answer

A) ​under a system of compliance standards. 
B) ​under a free market system where there is no government intervention and property rights are not well-defined. 
C) ​under a system of transferable pollution permits. 
D) ​under a pollution tax system. 
A) ​under a system of compliance standards. 
B) ​under a free market system where there is no government intervention and property rights are not well-defined. 
C) ​under a system of transferable pollution permits. 
D) ​under a pollution tax system.

Exam 8: Market Failure

If mining companies are able to shift some of their production costs onto outside parties, the actual output of mines is likely to fall short of society's ideal.

In a competitive economy with no government sector:

A corrective tax equal to the external cost imposed on third parties levied on polluters will:

If the government imposes a pollution tax on gasoline refineries:

Exhibit 8-2 ​ -Refer to Exhibit 8-2. If the suppliers of steel are not aware of or not responsible for the external costs, they will tend to:

Which of the following is true?

Which of the following would be an example of a nongovernmental solution to a problem associated with externalities?

Which of the following allows the greatest value to be generated with a given amount of pollution?

How could transferable pollution rights lead to pollution being reduced at the lowest possible opportunity cost?

The theory that private negotiations have the potential to make some people better off without making anyone worse off when negative externalities are present is known as:

Exhibit 8-2 ​ -Refer to Exhibit 8-2. Which of the following observations is correct?

Assume your roommate is very untidy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she/he gets a $200 benefit from being untidy but imposes a $100 cost on you. The Coase Theorem would suggest an efficient solution can be reached where:

If pollution is reduced below the socially efficient level:

A chemical manufacturer dumps waste into a river, which harms owners of resorts downstream from the chemical factory. Which of the following best describes the situation?​

If positive externalities are present in the production of a good, then society will:

In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will not happen?

When city beautification programs are funded privately:

The presence of negative externalities leads to a misallocation of societal resources because:

Public goods ____ rival ____ excludable.

Firms buy and sell the right to pollute:

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

Exhibit 8-2 -Refer to Exhibit 8-2. If the suppliers of steel are not aware of or not responsible for the external costs, they will tend to:

Exhibit 8-2 -Refer to Exhibit 8-2. Which of the following observations is correct?

A chemical manufacturer dumps waste into a river, which harms owners of resorts downstream from the chemical factory. Which of the following best describes the situation?

Public goods rival excludable.