Question 1

When negative externalities exist,the competitive market supply curve does not include all of the costs borne by members of society.

Accepted Answer

A) True 
 B)False

Question 2

Figure 5-15 shows the market for Atlantic salmon,a common resource.The current market equilibrium output of Q1 is not the economically efficient output.The economically efficient output is Q2.
-Refer to Figure 5-15.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 3

Private solutions to the problem of externalities are most likely when

Accepted Answer

A) government actively encourages these solutions. 
B) transactions costs are low and the number of bargaining parties is small. 
C) transactions costs are low and the number of bargaining parties is large. 
D) transactions costs are low and the monetary damages to third parties are high. 
A) government actively encourages these solutions. 
B) transactions costs are low and the number of bargaining parties is small. 
C) transactions costs are low and the number of bargaining parties is large. 
D) transactions costs are low and the monetary damages to third parties are high.

Question 4

For certain public projects such as building a dam on a river or a bridge to an island,what procedure is a government likely to use to determine what quantity of a public good should be supplied?

Accepted Answer

A) It conducts public surveys to determine if consumers want the product. 
B) It hires economists to estimate the market demand for the product. 
C) It takes a vote in Congress. 
D) It evaluates the costs and benefits of producing the good. 
A) It conducts public surveys to determine if consumers want the product. 
B) It hires economists to estimate the market demand for the product. 
C) It takes a vote in Congress. 
D) It evaluates the costs and benefits of producing the good.

Question 5

Anyone can purchase sulfur dioxide emission 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 if more people buy sulfur emission allowances and destroy them?

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

Amit and Bree are the only two homeowners on an isolated private road.Both agree that installing street lights along the road would be beneficial and want to do so.Figure 5-16 shows their willingness to pay for different quantities of street lights,the market demand for street lights,and the marginal cost of installing the street lights.
-Refer to Figure 5-16.What is the optimal quantity of street lights to install?

Accepted Answer

A) 3 
B) 4 
C) 6 
D) 9 
A) 3 
B) 4 
C) 6 
D) 9

Question 7

How does a public good differ from a quasi-public good? In your answer give an example of each type of good.

Accepted Answer

A pubic good is: (a)nonrivalrous-one per

Question 8

When the government imposes a tax equal to the external cost of producing a product that causes pollution,the government is said to externalize the externality.

Accepted Answer

A) True 
 B)False

Question 9

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Accepted Answer

A) The equilibrium in the market is not efficient;the marginal benefit from electricity is greater than the marginal social cost. 
B) A deadweight loss occurs;at equilibrium the additional social cost of production is greater than the additional benefit to consumers. 
C) The equilibrium in the market is not efficient;because of the cost of the acid rain,economic efficiency would be greater if more electricity were produced. 
D) The equilibrium in the market is not efficient;consumer surplus is equal to producer surplus. 
A) The equilibrium in the market is not efficient;the marginal benefit from electricity is greater than the marginal social cost. 
B) A deadweight loss occurs;at equilibrium the additional social cost of production is greater than the additional benefit to consumers. 
C) The equilibrium in the market is not efficient;because of the cost of the acid rain,economic efficiency would be greater if more electricity were produced. 
D) The equilibrium in the market is not efficient;consumer surplus is equal to producer surplus.

Question 10

Congressman Murphy made the following proposal: "We should establish policies that completely eliminate air pollution.This is the only way to ensure that none of our citizens suffer the negative effects of air pollution." If Congressman Murphy's proposal was adopted and all forms of air pollution were eliminated,which of the following would be true?

Accepted Answer

A) The total cost of pollution reductions would equal the total benefit to society. 
B) Economic efficiency would be maximized 
C) The total benefit to society from reductions in air pollution would be maximized. 
D) The marginal cost from pollution reductions would exceed the marginal benefit. 
A) The total cost of pollution reductions would equal the total benefit to society. 
B) Economic efficiency would be maximized 
C) The total benefit to society from reductions in air pollution would be maximized. 
D) The marginal cost from pollution reductions would exceed the marginal benefit.

Question 11

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Accepted Answer

A) the private cost of production 
B) the social cost of production 
C) the external cost of production 
D) the explicit cost of production 
A) the private cost of production 
B) the social cost of production 
C) the external cost of production 
D) the explicit cost of production

Question 12

State whether each of the following goods and services is nonrival,nonexcludable or both:
a.A toll road
b.A public park
c.A lighthouse
d.An art museum
e.A radio broadcast of "A Prairie Home Companion"

Accepted Answer

a.Nonrival,although rivalry could exist

Question 13

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

Accepted Answer

Private cost of production is the cost b

Question 14

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Accepted Answer

Command-and-control is an approach that

Question 15

Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13.The market equilibrium price of gasoline is ________ per gallon.

Accepted Answer

A) $3.00 
B) $3.75 
C) $4.25 
D) $5.00 
A) $3.00 
B) $3.75 
C) $4.25 
D) $5.00

Question 16

Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of

Accepted Answer

A) a Coasian solution to an externality situation. 
B) a Pigovian solution to an externality situation. 
C) a tradable exchange contract. 
D) command-and-control policy. 
A) a Coasian solution to an externality situation. 
B) a Pigovian solution to an externality situation. 
C) a tradable exchange contract. 
D) command-and-control policy.

Question 17

A negative externality exists if

Accepted Answer

A) there are price controls in a market. 
B) there are quantity controls in a market. 
C) the marginal social cost of producing a good or service exceeds the private cost. 
D) the marginal private cost of producing a good or service exceeds the social cost. 
A) there are price controls in a market. 
B) there are quantity controls in a market. 
C) the marginal social cost of producing a good or service exceeds the private cost. 
D) the marginal private cost of producing a good or service exceeds the social cost.

Question 18

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Accepted Answer

A) True 
 B)False

Question 19

The market demand for a public good can be determined by

Accepted Answer

A) adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B) adding up how much each citizen expects to consume at each possible price. 
C) adding up how much each consumer is willing to pay for each unit of the public good. 
D) estimating the value of the benefit that each unit provides and multiplying that by the number of consumers. 
A) adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B) adding up how much each citizen expects to consume at each possible price. 
C) adding up how much each consumer is willing to pay for each unit of the public good. 
D) estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.

Question 20

Which of the following is an example of the U.S.government's use of a "command-and-control" approach to reducing pollution?

Accepted Answer

A) In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010. 
B) The U.S.government imposed a tax on electric utilities to reduce damages from acid rain. 
C) The government issued electric utilities tradable emission allowances in order to reduce emissions of nitrogen oxide. 
D) In the 1980s the U.S.government required the installation of catalytic converters to reduce emissions from all new automobiles. 
A) In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010. 
B) The U.S.government imposed a tax on electric utilities to reduce damages from acid rain. 
C) The government issued electric utilities tradable emission allowances in order to reduce emissions of nitrogen oxide. 
D) In the 1980s the U.S.government required the installation of catalytic converters to reduce emissions from all new automobiles.

Exam 5: Externalities, environmental Policy, and Public Goods

When negative externalities exist,the competitive market supply curve does not include all of the costs borne by members of society.

Private solutions to the problem of externalities are most likely when

For certain public projects such as building a dam on a river or a bridge to an island,what procedure is a government likely to use to determine what quantity of a public good should be supplied?

How does a public good differ from a quasi-public good? In your answer give an example of each type of good.

When the government imposes a tax equal to the external cost of producing a product that causes pollution,the government is said to externalize the externality.

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

State whether each of the following goods and services is nonrival,nonexcludable or both: a.A toll road b.A public park c.A lighthouse d.An art museum e.A radio broadcast of "A Prairie Home Companion"

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13.The market equilibrium price of gasoline is ________ per gallon.

Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of

A negative externality exists if

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

The market demand for a public good can be determined by

Which of the following is an example of the U.S.government's use of a "command-and-control" approach to reducing pollution?

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

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