Question 1

Which of the following statements about the economically efficient level of air pollution is correct?

Accepted Answer

A) The economically efficient level of pollution is zero. 
B) The economically efficient level of pollution occurs where all social costs equal all social benefits. 
C) The economically efficient level of pollution occurs where the marginal cost of pollution reduction equals the marginal social benefit of reduction. 
D) The economically efficient level of pollution occurs where total benefits of pollution reduction are maximized. 
A) The economically efficient level of pollution is zero. 
B) The economically efficient level of pollution occurs where all social costs equal all social benefits. 
C) The economically efficient level of pollution occurs where the marginal cost of pollution reduction equals the marginal social benefit of reduction. 
D) The economically efficient level of pollution occurs where total benefits of pollution reduction are maximized.

Question 2

Figure 5-5 shows a market with an externality.The current market equilibrium output of Q1 is not the economically efficient output.The economically efficient output is Q2.
-Refer to Figure 5-5.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does D1 represent?

Accepted Answer

A) the demand curve reflecting external benefits 
B) the demand curve reflecting social benefits 
C) the demand curve reflecting private benefits 
D) the demand curve reflecting the sum of private and social benefits 
A) the demand curve reflecting external benefits 
B) the demand curve reflecting social benefits 
C) the demand curve reflecting private benefits 
D) the demand curve reflecting the sum of private and social benefits

Question 3

Global warming refers to the effect of global pollutants such as carbon dioxide on climates on the earth.Climate-induced changes in temperatures affect,among other things,agriculture.Which of the following is a reason why policymakers are still debating if this problem should be addressed and how it should be addressed?

Accepted Answer

A) Scientists agree about the damage caused by carbon emissions but disagree about the methods of reducing emissions. 
B) The marginal cost of reducing carbon emissions is known with certainly but the marginal benefit from reduction is not known with certainty. 
C) The marginal cost of reducing carbon emissions is not known with certainly but the marginal benefit from reduction is known with certainty. 
D) There is much disagreement about all aspects of the problem: how much carbon emissions contribute to damage from climate change which in turn determines the benefits from reduction,and what methods to use which in turn determines the cost of reduction. 
A) Scientists agree about the damage caused by carbon emissions but disagree about the methods of reducing emissions. 
B) The marginal cost of reducing carbon emissions is known with certainly but the marginal benefit from reduction is not known with certainty. 
C) The marginal cost of reducing carbon emissions is not known with certainly but the marginal benefit from reduction is known with certainty. 
D) There is much disagreement about all aspects of the problem: how much carbon emissions contribute to damage from climate change which in turn determines the benefits from reduction,and what methods to use which in turn determines the cost of reduction.

Question 4

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

Accepted Answer

Transactions costs refer to the costs in

Question 5

The social cost of cutting trees for firewood in a government forest is

Accepted Answer

A) the increased likelihood of flooding as more trees are cut. 
B) the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C) opportunity cost to the individual of cutting the wood. 
D) the marginal costs of cutting the last tree. 
A) the increased likelihood of flooding as more trees are cut. 
B) the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C) opportunity cost to the individual of cutting the wood. 
D) the marginal costs of cutting the last tree.

Question 6

If you burn your trash in the backyard in spite of regulations against it,then you are

Accepted Answer

A) acting economically irrationally and creating a social cost. 
B) avoiding the private costs associated with disposing your trash some other way and creating a social cost. 
C) acting rationally and creating a positive externality. 
D) saving landfill space and creating a social benefit. 
A) acting economically irrationally and creating a social cost. 
B) avoiding the private costs associated with disposing your trash some other way and creating a social cost. 
C) acting rationally and creating a positive externality. 
D) saving landfill space and creating a social benefit.

Question 7

Which of the following could be evidence of a market failure?

Accepted Answer

A) Resources in an economy are not fully utilized. 
B) The market price of a product is above the average cost of production. 
C) There are only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs. 
A) Resources in an economy are not fully utilized. 
B) The market price of a product is above the average cost of production. 
C) There are only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs.

Question 8

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Accepted Answer

A) True 
 B)False

Question 9

If there are no externalities,a competitive market achieves economic efficiency.If there is a negative externality,economic efficiency will not be achieved because

Accepted Answer

A) too little of the good will be produced. 
B) too much of the good will be produced. 
C) a deadweight loss will occur that is equal to the area under the demand curve for the good. 
D) economic surplus is maximized. 
A) too little of the good will be produced. 
B) too much of the good will be produced. 
C) a deadweight loss will occur that is equal to the area under the demand curve for the good. 
D) economic surplus is maximized.

Question 10

Consider the following methods of pollution reduction: a.the government sets a target for maximum emissions
B.the government mandates the installation of specific pollution abatement equipment
C.the government imposes a per unit tax on the good that creates pollution
D.the government gives firms a tax rebate for every unit of pollution abated
Which of the above is an example of a command-and-control approach to reducing pollution?

Accepted Answer

A) a only 
B) b only 
C) a and b only 
D) a,b,and d only 
E) a,b,c,and d 
A) a only 
B) b only 
C) a and b only 
D) a,b,and d only 
E) a,b,c,and d

Question 11

A free market fails when

Accepted Answer

A) there is government intervention. 
B) there is an external effect in either production,consumption,or both. 
C) firms that produce goods which create positive externalities go bankrupt. 
D) firms that produce goods which create negative externalities earn high profits. 
A) there is government intervention. 
B) there is an external effect in either production,consumption,or both. 
C) firms that produce goods which create positive externalities go bankrupt. 
D) firms that produce goods which create negative externalities earn high profits.

Question 12

A public good is a good that is both rival and excludable.

Accepted Answer

A) True 
 B)False

Question 13

Suppose there are several paper mills producing paper for a market.These mills,located upstream from a fishing village,discharge a large amount of wastewater into the river.The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source.Figure 5-4 shows the paper market.Use this Figure to answer the following question(s).
-Refer to Figure 5-4.What does S2 represent?

Accepted Answer

A) the market supply curve that reflects social cost 
B) the market supply curve that reflect private cost 
C) the market supply curve that reflects external cost 
D) the market supply curve that reflects social benefit 
A) the market supply curve that reflects social cost 
B) the market supply curve that reflect private cost 
C) the market supply curve that reflects external cost 
D) the market supply curve that reflects social benefit

Question 14

In economics,the optimal level of pollution is

Accepted Answer

A) zero. 
B) the level for which the total benefit from reducing the pollution is the greatest. 
C) the level for which the marginal benefit from reducing the pollution is the greatest. 
D) the level for which the net benefit from reducing the pollution is the greatest. 
A) zero. 
B) the level for which the total benefit from reducing the pollution is the greatest. 
C) the level for which the marginal benefit from reducing the pollution is the greatest. 
D) the level for which the net benefit from reducing the pollution is the greatest.

Question 15

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.If the government decided to impose a tax on soda,the government will cause

Accepted Answer

A) consumers to internalize the externality. 
B) producers to internalize the externality. 
C) the external cost to drinking soda to become a private cost paid by the government. 
D) the external cost to drinking soda to become a private cost paid by producers. 
A) consumers to internalize the externality. 
B) producers to internalize the externality. 
C) the external cost to drinking soda to become a private cost paid by the government. 
D) the external cost to drinking soda to become a private cost paid by producers.

Question 16

What is the rationale behind a marketable emission allowance scheme?

Accepted Answer

A) to create a market for externalities: the scheme brings together buyers and sellers of marketable permits 
B) to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance 
C) to raise revenue for the government through the sale of emission permits and at the same time set an emissions target 
D) to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance 
A) to create a market for externalities: the scheme brings together buyers and sellers of marketable permits 
B) to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance 
C) to raise revenue for the government through the sale of emission permits and at the same time set an emissions target 
D) to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

Question 17

Medical research that results in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

Accepted Answer

A) At equilibrium,less than the economically efficient quantity of medical research is produced. 
B) A deadweight loss occurs because at equilibrium the marginal social cost of medical research is greater than the marginal social benefit. 
C) At equilibrium,more than the economically efficient quantity of medical research is produced. 
D) A deadweight loss occurs because at equilibrium the marginal social cost equals the marginal social benefit. 
A) At equilibrium,less than the economically efficient quantity of medical research is produced. 
B) A deadweight loss occurs because at equilibrium the marginal social cost of medical research is greater than the marginal social benefit. 
C) At equilibrium,more than the economically efficient quantity of medical research is produced. 
D) A deadweight loss occurs because at equilibrium the marginal social cost equals the marginal social benefit.

Question 18

Which of the following activities create a negative externality?

Accepted Answer

A) cleaning up the sidewalk on your block 
B) graduating from college 
C) repainting the house you live in to improve its appearance 
D) keeping a junked car parked on your front lawn 
A) cleaning up the sidewalk on your block 
B) graduating from college 
C) repainting the house you live in to improve its appearance 
D) keeping a junked car parked on your front lawn

Question 19

Figure 5-3  
-Refer to Figure 5-3.The efficient output level is

Accepted Answer

A) Qm. 
B) Qn. 
C) Qo. 
D) Qo - Qm. 
A) Qm. 
B) Qn. 
C) Qo. 
D) Qo - Qm.

Question 20

If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost

Accepted Answer

A) further reductions will make society better off. 
B) further reduction will make society worse off. 
C) pollution taxes should be imposed on producers to pay for further reductions. 
D) economic efficiency will be increased if further reductions are made. 
A) further reductions will make society better off. 
B) further reduction will make society worse off. 
C) pollution taxes should be imposed on producers to pay for further reductions. 
D) economic efficiency will be increased if further reductions are made.

Exam 5: Externalities, environmental Policy, and Public Goods

Which of the following statements about the economically efficient level of air pollution is correct?

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

The social cost of cutting trees for firewood in a government forest is

If you burn your trash in the backyard in spite of regulations against it,then you are

Which of the following could be evidence of a market failure?

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

If there are no externalities,a competitive market achieves economic efficiency.If there is a negative externality,economic efficiency will not be achieved because

A free market fails when

A public good is a good that is both rival and excludable.

In economics,the optimal level of pollution is

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.If the government decided to impose a tax on soda,the government will cause

What is the rationale behind a marketable emission allowance scheme?

Medical research that results in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

Which of the following activities create a negative externality?

Figure 5-3 -Refer to Figure 5-3.The efficient output level is

If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost

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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