Question 1

Figure 5-15  Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-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

Question 2

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.

Question 3

In economics, the term "free rider" refers to

Accepted Answer

A)  a person who evades taxes. 
B)  a supervisor who delegates menial time-consuming activities to others. 
C)  one who volunteers her services. 
D)  one who waits for others to produce a good and then enjoys its benefits without paying for it.

Question 4

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Accepted Answer

A) True 
 B)False

Question 5

Economists argue that the level of pollution should be

Accepted Answer

A)  reduced completely to zero because by definition, it has a negative external effect. 
B)  ignored because it has always been present since the beginning of history. 
C)  reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. 
D)  best determined by elected officials who can speak on behalf of the public.

Question 6

If the marginal social benefit of consuming a good or a service exceeds the marginal private benefit

Accepted Answer

A)  a negative externality exists. 
B)  the market achieves economic efficiency. 
C)  a positive externality exists. 
D)  the sum of consumer surplus and producer surplus is maximized.

Question 7

Figure 5-12  College education benefits society by producing a more employable workforce, reducing crime, and creating a better informed citizenry. Thus, the marginal social benefits of college education exceed the marginal private benefits for any level of college education. This is illustrated in Figure 5-12.
-Refer to Figure 5-12. One way to obtain the economically efficient amount of college education is for governments to subsidize college education. What is the size of the per-student Pigovian subsidy that the government must provide to internalize the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.)

Accepted Answer

A)  P2-P0 
B)  P2-P1 
C)  P0-P1 
D)  P1

Question 8

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.

Accepted Answer

A)  necessary; equitable 
B)  necessary; efficient 
C)  not necessary; equitable 
D)  not necessary; efficient

Question 9

Determine if each of the products below displays any of the following characteristics:
(i) rivalry
(ii) nonrivalry
(iii) excludability
(iv) nonexcludability.
a. a freeway during peak commute hours
b. an online college course
c. infectious disease prevention
d. open source software such as Linux
e. a movie showing at Century Theatres

Accepted Answer

The answer of Determine if each of the products below...

Question 10

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach?

Accepted Answer

A)  The government uses taxes in order to internalize the externalities caused by pollution. 
B)  The government uses subsidies to encourage firms to use new technology that reduces pollution. 
C)  The government imposes quantitative limits on the amount of pollution firms are allowed to generate. 
D)  The government distributes information to consumers and producers on how to reduce pollution.

Question 11

Which of the following is an example of a positive externality?

Accepted Answer

A)  raising the speed limit to 60 mph in school zones 
B)  planting trees along a sidewalk which add beauty and create shade 
C)  permitting smoking on commercial airplanes 
D)  a police department stops enforcing DUI laws

Question 12

Figure 5-2  Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2. The deadweight loss due to the externality is represented by the area

Accepted Answer

A)  abc. 
B)  abf. 
C)  abd. 
D)  ade.

Question 13

A positive externality causes

Accepted Answer

A)  the marginal social benefit to be equal to the marginal private cost at the market equilibrium. 
B)  the marginal social benefit to be less than the marginal private cost at the market equilibrium. 
C)  the marginal social benefit to exceed the marginal private cost at the market equilibrium. 
D)  the marginal private benefit to exceed the marginal social cost at the market equilibrium.

Question 14

Figure 5-16  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. Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other. Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Accepted Answer

A)  The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. 
B)  Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. 
C)  The optimal quantity will be installed only if the two parties split the cost of installation equally. 
D)  The optimal quantity will be installed only if Bree pays for the entire installation cost.

Question 15

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.

Question 16

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

The answer of State whether each of the following goods...

Question 17

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.

Question 18

Figure 5-8  Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions.
-Refer to Figure 5-8. What is the economically efficient level of pollution reduction?

Accepted Answer

A)  12.5 million tons 
B)  9 million tons 
C)  8 million tons 
D)  0 tons

Question 19

Figure 5-7 
-Refer to Figure 5-7. What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Accepted Answer

A)  PF 
B)  the value of the area QBBEQE 
C)  PF × QE 
D)  the value of the area BEF

Question 20

Figure 5-15  Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 5-15. Identify the area that shows the deadweight loss from overfishing.

Accepted Answer

A)  egh 
B)  ekh 
C)  efh 
D)  eghk

Exam 5: Externalities, Environmental Policy, and Public Goods

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

In economics, the term "free rider" refers to

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Economists argue that the level of pollution should be

If the marginal social benefit of consuming a good or a service exceeds the marginal private benefit

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is to achieve an amount of pollution.

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach?

Which of the following is an example of a positive externality?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The deadweight loss due to the externality is represented by the area

A positive externality causes

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

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"

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

Figure 5-7 -Refer to Figure 5-7. What is the incremental cost of increasing the quantity of pollution reduction from Q_Bto Q_Eunits?

Exam 5: Externalities, Environmental Policy, and Public Goods

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

In economics, the term "free rider" refers to

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Economists argue that the level of pollution should be

If the marginal social benefit of consuming a good or a service exceeds the marginal private benefit

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach?

Which of the following is an example of a positive externality?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The deadweight loss due to the externality is represented by the area

A positive externality causes

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

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"

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

Figure 5-7 -Refer to Figure 5-7. What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Figure 5-15 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. Identify the area that shows the deadweight loss from overfishing.

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is to achieve an amount of pollution.

Figure 5-7 -Refer to Figure 5-7. What is the incremental cost of increasing the quantity of pollution reduction from Q_Bto Q_Eunits?