Question 1

Use the following to answer questions: 
-(Table: Externalities from Parks) The table Externalities from Parks shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park. If 5 acres is dedicated to the park, this outcome is _____ because _____.

Accepted Answer

A)  efficient; MSB = MSC 
B)  efficient; MSB > MSC 
C)  inefficient; MSB > MSC 
D)  inefficient; MSB < MSC

Question 2

If the marginal social benefit received from pollution is greater than its marginal social cost in a market:

Accepted Answer

A)  society's well-being can be improved if the quantity of pollution decreases. 
B)  firms in the market produce the socially optimal level of pollution. 
C)  firms in the market produce too much pollution. 
D)  firms in the market produce too little pollution.

Question 3

If pollution is such a bad thing, why do economists argue that the optimal amount of pollution is greater than zero?

Accepted Answer

The answer of If pollution is such a bad thing,...

Question 4

The proposition that if transaction costs are low enough and property rights are well-defined, the private market can achieve an efficient outcome regardless of which of the affected parties hold the property rights is known as the:

Accepted Answer

A)  Coase theorem. 
B)  property rights paradigm. 
C)  market rights theorem. 
D)  green environment paradigm.

Question 5

The efficient way to reduce pollution is to impose strict environmental standards on all polluters.

Accepted Answer

A) True 
 B)False

Question 6

When government attempts to reduce climate change by establishing a minimum level of fuel efficiency on new cars, it is using a(n):

Accepted Answer

A)  environmental standard. 
B)  emissions tax. 
C)  Pigouvian tax. 
D)  tradable emissions permit.

Question 7

There are two plants in an industry. To reduce pollution, the government has imposed environmental standards forcing each plant to cut emissions by 60%. At the emissions standard, the marginal social benefit of pollution for plant A is $500, and the marginal social benefit of pollution for plant B is $125. The same level of pollution can be achieved at a lower cost by:

Accepted Answer

A)  forcing plant A to reduce emissions and allowing plant B to increase emissions. 
B)  allowing plant A to pollute more and requiring plant B to pollute less. 
C)  forcing both plants to reduce emissions. 
D)  allowing both plants to pollute more.

Question 8

With use of _____ to reduce emissions, the marginal benefit of an additional unit of pollution is the same for all polluters.

Accepted Answer

A)  an environmental standard 
B)  an emissions tax 
C)  a tradable emissions permit 
D)  an emissions tax or a tradable emissions permit

Question 9

Suppose government officials have set an emissions tax to reduce pollution. Further suppose that with the emissions tax, the marginal social cost of pollution exceeds the marginal social benefit of pollution. The emissions tax is:

Accepted Answer

A)  too low. 
B)  too high. 
C)  optimal. 
D)  efficient.

Question 10

If external costs exist, the competitive free market:

Accepted Answer

A)  allocates resources inefficiently. 
B)  allocates resources efficiently. 
C)  automatically corrects an overallocation of resources. 
D)  automatically corrects an underallocation of resources.

Question 11

Use the following to answer questions:
Figure: MSB and MSC of Pollution 
-(Figure: MSB and MSC of Pollution) Look at the figure MSB and MSC of Pollution. If the current level of pollution is at Q1, _____ pollution is being emitted, as _____.

Accepted Answer

A)  not enough; MSB > MSC 
B)  not enough; MSB  MSC 
D)  the socially optimal amount of; MSB = MSC

Question 12

A coal-powered electrical generator that discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town has a(n):

Accepted Answer

A)  quasi-public good. 
B)  external cost. 
C)  external benefit. 
D)  specific tax.

Question 13

Use the following to answer questions: 
-(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. Two tons of pollution is:

Accepted Answer

A)  too much. 
B)  the efficient amount. 
C)  not enough. 
D)  the socially optimum amount.

Question 14

Use the following to answer questions:
Figure: Efficiency and Pollution 
-(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. An optimal Pigouvian tax of _____ can move this market to the socially optimal quantity of pollution.

Accepted Answer

A)  $5 
B)  $15 
C)  $25 
D)  $45

Question 15

Use the following to answer questions:
Figure: Efficiency and Pollution 
-(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. The socially optimal quantity of pollution is _____ tons.

Accepted Answer

A)  0 
B)  20 
C)  30 
D)  45

Question 16

With tradable emissions permits, the main problem is to determine the _____, while with emissions taxes the main problem is to determine the _____.

Accepted Answer

A)  optimal quantity of pollution; optimal tax rate 
B)  optimal price of the permits; optimal level of pollution 
C)  optimal quantity of pollution; marginal social benefit of pollution 
D)  marginal social cost of pollution; optimal tax rate

Question 17

A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that this does NOT happen is that:

Accepted Answer

A)  most individuals are unfamiliar with the Coase theorem. 
B)  the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive. 
C)  agreements arising from such negotiations could not be enforced, since the Constitution guarantees all individuals freedom of access to all public roads. 
D)  lawyers would find a way to prohibit such negotiations unless they were actively involved, and this would make transaction costs prohibitive.

Question 18

The marginal social cost of pollution rises as the quantity of pollution emissions:

Accepted Answer

A)  remains constant. 
B)  falls. 
C)  rises. 
D)  rises but subsequently gradually falls.

Question 19

Which of the following generates a positive externality?

Accepted Answer

A)  You buy a new car and find $5,000 in the door panel. 
B)  Your next-door neighbor mows the lawn at 6 A.M. 
C)  Your next-door neighbor installs a bat house and the bats eat mosquitoes. 
D)  Joe buys health insurance but decides not to take the time to get a flu shot.

Question 20

The marginal social cost of pollution emissions _____ as the quantity of pollution emissions _____.

Accepted Answer

A)  decreases; increases 
B)  increases; increases 
C)  increases; decreases 
D)  remains constant; decreases

Exam 16: Externalities

If the marginal social benefit received from pollution is greater than its marginal social cost in a market:

If pollution is such a bad thing, why do economists argue that the optimal amount of pollution is greater than zero?

The proposition that if transaction costs are low enough and property rights are well-defined, the private market can achieve an efficient outcome regardless of which of the affected parties hold the property rights is known as the:

The efficient way to reduce pollution is to impose strict environmental standards on all polluters.

When government attempts to reduce climate change by establishing a minimum level of fuel efficiency on new cars, it is using a(n) :

With use of _____ to reduce emissions, the marginal benefit of an additional unit of pollution is the same for all polluters.

Suppose government officials have set an emissions tax to reduce pollution. Further suppose that with the emissions tax, the marginal social cost of pollution exceeds the marginal social benefit of pollution. The emissions tax is:

If external costs exist, the competitive free market:

Use the following to answer questions: Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution) Look at the figure MSB and MSC of Pollution. If the current level of pollution is at Q₁, _ pollution is being emitted, as _.

A coal-powered electrical generator that discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town has a(n) :

Use the following to answer questions: -(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. Two tons of pollution is:

Use the following to answer questions: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. An optimal Pigouvian tax of _____ can move this market to the socially optimal quantity of pollution.

Use the following to answer questions: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. The socially optimal quantity of pollution is _____ tons.

With tradable emissions permits, the main problem is to determine the _, while with emissions taxes the main problem is to determine the _.

A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that this does NOT happen is that:

The marginal social cost of pollution rises as the quantity of pollution emissions:

Which of the following generates a positive externality?

The marginal social cost of pollution emissions _ as the quantity of pollution emissions _.

Exam 16: Externalities

If the marginal social benefit received from pollution is greater than its marginal social cost in a market:

If pollution is such a bad thing, why do economists argue that the optimal amount of pollution is greater than zero?

The proposition that if transaction costs are low enough and property rights are well-defined, the private market can achieve an efficient outcome regardless of which of the affected parties hold the property rights is known as the:

The efficient way to reduce pollution is to impose strict environmental standards on all polluters.

When government attempts to reduce climate change by establishing a minimum level of fuel efficiency on new cars, it is using a(n) :

With use of _____ to reduce emissions, the marginal benefit of an additional unit of pollution is the same for all polluters.

Suppose government officials have set an emissions tax to reduce pollution. Further suppose that with the emissions tax, the marginal social cost of pollution exceeds the marginal social benefit of pollution. The emissions tax is:

If external costs exist, the competitive free market:

Use the following to answer questions: Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution) Look at the figure MSB and MSC of Pollution. If the current level of pollution is at Q1, _____ pollution is being emitted, as _____.

A coal-powered electrical generator that discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town has a(n) :

Use the following to answer questions: -(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. Two tons of pollution is:

Use the following to answer questions: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. An optimal Pigouvian tax of _____ can move this market to the socially optimal quantity of pollution.

Use the following to answer questions: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. The socially optimal quantity of pollution is _____ tons.

With tradable emissions permits, the main problem is to determine the _____, while with emissions taxes the main problem is to determine the _____.

A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that this does NOT happen is that:

The marginal social cost of pollution rises as the quantity of pollution emissions:

Which of the following generates a positive externality?

The marginal social cost of pollution emissions _____ as the quantity of pollution emissions _____.

Use the following to answer questions: Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution) Look at the figure MSB and MSC of Pollution. If the current level of pollution is at Q₁, _ pollution is being emitted, as _.

With tradable emissions permits, the main problem is to determine the _, while with emissions taxes the main problem is to determine the _.

The marginal social cost of pollution emissions _ as the quantity of pollution emissions _.