Question 1

What is the rationale behind a marketable emission allowance scheme?

Accepted Answer

A) to create of 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 2

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

Question 3

Figure 5.4
 
-Refer to Figure 5.4.Which of the following statements is true?

Accepted Answer

A) At QE the benefits of reducing pollution outweighs the cost of pollution reduction. 
B) At QB society is under allocating resources to pollution reduction. 
C) The optimal quantity of pollution reduction is QB. 
D) The optimal quantity of pollution reduction is QE.

Question 4

Which of the following is an example of a common resource?

Accepted Answer

A) a salmon farm pool in northern New Brunswick 
B) impounded dogs in a dog pound 
C) public health care services 
D) sea otters in the coastal waters off the Queen Charlette Islands

Question 5

Which of the following displays these two characteristics: rivalry and nonexcludability?

Accepted Answer

A) a public good 
B) a private good 
C) a quasi-public good 
D) a common resource

Question 6

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 7

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good.All of the following will result from the tax except

Accepted Answer

A) an increase in the equilibrium market price. 
B) a decrease in the equilibrium quantity produced and consumed. 
C) a decrease in market supply of the good. 
D) an increase in the demand for the good.

Question 8

The private cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 9

Figure 5.5
  
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5.5 illustrates the situation in the toilet paper market.
-Refer to Figure 5.5.Suppose the government wants to use a Pigovian tax to bring about the efficient level of production.What should the value of the tax be?

Accepted Answer

A) (P₂- P₁)per ton of output 
B) (P₂- P₀)per ton of output 
C) (P₁- P₀)per ton of output 
D) P₁ per ton of output

Question 10

A product is considered to be excludable if it is jointly owned by all members of a community.

Accepted Answer

A) True 
 B)False

Question 11

The stated goal of the British Columbia tax on the burning of fossil fuels is to

Accepted Answer

A) control the economy. 
B) reduce greenhouse gas emissions. 
C) raise revenue for the provincial government. 
D) punish everyone living outside downtown Vancouver.

Question 12

Which of the following is a source of market failure?

Accepted Answer

A) unforeseen circumstances which leads to the bankruptcy of many firms 
B) a lack of government intervention in a market 
C) incomplete property rights or inability to enforce property rights 
D) an inequitable income distribution

Question 13

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

The answer of Briefly explain the command-and-control approach in dealing...

Question 14

Figure 5.5
  
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5.5 illustrates the situation in the toilet paper market.
-Refer to Figure 5.5.The private profit-maximizing output level is

Accepted Answer

A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Q₄.

Question 15

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government is 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.

Question 16

Figure 5.2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5.2.The private profit maximizing quantity for the firm is

Accepted Answer

A) Qₐ. 
B) Qb. 
C) Qb - Qd. 
D) Qd.

Question 17

Figure 5.2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5.2.The size of marginal external costs can be determined by

Accepted Answer

A) S₂ + S₁ at each output level. 
B) S₂ - S₁ at each output level. 
C) the supply curve S₂. 
D) the supply curve S₁.

Question 18

The Coase theorem states that

Accepted Answer

A) government intervention is always needed if externalities are present. 
B) assigning property rights is the only thing the government should do in a market economy. 
C) if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. 
D) a free market equilibrium is the best solution to address externalities.

Question 19

For the Coase theorem to work there must be clear assignment of property rights.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption?

Accepted Answer

A) public goods 
B) private goods 
C) quasi-public goods 
D) common resources

Exam 5: Externalities, Environmental Policy, and Public Goods

What is the rationale behind a marketable emission allowance scheme?

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

Figure 5.4 -Refer to Figure 5.4.Which of the following statements is true?

Which of the following is an example of a common resource?

Which of the following displays these two characteristics: rivalry and nonexcludability?

In economics, the term "free rider" refers to

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good.All of the following will result from the tax except

The private cost of a good or service is the cost borne by the producer.

A product is considered to be excludable if it is jointly owned by all members of a community.

The stated goal of the British Columbia tax on the burning of fossil fuels is to

Which of the following is a source of market failure?

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.

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

Figure 5.2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5.2.The private profit maximizing quantity for the firm is

Figure 5.2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5.2.The size of marginal external costs can be determined by

The Coase theorem states that

For the Coase theorem to work there must be clear assignment of property rights.

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption?