Question 1

If the government wanted to efficiently limit the emission of Carbon Monoxide by all firms to exactly four million tons it could

Accepted Answer

A) issue rights to pollute worth four million tons and let the firms trade those rights in a market. 
B) appeal to firms' environmental conscience to pollute less. 
C) subsidize production. 
D) rely on the Coase Theorem.

Question 2

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.As long as someone owns the lake and the two parties can negotiate,then

Accepted Answer

A) the beach shuts down and the chemical firm produces one ton of pollution. 
B) the beach shuts down and the chemical firm produces two tons of pollution. 
C) the beach operates and the chemical firm produces one ton of pollution. 
D) the beach operates and the chemical firm produces two tons of pollution.

Question 3

Because a monopoly will produce less of a good than a competitive market will,welfare is always greater under monopoly than under competition in the presence of a negative externality.

Accepted Answer

A) True 
 B)False

Question 4

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

Accepted Answer

A) outlaw the production of steel. 
B) institute an ad valorem tax of 33.3%. 
C) institute an ad valorem tax of 50%. 
D) institute an ad valorem tax of 66.7%.

Question 5

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If the chemical firm owns the lake and the beach owner must pay the chemical firm $10 to produce only one ton of pollution,what is the outcome? If the beach owner owns the lake and the chemical firm must pay $10 per ton of pollution,what is the outcome? Compare this result to the case where nobody owns the lake.

Accepted Answer

The answer of 
-The above figure shows the payoff matrix...

Question 6

A common resource is best described as a resource where

Accepted Answer

A) there is a positive externality in consumption. 
B) there is a negative externality in consumption. 
C) there is a positive externality in production. 
D) there is a negative externality in production.

Question 7

In a competitive market,a negative externality creates a deadweight loss because

Accepted Answer

A) the cost of the externality is double counted. 
B) a harm is generated. 
C) price equals social marginal cost. 
D) price equals private marginal cost.

Question 8

-Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?

Accepted Answer

The answer of 
-Suppose that the market for steel is...

Question 9

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If property rights are not defined,how much pollution will occur?

Accepted Answer

A) 0 units 
B) 500 units 
C) 1000 units 
D) more than 1000 units

Question 10

-The above figure shows the market for steel ingots.What is the change in externality cost if the market switches from competitive equilibrium to social optimum?

Accepted Answer

A) a + b 
B) b + c 
C) c 
D) a + b + c

Question 11

To maximize welfare in a competitive market that has a negative externality in production,government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.

Accepted Answer

A) True 
 B)False

Question 12

The result that,under certain circumstances,no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called

Accepted Answer

A) a Nash equilibrium. 
B) Coase Theorem. 
C) Bargaining Theorem. 
D) English Bargaining.

Question 13

You are having a party and one of your guests lights up a cigar without asking.Explain why this creates an externality.

Accepted Answer

The answer of You are having a party and one...

Question 14

A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if

Accepted Answer

A) the demand curve is relatively inelastic. 
B) the demand curve is relatively elastic. 
C) less than the socially optimum is produced before the tax. 
D) more than the socially optimum is produced before the tax.

Question 15

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,the optimal level of trash in the park can be achieved if

Accepted Answer

A) Al is fined by the government. 
B) Al has the right to leave trash and Bert cannot do anything about it. 
C) Al has the right to leave trash and Bert can pay him to limit his dumping. 
D) Bert moves.

Question 16

If a production process generates pollution,then a competitive market will produce more of the good than is socially optimal because

Accepted Answer

A) firms take all costs into consideration. 
B) firms incur all costs of production but ignore some of them. 
C) firms ignore the costs of production that they do not incur. 
D) firms set price equal to social marginal cost.

Question 17

If a market is subject to a positive externality,

Accepted Answer

A) the demand curve reflecting social benefit will be to the right of the demand curve representing private benefit. 
B) there is only one demand curve. 
C) the demand curve reflecting social benefit will be to the left of the demand curve representing private benefit. 
D) private benefit will exceed social benefit.

Question 18

Which of the following goods has the property of rivalry?

Accepted Answer

A) national defense 
B) a highway 
C) a public beach 
D) a movie screening

Question 19

-The above figure shows the market for steel ingots.The socially optimal quantity of steel is

Accepted Answer

A) 0 units. 
B) 50 units. 
C) 100 units. 
D) produced if the market were competitive.

Question 20

In the presence of a negative externality generated by producing a good,a competitive market will produce more of that good than is socially optimal.

Accepted Answer

A) True 
 B)False

Exam 17: Property Rights, Externalities, Rivalry, and Exclusion

If the government wanted to efficiently limit the emission of Carbon Monoxide by all firms to exactly four million tons it could

Because a monopoly will produce less of a good than a competitive market will,welfare is always greater under monopoly than under competition in the presence of a negative externality.

-The above figure shows the market for steel ingots.If the market is competitive,then to achieve the socially optimal level of pollution,the government can

A common resource is best described as a resource where

In a competitive market,a negative externality creates a deadweight loss because

-Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If property rights are not defined,how much pollution will occur?

-The above figure shows the market for steel ingots.What is the change in externality cost if the market switches from competitive equilibrium to social optimum?

To maximize welfare in a competitive market that has a negative externality in production,government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.

The result that,under certain circumstances,no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called

You are having a party and one of your guests lights up a cigar without asking.Explain why this creates an externality.

A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,the optimal level of trash in the park can be achieved if

If a production process generates pollution,then a competitive market will produce more of the good than is socially optimal because

If a market is subject to a positive externality,

Which of the following goods has the property of rivalry?

-The above figure shows the market for steel ingots.The socially optimal quantity of steel is

In the presence of a negative externality generated by producing a good,a competitive market will produce more of that good than is socially optimal.