Question 1

Common property is

Accepted Answer

A)  property that has mineral or oil deposits. 
B)  a resource that everyone is free to use as much as they want. 
C)  property owned by a group such as a club. 
D)  property that has little economic value.

Question 2

The Clear Plastic Company's plant discharges large quantities of toxic chemicals into some groundwater sources. Residents in the surrounding area have higher medical bills because of Clear Plastic's pollution. These additional medical costs represent

Accepted Answer

A)  a positive externality. 
B)  a negative externality. 
C)  the company's private costs. 
D)  the neighboring families' external costs.

Question 3

A method of forcing a company to internalize the total cost of production is

Accepted Answer

A)  to impose a tax on the company to reduce production. 
B)  to provide a subsidy to encourage production. 
C)  for government not to interfere in the company's activities. 
D)  to force the company to reduce the wages it pays to its employees.

Question 4

-Refer to the above figure. Suppose the marginal benefit and the marginal cost curves of pollution abatement are normally shaped. Technological change that made it easier to produce in a "cleaner" fashion would cause

Accepted Answer

A)  curve (4) to shift out, increasing the optimal amount of pollution abatement. 
B)  curve (3) to shift up, raising the marginal benefits and costs and reducing the amount of pollution abatement. 
C)  curve (2) to shift out, increasing the optimal amount of pollution abatement. 
D)  curve (1) to shift out, increasing the optimal amount of pollution abatement.

Question 5

A farmer notices that a neighboring rancher's cattle are wandering and destroying some of his crops. The farmer decides to offer a payment to the rancher if the rancher will reduce the size of his herd. By doing so, the farmer

Accepted Answer

A)  can be sure that the size of the herd will be reduced and the size of his own harvest will be increased. 
B)  indicates to the rancher that there is an opportunity cost to the wandering of the cattle, and thereby internalizes the externality. 
C)  inadvertently bears the costs of the externality when the rancher should be liable for the costs. 
D)  informs the rancher that the cattle have destroyed crops, which should induce the farmer to build a fence in order to maintain good relations.

Question 6

When a polluter has to bear the full social cost of their actions, they will

Accepted Answer

A)  weigh the costs and benefits of each potential action and might decide to not stop polluting by paying a fine. 
B)  go out of business since pollution abatement is expensive. 
C)  will always decide to reduce the amount of pollution by reducing the quantity they produce. 
D)  increase the price of the product and the quantity produced to pay for the additional costs.

Question 7

Which of the following statements is TRUE about the relationship among external, internal and social costs?

Accepted Answer

A)  Social costs will always be higher than external costs. 
B)  Social costs will always be lower than internal costs. 
C)  Internal costs will always be higher than external costs. 
D)  Internal costs will never equal external costs.

Question 8

The costs of pollution abatement

Accepted Answer

A)  increase at an increasing rate with the increase in pollution abatement. 
B)  increase at a decreasing rate with the increase in pollution abatement. 
C)  decrease at an increasing rate with the increase in pollution abatement. 
D)  decrease at a decreasing rate with the increase in pollution abatement.

Question 9

-Use the above table. If the level of production was determined by the market, it would be

Accepted Answer

A)  4. 
B)  5. 
C)  6. 
D)  7.

Question 10

Protecting endangered species are likely to be

Accepted Answer

A)  a private cost. 
B)  a public cost. 
C)  both private and public costs. 
D)  neither a private nor public cost.

Question 11

The level of pollution at which the marginal benefits equal the marginal cost of cleaning up is always

Accepted Answer

A)  the zero pollution level. 
B)  the optimal quantity of pollution. 
C)  the pollution maximum. 
D)  the pollution minimum.

Question 12

Assuming that pollution cannot be removed from the environment at zero cost, the optimal level of pollution

Accepted Answer

A)  will be zero. 
B)  will be negative. 
C)  will be greater than zero. 
D)  cannot be determined.

Question 13

For voluntary action to correct an externality

Accepted Answer

A)  transaction costs have to be high. 
B)  transaction costs have to be low. 
C)  transaction costs have to be split evenly between all of the parties involved. 
D)  transaction costs are irrelevant.

Question 14

With defined property rights, an externality

Accepted Answer

A)  can only be corrected with government intervention. 
B)  will not lead to a misallocation of resources. 
C)  may be internalized with voluntary contracting, under certain circumstances. 
D)  must lead to society producing inside its production possibilities frontier.

Question 15

Costs that are borne solely by the individuals who incur them are called

Accepted Answer

A)  private costs. 
B)  public costs. 
C)  social costs. 
D)  implicit costs.

Question 16

The marginal cost to society of reducing pollution increases with the increased use of pollution abatement because

Accepted Answer

A)  of the diminishing marginal utility of abatement. 
B)  of the reduced demand for abatement. 
C)  of the diminishing returns from abatement. 
D)  of the high cost of abatement.

Question 17

The best method to reduce pollution is

Accepted Answer

A)  to never start polluting. 
B)  to establish private property rights. 
C)  dependent upon the characteristics of the resources and the transaction costs. 
D)  dependent upon the quality of government bureaucrats and the level of greed in the society.

Question 18

When there is a resource for which property rights are NOT well defined and there is a difference between private costs and social costs, then all but which of the following is a way to close the difference?

Accepted Answer

A)  the free market system 
B)  taxation 
C)  subsidization 
D)  regulation

Question 19

When there are no externalities

Accepted Answer

A)  social costs are greater than private costs. 
B)  social costs are less than private costs. 
C)  private costs are greater than social costs. 
D)  private costs equal social costs.

Exam 31: Environmental Economics