Question 1

Exhibit 17-2  
-In Exhibit 17-2, the socially efficient price and level of output are

Accepted Answer

A)  $6 and 50 units, respectively 
B)  $12 and 50 units, respectively 
C)  $12 and 40 units, respectively 
D)  $6 and 40 units, respectively 
E)  not indicated 
A)  $6 and 50 units, respectively 
B)  $12 and 50 units, respectively 
C)  $12 and 40 units, respectively 
D)  $6 and 40 units, respectively 
E)  not indicated

Question 2

How much of U.S. garbage is disposed of in landfills?

Accepted Answer

A)  25 percent 
B)  40 percent 
C)  60 percent 
D)  70 percent 
E)  100 percent 
A)  25 percent 
B)  40 percent 
C)  60 percent 
D)  70 percent 
E)  100 percent

Question 3

Renewable resources are those for which

Accepted Answer

A)  additional units can be purchased in the market 
B)  additional units can be purchased in the market or provided by government 
C)  worn-out units can be repaired for further use 
D)  periodic use can be continued indefinitely 
E)  additional sources are constantly being discovered 
A)  additional units can be purchased in the market 
B)  additional units can be purchased in the market or provided by government 
C)  worn-out units can be repaired for further use 
D)  periodic use can be continued indefinitely 
E)  additional sources are constantly being discovered

Question 4

If producers cannot afford the fees for pollution rights,

Accepted Answer

A)  they will pollute 
B)  they will buy pollution rights 
C)  they will sell pollution rights 
D)  they will have to find a cheaper way to deal with their pollution 
E)  they will not be able to use their pollution rights 
A)  they will pollute 
B)  they will buy pollution rights 
C)  they will sell pollution rights 
D)  they will have to find a cheaper way to deal with their pollution 
E)  they will not be able to use their pollution rights

Question 5

The economic efficiency approach to emission control provides the polluting firm with

Accepted Answer

A)  a license produce as much emissions as it wants 
B)  the option of choosing between focusing on profit or cost 
C)  a process for determining the optimum quantity of emissions 
D)  more flexibility in selecting the most cost effective method of control 
E)  a subsidy for producing additional emissions 
A)  a license produce as much emissions as it wants 
B)  the option of choosing between focusing on profit or cost 
C)  a process for determining the optimum quantity of emissions 
D)  more flexibility in selecting the most cost effective method of control 
E)  a subsidy for producing additional emissions

Question 6

In the United States, what percentage of smog comes from manufacturing sites?

Accepted Answer

A)  5 percent 
B)  15 percent 
C)  25 percent 
D)  40 percent 
E)  80 percent 
A)  5 percent 
B)  15 percent 
C)  25 percent 
D)  40 percent 
E)  80 percent

Question 7

If a private market determines the quantity of smallpox vaccinations, which of the following is true?

Accepted Answer

A)  The equilibrium quantity is too low for efficiency. 
B)  The equilibrium price and quantity are too high for efficiency. 
C)  The equilibrium price is efficient. 
D)  The equilibrium quantity is too high for efficiency. 
E)  The equilibrium price and quantity are efficient. 
A)  The equilibrium quantity is too low for efficiency. 
B)  The equilibrium price and quantity are too high for efficiency. 
C)  The equilibrium price is efficient. 
D)  The equilibrium quantity is too high for efficiency. 
E)  The equilibrium price and quantity are efficient.

Question 8

In order to increase society's well-being, education might be

Accepted Answer

A)  taxed to discourage production 
B)  subsidized to encourage production 
C)  taxed to encourage production 
D)  subsidized to discourage production 
E)  provided without government intervention 
A)  taxed to discourage production 
B)  subsidized to encourage production 
C)  taxed to encourage production 
D)  subsidized to discourage production 
E)  provided without government intervention

Question 9

A pollution tax

Accepted Answer

A)  is itself a form of negative externality 
B)  is a positive externality used to offset a negative one 
C)  is a price per unit of discharge of pollution 
D)  is a tax on pollution control equipment 
E)  may cause a common pool problem 
A)  is itself a form of negative externality 
B)  is a positive externality used to offset a negative one 
C)  is a price per unit of discharge of pollution 
D)  is a tax on pollution control equipment 
E)  may cause a common pool problem

Question 10

Exhibit 17-6  
-Exhibit 17-6 illustrates the presence of

Accepted Answer

A)  positive externalities 
B)  positive and negative externalities 
C)  negative externalities 
D)  the Coase theorem 
E)  a private market with a socially efficient equilibrium 
A)  positive externalities 
B)  positive and negative externalities 
C)  negative externalities 
D)  the Coase theorem 
E)  a private market with a socially efficient equilibrium

Question 11

Suppose research indicates that the effects of a one degree increase in Earth's average temperature would be much more devastating than previously believed. Therefore, the greater the marginal benefit of reducing greenhouse gases, other things constant,

Accepted Answer

A)  the lower the optimal level of emissions 
B)  the higher the optimal level of emissions 
C)  the likelier that the level of emissions would have no effect 
D)  the lower the optimal level of cleaner air 
E)  None of the answers is correct 
A)  the lower the optimal level of emissions 
B)  the higher the optimal level of emissions 
C)  the likelier that the level of emissions would have no effect 
D)  the lower the optimal level of cleaner air 
E)  None of the answers is correct

Question 12

Exhibit 17-8  
-Exhibit 17-8 represents the consumer market for higher education. If people base their education decisions on the marginal social benefit of education, how many years of education will they get?

Accepted Answer

A)  3 years 
B)  4 years 
C)  5 years 
D)  6 years 
E)  7 years 
A)  3 years 
B)  4 years 
C)  5 years 
D)  6 years 
E)  7 years

Question 13

When consumption of a good creates positive externalities,

Accepted Answer

A)  the private demand curve shifts rightward 
B)  the private demand curve shifts leftward 
C)  the private demand curve is below the marginal social benefit curve 
D)  the private demand curve is above the marginal social benefit curve 
E)  the equilibrium quantity determined by the free private market is too high 
A)  the private demand curve shifts rightward 
B)  the private demand curve shifts leftward 
C)  the private demand curve is below the marginal social benefit curve 
D)  the private demand curve is above the marginal social benefit curve 
E)  the equilibrium quantity determined by the free private market is too high

Question 14

Markets fail when externalities are present

Accepted Answer

A)  because all of the costs and benefits of producing a good are reflected in the market price 
B)  because some of the costs and benefits of producing a good are not reflected in the market price 
C)  only if they are negative; positive externalities are not market failures 
D)  because profits are not maximized 
E)  if the positive externalities are less than the negative externalities 
A)  because all of the costs and benefits of producing a good are reflected in the market price 
B)  because some of the costs and benefits of producing a good are not reflected in the market price 
C)  only if they are negative; positive externalities are not market failures 
D)  because profits are not maximized 
E)  if the positive externalities are less than the negative externalities

Question 15

To maximize social welfare in the presence of a negative externality, marginal __________ must equal marginal __________.

Accepted Answer

A)  social cost; private cost 
B)  private cost; social cost 
C)  social cost; social benefit 
D)  private cost; social benefit 
E)  social cost; external cost 
A)  social cost; private cost 
B)  private cost; social cost 
C)  social cost; social benefit 
D)  private cost; social benefit 
E)  social cost; external cost

Question 16

Robert Iwasaki lives next door to a toxic waste landfill. Katie Cooley lives five miles downstream from a steel plant that dumps waste into Mill Creek. Which person is more likely to press public officials for a cleaner environment?

Accepted Answer

A)  Katie 
B)  Robert 
C)  neither 
D)  both equally 
E)  Economics cannot answer this question 
A)  Katie 
B)  Robert 
C)  neither 
D)  both equally 
E)  Economics cannot answer this question

Question 17

According to the Coase theorem, in order to solve a negative externality problem efficiently,

Accepted Answer

A)  the property right must be assigned to the party with the least-cost alternative 
B)  the property right must be assigned to the victim of pollution 
C)  transaction costs must be high 
D)  transaction costs must be low 
E)  property rights must be determined by the courts 
A)  the property right must be assigned to the party with the least-cost alternative 
B)  the property right must be assigned to the victim of pollution 
C)  transaction costs must be high 
D)  transaction costs must be low 
E)  property rights must be determined by the courts

Question 18

If the benefits to society of students attending college exceed benefits to the students,

Accepted Answer

A)  higher education should be strictly regulated 
B)  higher education should be taxed 
C)  higher education provides a positive externality 
D)  higher education is overproduced at the privately determined equilibrium 
E)  in time, no higher education will be produced 
A)  higher education should be strictly regulated 
B)  higher education should be taxed 
C)  higher education provides a positive externality 
D)  higher education is overproduced at the privately determined equilibrium 
E)  in time, no higher education will be produced

Question 19

The Clean Air Act of 1970

Accepted Answer

A)  set up a depletion tax system 
B)  reduced air pollution standards 
C)  recognized air as a resource 
D)  established a system of transferable pollution rights 
E)  forbade producers to emit any pollutants into the air 
A)  set up a depletion tax system 
B)  reduced air pollution standards 
C)  recognized air as a resource 
D)  established a system of transferable pollution rights 
E)  forbade producers to emit any pollutants into the air

Question 20

When the free market produces less than the socially optimal quantity of a good,

Accepted Answer

A)  negative externalities must be present 
B)  marginal social cost must exceed marginal private cost 
C)  marginal private benefit must exceed marginal social benefit 
D)  the government should tax production of the good 
E)  there has been a market failure 
A)  negative externalities must be present 
B)  marginal social cost must exceed marginal private cost 
C)  marginal private benefit must exceed marginal social benefit 
D)  the government should tax production of the good 
E)  there has been a market failure

Exam 17: Externalities and the Environment

Exhibit 17-2 -In Exhibit 17-2, the socially efficient price and level of output are

How much of U.S. garbage is disposed of in landfills?

Renewable resources are those for which

If producers cannot afford the fees for pollution rights,

The economic efficiency approach to emission control provides the polluting firm with

In the United States, what percentage of smog comes from manufacturing sites?

If a private market determines the quantity of smallpox vaccinations, which of the following is true?

In order to increase society's well-being, education might be

A pollution tax

Exhibit 17-6 -Exhibit 17-6 illustrates the presence of

Suppose research indicates that the effects of a one degree increase in Earth's average temperature would be much more devastating than previously believed. Therefore, the greater the marginal benefit of reducing greenhouse gases, other things constant,

Exhibit 17-8 -Exhibit 17-8 represents the consumer market for higher education. If people base their education decisions on the marginal social benefit of education, how many years of education will they get?

When consumption of a good creates positive externalities,

Markets fail when externalities are present

To maximize social welfare in the presence of a negative externality, marginal __________ must equal marginal __________.

Robert Iwasaki lives next door to a toxic waste landfill. Katie Cooley lives five miles downstream from a steel plant that dumps waste into Mill Creek. Which person is more likely to press public officials for a cleaner environment?

According to the Coase theorem, in order to solve a negative externality problem efficiently,

If the benefits to society of students attending college exceed benefits to the students,

The Clean Air Act of 1970

When the free market produces less than the socially optimal quantity of a good,

The Art and Science of Economic Analysis

Appendix: Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix: price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix: Indifference Curves and Utility Maximization

Production and Cost in the Firm

Appendix: a Closer Look at Production and Cost

A: perfect Competition

B: perfect Competition

A: monopoly

B: Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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To maximize social welfare in the presence of a negative externality, marginal must equal marginal .