Question 1

Coase argued that the free market should be able to solve the externality problem without assigning property rights.

Accepted Answer

A) True 
 B)False

Question 2

A removal or depletion tax on an open-access resource increases the marginal private cost of using the resource by

Accepted Answer

A)  zero 
B)  the amount of the tax 
C)  the marginal product of the resource 
D)  the average private cost of using the resource 
E)  the average social cost of using the resource 
A)  zero 
B)  the amount of the tax 
C)  the marginal product of the resource 
D)  the average private cost of using the resource 
E)  the average social cost of using the resource

Question 3

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

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 4

A meditation class meets on the second floor of a building; the first floor is a nightclub. The loud music from the club disturbs the classes. The club could be soundproofed for a cost of $5,000 or move at a cost of $8,000. The class can't soundproof enough to overcome the music, but could be moved for $4,000. According to Coase,

Accepted Answer

A)  the club should be soundproofed so both businesses can stay open 
B)  the club should be soundproofed because it is the one generating the externality 
C)  the club should move rather than be soundproofed because eliminating an externality is better than compensating for it 
D)  the class should move because it can eliminate the externality at a lower cost than can the nightclub 
E)  whichever business has been there longer has the overriding property right; the other should adjust 
A)  the club should be soundproofed so both businesses can stay open 
B)  the club should be soundproofed because it is the one generating the externality 
C)  the club should move rather than be soundproofed because eliminating an externality is better than compensating for it 
D)  the class should move because it can eliminate the externality at a lower cost than can the nightclub 
E)  whichever business has been there longer has the overriding property right; the other should adjust

Question 5

If consuming a good creates a positive externality,

Accepted Answer

A)  marginal private benefits exceed marginal social benefits 
B)  marginal social benefits exceed marginal private benefits 
C)  private demand is equal to marginal social benefit 
D)  private demand is greater than marginal social benefit 
E)  the private demand curve shifts to the right to coincide with the marginal social benefit curve 
A)  marginal private benefits exceed marginal social benefits 
B)  marginal social benefits exceed marginal private benefits 
C)  private demand is equal to marginal social benefit 
D)  private demand is greater than marginal social benefit 
E)  the private demand curve shifts to the right to coincide with the marginal social benefit curve

Question 6

Which of the following responses to a positive externality enhances society's welfare?

Accepted Answer

A)  taxes 
B)  subsidies 
C)  effluent fees 
D)  quotas 
E)  a cut in funding 
A)  taxes 
B)  subsidies 
C)  effluent fees 
D)  quotas 
E)  a cut in funding

Question 7

According to Coase,

Accepted Answer

A)  government regulation will almost always be necessary to eliminate negative externalities 
B)  externality problems can be solved efficiently by the assignment of property rights if transaction costs are low 
C)  when bargaining costs are high, it is necessary to assign property rights 
D)  assignment of property rights will lead to equitable but inefficient solutions to externality problems 
E)  there really is no externality problem with renewable resources 
A)  government regulation will almost always be necessary to eliminate negative externalities 
B)  externality problems can be solved efficiently by the assignment of property rights if transaction costs are low 
C)  when bargaining costs are high, it is necessary to assign property rights 
D)  assignment of property rights will lead to equitable but inefficient solutions to externality problems 
E)  there really is no externality problem with renewable resources

Question 8

Air pollution is more dangerous to the public, but toxic waste generates more public uproar. Why?

Accepted Answer

A)  Those exposed to the health hazard posed by the toxic waste site are usually less sure that exposure has occurred. 
B)  Those exposed to the health hazard posed by the toxic waste site are usually more sure that exposure has occurred. 
C)  Fewer people cause air pollution than toxic waste. 
D)  Fewer people are affected by air pollution than by toxic waste. 
E)  Toxic waste causes more illness and death than air pollution does. 
A)  Those exposed to the health hazard posed by the toxic waste site are usually less sure that exposure has occurred. 
B)  Those exposed to the health hazard posed by the toxic waste site are usually more sure that exposure has occurred. 
C)  Fewer people cause air pollution than toxic waste. 
D)  Fewer people are affected by air pollution than by toxic waste. 
E)  Toxic waste causes more illness and death than air pollution does.

Question 9

When an activity results in the imposition of external costs, markets will produce more than the socially optimal level of that activity.

Accepted Answer

A) True 
 B)False

Question 10

The marginal social cost curve is downward sloping under variable technology.

Accepted Answer

A) True 
 B)False

Question 11

Pollution and other negative externalities arise because

Accepted Answer

A)  there are no enforceable property rights to open-access resources 
B)  legislators cannot agree on what to do about them 
C)  they are the price consumers are willing to pay for production of goods and services 
D)  private property rights to pollute are controlled by businesses 
E)  science cannot decide how to control them 
A)  there are no enforceable property rights to open-access resources 
B)  legislators cannot agree on what to do about them 
C)  they are the price consumers are willing to pay for production of goods and services 
D)  private property rights to pollute are controlled by businesses 
E)  science cannot decide how to control them

Question 12

When society receives more benefits from a good than the individuals who consume the good,

Accepted Answer

A)  the marginal social benefit for the good is less than the marginal social cost 
B)  too much of the good would be produced by a private market 
C)  property rights are assignable and well defined 
D)  the good produces a positive externality 
E)  the good is exhaustible with fixed-production technology 
A)  the marginal social benefit for the good is less than the marginal social cost 
B)  too much of the good would be produced by a private market 
C)  property rights are assignable and well defined 
D)  the good produces a positive externality 
E)  the good is exhaustible with fixed-production technology

Question 13

The Coase theorem says that, if the appropriate property right is assigned to __________, an efficient solution to an externality problem will be achieved.

Accepted Answer

A)  the party causing the externality 
B)  the victim of the externality 
C)  the party that can avoid the externality at the higher cost 
D)  the party that can avoid the externality at the lower cost 
E)  either one of the parties involved 
A)  the party causing the externality 
B)  the victim of the externality 
C)  the party that can avoid the externality at the higher cost 
D)  the party that can avoid the externality at the lower cost 
E)  either one of the parties involved

Question 14

Exhibit 17-5  
-In Exhibit 17-5, if the government sells the right to pollute a river,

Accepted Answer

A)  firms will emit Q1 units of pollutant at a price of P0 each 
B)  firms will emit Q2 units of pollutant at a price of P0 each 
C)  firms will emit Q0 units of pollutant at a price of P3 each 
D)  firms will emit Q1 units of pollutant at a price of P1 each 
E)  firms will emit Q2 units of pollutant at a price of P3 each 
A)  firms will emit Q1 units of pollutant at a price of P0 each 
B)  firms will emit Q2 units of pollutant at a price of P0 each 
C)  firms will emit Q0 units of pollutant at a price of P3 each 
D)  firms will emit Q1 units of pollutant at a price of P1 each 
E)  firms will emit Q2 units of pollutant at a price of P3 each

Question 15

The Coase solution to the externality problem only works when bargaining costs are high.

Accepted Answer

A) True 
 B)False

Question 16

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

Accepted Answer

A)  The pollution will be created by those least willing and able to pay the damages. 
B)  The pollution will be created by those most willing and able to pay for the right to pollute. 
C)  The funds collected by the government will be enough to compensate any individuals harmed by the pollution. 
D)  Pollution will increase from zero to 1,000 units per day. 
E)  There will be no incentive for polluters to try to sneak emissions past government monitoring devices. 
A)  The pollution will be created by those least willing and able to pay the damages. 
B)  The pollution will be created by those most willing and able to pay for the right to pollute. 
C)  The funds collected by the government will be enough to compensate any individuals harmed by the pollution. 
D)  Pollution will increase from zero to 1,000 units per day. 
E)  There will be no incentive for polluters to try to sneak emissions past government monitoring devices.

Question 17

When consuming a good creates positive externalities,

Accepted Answer

A)  private demand increases 
B)  private demand decreases 
C)  the private demand curve overstates the marginal social benefit of the good 
D)  the private demand curve understates the marginal social benefit of the good 
E)  the equilibrium quantity increases without government intervention 
A)  private demand increases 
B)  private demand decreases 
C)  the private demand curve overstates the marginal social benefit of the good 
D)  the private demand curve understates the marginal social benefit of the good 
E)  the equilibrium quantity increases without government intervention

Question 18

If tuna in the sea are open-access resources, they will be used until the marginal value of additional use equals

Accepted Answer

A)  the marginal product of the resource 
B)  the marginal revenue of the resource 
C)  infinity 
D)  negative infinity 
E)  zero 
A)  the marginal product of the resource 
B)  the marginal revenue of the resource 
C)  infinity 
D)  negative infinity 
E)  zero

Question 19

The optimal level of air quality

Accepted Answer

A)  is always zero 
B)  occurs when the marginal social cost of air quality exceeds the marginal social benefit 
C)  is greater if the marginal social benefit curve of air quality shifts rightward 
D)  occurs when positive externalities are eliminated 
E)  eliminates the common pool problem 
A)  is always zero 
B)  occurs when the marginal social cost of air quality exceeds the marginal social benefit 
C)  is greater if the marginal social benefit curve of air quality shifts rightward 
D)  occurs when positive externalities are eliminated 
E)  eliminates the common pool problem

Question 20

An externality is

Accepted Answer

A)  a cost of a transaction that is borne by a third party 
B)  a benefit of a transaction that is enjoyed by a third party 
C)  a cost or benefit that arises when market price changes 
D)  any cost or benefit of a transaction that is not accounted for in the market price 
E)  the external revenue generated by a firm 
A)  a cost of a transaction that is borne by a third party 
B)  a benefit of a transaction that is enjoyed by a third party 
C)  a cost or benefit that arises when market price changes 
D)  any cost or benefit of a transaction that is not accounted for in the market price 
E)  the external revenue generated by a firm

Exam 17: Externalities and the Environment

Coase argued that the free market should be able to solve the externality problem without assigning property rights.

A removal or depletion tax on an open-access resource increases the marginal private cost of using the resource by

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

If consuming a good creates a positive externality,

Which of the following responses to a positive externality enhances society's welfare?

According to Coase,

Air pollution is more dangerous to the public, but toxic waste generates more public uproar. Why?

When an activity results in the imposition of external costs, markets will produce more than the socially optimal level of that activity.

The marginal social cost curve is downward sloping under variable technology.

Pollution and other negative externalities arise because

When society receives more benefits from a good than the individuals who consume the good,

The Coase theorem says that, if the appropriate property right is assigned to __________, an efficient solution to an externality problem will be achieved.

Exhibit 17-5 -In Exhibit 17-5, if the government sells the right to pollute a river,

The Coase solution to the externality problem only works when bargaining costs are high.

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

When consuming a good creates positive externalities,

If tuna in the sea are open-access resources, they will be used until the marginal value of additional use equals

The optimal level of air quality

An externality is

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

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