Question 1

Which is NOT a weakness of the policy of mandatory separation of recyclables?

Accepted Answer

A)  It actually pays people to use more recyclable material, and thus more material in total. 
B)  It is costly for households in terms of time spent. 
C)  It is costly for the government to monitor. 
D)  Individuals may shift away from recyclable to non-recyclable materials just so they don't have to bother to separate them. 
E)  Implementation is difficult and consumes household space. 
A)  It actually pays people to use more recyclable material, and thus more material in total. 
B)  It is costly for households in terms of time spent. 
C)  It is costly for the government to monitor. 
D)  Individuals may shift away from recyclable to non-recyclable materials just so they don't have to bother to separate them. 
E)  Implementation is difficult and consumes household space.

Question 2

Common property rights

Accepted Answer

A)  increase efficiency over individual property rights. 
B)  enable the Coase theorem to work. 
C)  are responsible for the increasing success of preservation of African elephants. 
D)  are responsible for the increasing success of preservation of worldwide fishing resources. 
E)  result in faster depletion of resources than do individual property rights. 
A)  increase efficiency over individual property rights. 
B)  enable the Coase theorem to work. 
C)  are responsible for the increasing success of preservation of African elephants. 
D)  are responsible for the increasing success of preservation of worldwide fishing resources. 
E)  result in faster depletion of resources than do individual property rights.

Question 3

The difference between the marginal social cost and the private cost of a common property resource represents:

Accepted Answer

A)  the social discount rate. 
B)  a deadweight loss. 
C)  is generally negative because the people who use the resources assign higher value to them than other members of society. 
D)  the opportunity cost of reducing the resource by one unit for other members of society. 
A)  the social discount rate. 
B)  a deadweight loss. 
C)  is generally negative because the people who use the resources assign higher value to them than other members of society. 
D)  the opportunity cost of reducing the resource by one unit for other members of society.

Question 4

Scenario 18.1:
It is the factory's choice whether to install a filter. It is the choice of the nearby fishermen whether to install a treatment plant. Dollar figures show profit. The factory and the fishermen can negotiate costlessly, and no one else is affected by the result.
Factory Fishermen
A: No filter or treatment plant $10,000 $2,000
B: Filter; no treatment plant $6,000 $10,000
C: No filter; treatment plant $10,000 $4,000
D: Filter; treatment plant $6,000 $6,000
-Refer to Scenario 18.1. It would be acceptable to both parties to have the fishermen pay the factory

Accepted Answer

A)  $0 to install a filter. 
B)  $500 to install a filter. 
C)  $4,000 to install a filter. 
D)  $6,000 to install a filter. 
E)  any amount greater than $4,000 and less than $6,000 to install the filter and make both parties better off. 
A)  $0 to install a filter. 
B)  $500 to install a filter. 
C)  $4,000 to install a filter. 
D)  $6,000 to install a filter. 
E)  any amount greater than $4,000 and less than $6,000 to install the filter and make both parties better off.

Question 5

Even if we were able to completely eliminate greenhouse gas (GHG) emissions today, the problems associated with the accumulated stock of GHGs in the atmosphere will persist for a long time because:

Accepted Answer

A)  their dissipation rate is very low. 
B)  their dissipation rate is very high. 
C)  the social discount rate is very low. 
D)  the social discount rate is very high. 
A)  their dissipation rate is very low. 
B)  their dissipation rate is very high. 
C)  the social discount rate is very low. 
D)  the social discount rate is very high.

Question 6

The marginal social costs and abatement costs of a certain type of air pollution for a factory are given as:
MSC = -1121 + 22.5Q MCA = 879 - 17.5Q,
where Q = units of pollution per day, and MSC and MCA are measured in dollars. The factory is located in a small town that is currently setting community standards. You have been hired to perform the analysis requested below.
a. If the community wishes to set a pollution standard for the factory, what daily level of pollution should be allowed?
b. As an alternative, some members of the town council favor an emissions tax for the factory. If a tax is implemented, at what level should the tax be set?

Accepted Answer

a.
To determine the optimal level of pol

Question 7

When new technologies make cleaner production possible,

Accepted Answer

A)  emissions would fall under a system of fees, but would not fall under a system of transferable emissions permits unless the government bought back some of the permits. 
B)  emissions would fall under a system of permits, but would not fall under a system of fees unless the government raised them. 
C)  the price of transferable permits would rise. 
D)  the quantity of transferable permits would rise. 
E)  the quantity of transferable permits would fall. 
A)  emissions would fall under a system of fees, but would not fall under a system of transferable emissions permits unless the government bought back some of the permits. 
B)  emissions would fall under a system of permits, but would not fall under a system of fees unless the government raised them. 
C)  the price of transferable permits would rise. 
D)  the quantity of transferable permits would rise. 
E)  the quantity of transferable permits would fall.

Question 8

You share a room in a large apartment complex with three other students, and you want to have an end-of-semester party that may become very noisy. Your lease clearly states that you are not to disturb the other residents, but you believe the Coase Theorem implies that you should be able to bargain with your neighbors and reach an agreement on hosting the party. However, you are wrong and bargaining is unlikely to achieve an efficient outcome. Which condition of the Coase Theorem is not met in your situation?

Accepted Answer

A)  Property rights are not clearly assigned. 
B)  The costs of bargaining are too high. 
C)  You must have the property right to host noisy parties for the Coase Theorem to work in this case. 
D)  All of the Coase Theorem conditions are met. 
A)  Property rights are not clearly assigned. 
B)  The costs of bargaining are too high. 
C)  You must have the property right to host noisy parties for the Coase Theorem to work in this case. 
D)  All of the Coase Theorem conditions are met.

Question 9

Corn flakes are

Accepted Answer

A)  a rival good because many firms produce them. 
B)  a rival good because if another person wants some corn flakes society has to use additional resources to produce corn flakes for that person. 
C)  a non-rival good because there are only a few firms in the industry. 
D)  a non-rival good because even if another person wants some corn flakes so many corn flakes are produced that no additional resources are used to satisfy this new customer's needs. 
E)  a public good. 
A)  a rival good because many firms produce them. 
B)  a rival good because if another person wants some corn flakes society has to use additional resources to produce corn flakes for that person. 
C)  a non-rival good because there are only a few firms in the industry. 
D)  a non-rival good because even if another person wants some corn flakes so many corn flakes are produced that no additional resources are used to satisfy this new customer's needs. 
E)  a public good.

Question 10

The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because

Accepted Answer

A)  people will buy fewer clothes that need dry cleaning than they otherwise would have. 
B)  people will develop substitutes for dry cleaning that are wasteful. 
C)  firms will be induced to leave the industry because of artificially high costs. 
D)  firms whose average private cost is less than price will stay in (or enter) the dry cleaning industry even though their average social cost exceeds price. 
E)  firms whose average private cost exceeds the price will exit (or fail to enter) the dry cleaning industry even though their average social cost is less than price. 
A)  people will buy fewer clothes that need dry cleaning than they otherwise would have. 
B)  people will develop substitutes for dry cleaning that are wasteful. 
C)  firms will be induced to leave the industry because of artificially high costs. 
D)  firms whose average private cost is less than price will stay in (or enter) the dry cleaning industry even though their average social cost exceeds price. 
E)  firms whose average private cost exceeds the price will exit (or fail to enter) the dry cleaning industry even though their average social cost is less than price.

Question 11

The social discount rate is an important component in net present value (NPV) calculations for public policies related to stock externalities, but economists do not agree on which value to use for this rate. Suppose a recent study reports that the NPV of a proposed carbon tax intended to reduce carbon dioxide emissions is positive, but the annual net benefits do not become positive until 2060. The authors of the study used a social discount rate of 2%. What can we say about the findings of the study if the research were repeated with a higher social discount rate?

Accepted Answer

A)  NPV would decline, and the annual net benefits would become positive after 2060. 
B)  NPV would increase, and the annual net benefits would become positive before 2060. 
C)  NPV would decline, and the annual net benefits would not change. 
D)  The findings of the study would not change. 
A)  NPV would decline, and the annual net benefits would become positive after 2060. 
B)  NPV would increase, and the annual net benefits would become positive before 2060. 
C)  NPV would decline, and the annual net benefits would not change. 
D)  The findings of the study would not change.

Question 12

The most popular state park in the Craggy Mountains recently reached the point where a common property resources problem arose - too many people hunted for wild boar each season. The boar population became over hunted and was in peril of extinction. An economist at the local university studied the problem for the park management and estimated the following cost and revenue relationships:
Demand: P = 10 - 0.008Q
Marginal social cost: MSC = 1.00 + 0.0067Q
Marginal private cost: MPC = 1.00 + 0.0010Q.
The variable Q represents the number of boars killed each season and price P is in hundreds ($).
a. Determine the equilibrium number of boars killed per season, when there is unlimited access to the park.
b. Determine the per boar fee that must be charged to reduce the harvest to the efficient level.
c. Determine the social cost of unlimited hunting of the boar.

Accepted Answer

a.
The number of boars with unlimited ac

Question 13

Suppose the current stock of greenhouse gases in the atmosphere is 100 million tons, the stock dissipation rate is 0.02, and we will emit 4 million tons into the atmosphere this year. What is the stock level of greenhouse gases expected to be for next year?

Accepted Answer

A)  98 million tons 
B)  100 million tons 
C)  102 million tons 
D)  104 million tons 
A)  98 million tons 
B)  100 million tons 
C)  102 million tons 
D)  104 million tons

Question 14

Smog Corporation and Grimy Corporation emit pollution in their production processes. The local government has established a standard for the pollution levels of Smog Corporation and Grimy Corporation of 25,000 units of pollution. To ensure this level of pollution is achieved efficiently, the government sells permits to the corporations that entitle them to emit a unit of pollution. Smog Corporation has the following demand function for pollution emission permits:   
= 15,000 -   
. Grimy Corporation's demand function for pollution emission permits is:   
= 13,000 -   
.
What is the equilibrium price of pollution permits? If the government makes the standard more stringent and allows only 15,000 units of pollution, what happens to the equilibrium price of pollution permits?

Accepted Answer

Equilibrium in the permit market require

Question 15

Majority-rule voting

Accepted Answer

A)  is economically efficient. 
B)  is never economically efficient. 
C)  may or may not be efficient, depending upon the preferences of the voters. 
D)  is economically efficient only in a democracy. 
E)  is economically efficient only if there is a median voter. 
A)  is economically efficient. 
B)  is never economically efficient. 
C)  may or may not be efficient, depending upon the preferences of the voters. 
D)  is economically efficient only in a democracy. 
E)  is economically efficient only if there is a median voter.

Question 16

Suppose your neighbor likes to repair motorcycles in his front yard during evenings and on weekends, and he earns $400 per week from this work. However, the sight of piles of greasy motorcycle parts and the additional noise and traffic caused by his customers reduces your value of living in this neighborhood by $300 per week. If your neighbor has a right to operate this business, what is the efficient outcome?

Accepted Answer

A)  He continues to operate the business. 
B)  You can pay him to move the business to another location. 
C)  He pays you to let him continue working on motorcycles at his home. 
D)  There is no efficient outcome from this situation. 
A)  He continues to operate the business. 
B)  You can pay him to move the business to another location. 
C)  He pays you to let him continue working on motorcycles at his home. 
D)  There is no efficient outcome from this situation.

Question 17

Suppose the Environmental Protection Administration (EPA) proposes a change in automobile exhaust systems that reduces the amount of greenhouse gases (GHGs) emitted into the atmosphere, and they estimate that the net present value (NPV) of this policy change is worth $3 trillion dollars. To form this estimate, the EPA staff members assumed a particular social discount rate and a particular stock dissipation rate for GHGs. What happens to the NPV of this proposed policy if the staff members use a smaller stock dissipation rate?

Accepted Answer

A)  NPV increases 
B)  NPV declines 
C)  NPV remains unchanged 
D)  We do not have enough information to answer this question 
A)  NPV increases 
B)  NPV declines 
C)  NPV remains unchanged 
D)  We do not have enough information to answer this question

Question 18

When emissions are measured on the horizontal axis, the marginal cost of abating emissions is

Accepted Answer

A)  downward-sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. 
B)  downward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain. 
C)  upward-sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. 
D)  upward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain. 
E)  horizontal because the technology to remove emissions is assumed constant. 
A)  downward-sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. 
B)  downward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain. 
C)  upward-sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. 
D)  upward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain. 
E)  horizontal because the technology to remove emissions is assumed constant.

Question 19

Due to externalities generated by home landscaping, its price

Accepted Answer

A)  is above the optimal level, and quantity that is below the optimal level. 
B)  is below the optimal level, and quantity that is above the optimal level. 
C)  and quantity traded are both above the optimal level. 
D)  and quantity traded are both below the optimal level. 
E)  must fall in order for the market to reach equilibrium. 
A)  is above the optimal level, and quantity that is below the optimal level. 
B)  is below the optimal level, and quantity that is above the optimal level. 
C)  and quantity traded are both above the optimal level. 
D)  and quantity traded are both below the optimal level. 
E)  must fall in order for the market to reach equilibrium.

Question 20

The city of Econoville currently charges a fee of $0.50 to residents for each 50 gallon can of trash the city garbage service collects from their residence. The marginal social cost of garbage disposed is: MSCd (gd) = 15.50, where gd is a 50 gallon drum of garbage disposed. The marginal benefit function of garbage removed from residences is: MB(g) = 800 - 2g. Given the payment plan for garbage disposal, what level of garbage are the city residents disposing each year? Is this level of disposal efficient? Why or why not? Suppose the marginal cost of recycling is: MSCr (gr) = 2.50 gr. The marginal benefit of garbage removed from residences is: MB(gd, gr) = 800 - 2(gd + gr). What is the optimal level of garbage disposed and garbage recycled in Econoville?

Accepted Answer

With the payment plan, residents set: MB

Which is NOT a weakness of the policy of mandatory separation of recyclables?

Common property rights

The difference between the marginal social cost and the private cost of a common property resource represents:

Even if we were able to completely eliminate greenhouse gas (GHG) emissions today, the problems associated with the accumulated stock of GHGs in the atmosphere will persist for a long time because:

When new technologies make cleaner production possible,

Corn flakes are

The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because

Suppose the current stock of greenhouse gases in the atmosphere is 100 million tons, the stock dissipation rate is 0.02, and we will emit 4 million tons into the atmosphere this year. What is the stock level of greenhouse gases expected to be for next year?

Majority-rule voting

When emissions are measured on the horizontal axis, the marginal cost of abating emissions is

Due to externalities generated by home landscaping, its price

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Filters

Exam 18: Externalities and Public Goods

Which is NOT a weakness of the policy of mandatory separation of recyclables?

Common property rights

The difference between the marginal social cost and the private cost of a common property resource represents:

Even if we were able to completely eliminate greenhouse gas (GHG) emissions today, the problems associated with the accumulated stock of GHGs in the atmosphere will persist for a long time because:

When new technologies make cleaner production possible,

Corn flakes are

The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because

Suppose the current stock of greenhouse gases in the atmosphere is 100 million tons, the stock dissipation rate is 0.02, and we will emit 4 million tons into the atmosphere this year. What is the stock level of greenhouse gases expected to be for next year?

Majority-rule voting

When emissions are measured on the horizontal axis, the marginal cost of abating emissions is

Due to externalities generated by home landscaping, its price

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Filters