Question 1

When new technologies make cleaner production possible,

Accepted Answer

A)  emissions fees rise. 
B)  emissions fees fall. 
C)  the price of transferable permits rises. 
D)  the price of transferable permits falls. 
E)  the quantity of transferable permits falls. 
A)  emissions fees rise. 
B)  emissions fees fall. 
C)  the price of transferable permits rises. 
D)  the price of transferable permits falls. 
E)  the quantity of transferable permits falls.

Question 2

Left alone, with no government interference, a profit-maximizing firm will produce emissions

Accepted Answer

A)  where the MSB curve crosses the MCA curve. 
B)  at the vertical intercept of the MSB curve. 
C)  at the horizontal intercept of the MSB curve. 
D)  at the vertical intercept of the MCA curve. 
E)  at the horizontal intercept of the MCA curve. 
A)  where the MSB curve crosses the MCA curve. 
B)  at the vertical intercept of the MSB curve. 
C)  at the horizontal intercept of the MSB curve. 
D)  at the vertical intercept of the MCA curve. 
E)  at the horizontal intercept of the MCA curve.

Question 3

When a man invests in controlling weeds and trash that tend to accumulate in his yard, both he and his neighbors benefit from his action. Is an externality associated with his private decision? If so, explain its effect, and determine whether the efficient level of weed control occurs when the individual invests in weed control.

Accepted Answer

When a man invests in weed and trash con

Question 4

The market for paper in a particular region has the supply and demand curves:
QD = 160,000 - 2,000P QS = 40,000 + 2,000P,
where Q is measured in hundred-pound lots, and P is price per hundred-pound lot. There is currently no attempt to regulate the dumping of effluent into streams and rivers by the paper mills. As a result, dumping is widespread. The marginal external cost associated with the paper production is given by the expression:
MEC = 0.0002Q.
a. Calculate the competitive price and output, assuming that no attempt is made to monitor or regulate the dumping of effluent.
b. Determine the socially optimal levels for price and output. If your answers in (a) and (b) are different, explain the source of the difference.
c. Sketch a diagram showing the costs or benefits to society of allowing the market to operate in an unregulated fashion.

Accepted Answer

a.
Solve for P in the demand and supply

Question 5

Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers,

Accepted Answer

A)  the marginal social cost curve is above and to the right of the demand curve. 
B)  the marginal social cost curve is below and to the left of the demand curve. 
C)  the marginal social cost curve is above and to the left of the supply curve. 
D)  the marginal social cost curve is below and to the right of the supply curve. 
E)  there is a gap between quantity supplied and quantity demanded in equilibrium. 
A)  the marginal social cost curve is above and to the right of the demand curve. 
B)  the marginal social cost curve is below and to the left of the demand curve. 
C)  the marginal social cost curve is above and to the left of the supply curve. 
D)  the marginal social cost curve is below and to the right of the supply curve. 
E)  there is a gap between quantity supplied and quantity demanded in equilibrium.

Question 6

Given that MEC(q) = 2q2, what can be inferred about the total cost of pollution as output increases?

Accepted Answer

A)  The total cost of pollution is increasing. 
B)  The total cost of pollution is positive. 
C)  The total cost of pollution is growing at a positive rate. 
D)  The total cost of pollution is growing at an increasing rate. 
E)  The total cost of pollution is changing. 
A)  The total cost of pollution is increasing. 
B)  The total cost of pollution is positive. 
C)  The total cost of pollution is growing at a positive rate. 
D)  The total cost of pollution is growing at an increasing rate. 
E)  The total cost of pollution is changing.

Question 7

If households could be charged differently for different types of garbage,

Accepted Answer

A)  the total amount of garbage would be reduced. 
B)  recycling would be more difficult. 
C)  costs of collecting garbage could be kept much lower. 
D)  billing for garbage collection would be much easier. 
E)  there would be a change in the types of items that are disposed of as garbage. 
A)  the total amount of garbage would be reduced. 
B)  recycling would be more difficult. 
C)  costs of collecting garbage could be kept much lower. 
D)  billing for garbage collection would be much easier. 
E)  there would be a change in the types of items that are disposed of as garbage.

Question 8

If households pay a fixed annual fee for trash disposal,

Accepted Answer

A)  households will all tend to produce the same amount of garbage. 
B)  households have no incentive to cut back on the amount of garbage they generate. 
C)  that fee will provide households with an incentive to cut back on the amount of garbage they generate. 
D)  that fee will discourage households from throwing out reusable materials. 
E)  that fee will discourage households from throwing out toxic or otherwise harmful materials. 
A)  households will all tend to produce the same amount of garbage. 
B)  households have no incentive to cut back on the amount of garbage they generate. 
C)  that fee will provide households with an incentive to cut back on the amount of garbage they generate. 
D)  that fee will discourage households from throwing out reusable materials. 
E)  that fee will discourage households from throwing out toxic or otherwise harmful materials.

Question 9

Under a transferable emissions permit system with n possible polluters, the government enforces the total amount of emissions allowable at X units by

Accepted Answer

A)  setting a different fee for each firm so that each firm chooses to emit X/n units. 
B)  setting the same fee for each firm so that each is forced to emit X/n units. 
C)  setting a different standard for each firm, with X/n being the average. 
D)  setting the same standard for each firm at X/n. 
E)  issuing X permits. 
A)  setting a different fee for each firm so that each firm chooses to emit X/n units. 
B)  setting the same fee for each firm so that each is forced to emit X/n units. 
C)  setting a different standard for each firm, with X/n being the average. 
D)  setting the same standard for each firm at X/n. 
E)  issuing X permits.

Question 10

Figure 18.1
All producers in the corbomite industry dump wastes in the river in the production of their output.
-Given the information in Figure 18.1, the efficient output in the corbomite industry is:

Accepted Answer

A)  0. 
B)  Q0. 
C)  Q1. 
D)  Q2. 
A)  0. 
B)  Q0. 
C)  Q1. 
D)  Q2.

Question 11

Government water resource specialists have estimated that the Great Lakes currently contain about 200 thousand tons of pesticide pollutants, the amount of new pesticide pollutants that enter the lakes are about 20 thousand tons per year, and the stock of pesticide pollutants was about 200 thousand tons last year. Based on this information, what is the stock dissipation rate?

Accepted Answer

A)  Zero 
B)  5 percent 
C)  10 percent 
D)  20 percent 
A)  Zero 
B)  5 percent 
C)  10 percent 
D)  20 percent

Question 12

When peach canners process fresh peaches, they produce three products. The first, canned peaches, is sold in the marketplace. The others, liquid and solid wastes, are by-products that must be removed. The liquid is sometimes temporarily kept in holding ponds and later released into a nearby stream or sewer. Liquid dumped in the stream represents a negative externality to downstream users. In the peach growing region, the marginal external costs of the canning process have been estimated as:
MEC = 0.000043Q,
where Q represents output of canned peaches in cases per week. The marginal cost of canning peaches (ignoring MEC) is:
MC = 2.00 + 0.000157Q,
and the demand for canned peaches is:
P = 9.00 - 0.000243Q.
a. How many cases of peaches will be produced per week during the growing season, and what will the selling price per case be if producers ignore the costs imposed on others?
b. If producers are forced to incorporate the marginal external costs into their production decisions, what will the new production rate and selling price be?
c. In taking account of the external costs imposed on others (part b), what was the impact on the selling price and production rate of canned peaches? Explain the impact on market efficiency.

Accepted Answer

a.
The output rate is determined where t

Question 13

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 you have a right to live in peace and quiet, how can you achieve the efficient outcome?

Accepted Answer

A)  He cannot afford to pay you enough money to allow him to work on motorcycles. 
B)  He pays you some value between $0 and $100 to allow his home business. 
C)  He pays you some value between $300 and $400 to allow his home business. 
D)  He pays you at least $400 to allow his home business. 
A)  He cannot afford to pay you enough money to allow him to work on motorcycles. 
B)  He pays you some value between $0 and $100 to allow his home business. 
C)  He pays you some value between $300 and $400 to allow his home business. 
D)  He pays you at least $400 to allow his home business.

Question 14

Ms. Moneynickel has a monopoly in oil refinement in the local market. The demand for Ms. Moneynickel's oil is: P = 75 - q. The relevant marginal revenue function is: MR(q) = 75 - 2q. Ms. Moneynickel's marginal cost function is: MC(q) = 0.5q. In the refinement of oil, Ms. Moneynickel emits pollution that has the marginal external cost function: MEC(q) = 31. What level of output will Ms. Moneynickel select to maximize profits? What is the marginal social cost of Ms. Moneynickel's profit maximizing output? What do consumers pay for Ms. Moneynickel's refined oil? Is this level of output efficient? Should more or less oil be refined to reach the optimum output level? Should the local government charge Ms. Moneynickel a pollution fee for each unit of oil she refines?

Accepted Answer

Ms. Moneynickel's profit maximizing leve

Question 15

The food processing industry involves the canning of fruit products, among other things, and the canning process produces canned goods and waste products. The manufacturer of one kind of fruit product produces an external cost for third parties. This external cost is expressed as:
MEC = 0.00005Q,
where MEC represents marginal external cost (dollars/unit), and Q represents cases produced per week. The marginal cost of production (supply), ignoring MEC, at the industry level is:
MC = 2 + 0.000175Q.
The industry demand for the product is:
P = 10 - 0.00025Q,
where price P is in dollars per unit.
a. Determine the output rate and price that would be established by profit maximizing firms.
b. Determine the efficient output rate and price.
c. Determine the cost to society of firms producing at the profit maximizing rate rather than at the efficient output rate.

Accepted Answer

a.
The profit maximizing production rate

Question 16

The efficient level of recycling equates the

Accepted Answer

A)  marginal cost of scrap disposal to the marginal benefit from not using virgin materials. 
B)  marginal cost of recycling to the marginal benefit from not using virgin materials. 
C)  marginal cost of scrap disposal to the marginal cost of recycling. 
D)  marginal private cost of disposal to the marginal cost of recycling. 
E)  per-unit refund from recycled materials to the marginal benefit from not using virgin materials. 
A)  marginal cost of scrap disposal to the marginal benefit from not using virgin materials. 
B)  marginal cost of recycling to the marginal benefit from not using virgin materials. 
C)  marginal cost of scrap disposal to the marginal cost of recycling. 
D)  marginal private cost of disposal to the marginal cost of recycling. 
E)  per-unit refund from recycled materials to the marginal benefit from not using virgin materials.

Question 17

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 you have a right to live in peace and quiet, the efficient outcome can be achieved as long as the bargaining costs:

Accepted Answer

A)  are less than $100. 
B)  are greater than $100. 
C)  only include opportunity costs. 
D)  The Coase Theorem assumes zero transaction costs, so the bargaining costs must be zero in order to achieve the efficient outcome. 
A)  are less than $100. 
B)  are greater than $100. 
C)  only include opportunity costs. 
D)  The Coase Theorem assumes zero transaction costs, so the bargaining costs must be zero in order to achieve the efficient outcome.

Question 18

How does government provision of public goods solve the free rider problem?

Accepted Answer

A)  Governments can impose compulsory taxes to pay for public goods. 
B)  Governments can convert nonrival goods to rival goods by assigning property rights. 
C)  Governments can tax public goods to prevent over-use of the resources. 
D)  Governments cannot solve the free rider problem 
A)  Governments can impose compulsory taxes to pay for public goods. 
B)  Governments can convert nonrival goods to rival goods by assigning property rights. 
C)  Governments can tax public goods to prevent over-use of the resources. 
D)  Governments cannot solve the free rider problem

Question 19

Common property resources tend to be

Accepted Answer

A)  overused. 
B)  underused. 
C)  not used at all. 
D)  efficiently used. 
E)  used by the government only. 
A)  overused. 
B)  underused. 
C)  not used at all. 
D)  efficiently used. 
E)  used by the government only.

Question 20

A lawsuit seeking compensation for damage from pollution

Accepted Answer

A)  will ruin any chances the Coase theorem has of working to avoid the situation in the first place. 
B)  is a substitute for bargaining, but an inefficient one. 
C)  is a substitute for bargaining, and it can lead to the efficient solution. 
D)  is preferable to switching the property rights between the parties. 
E)  is how the Coase theorem was meant to work in the first place. 
A)  will ruin any chances the Coase theorem has of working to avoid the situation in the first place. 
B)  is a substitute for bargaining, but an inefficient one. 
C)  is a substitute for bargaining, and it can lead to the efficient solution. 
D)  is preferable to switching the property rights between the parties. 
E)  is how the Coase theorem was meant to work in the first place.

When new technologies make cleaner production possible,

Left alone, with no government interference, a profit-maximizing firm will produce emissions

Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers,

Given that MEC(q) = 2q², what can be inferred about the total cost of pollution as output increases?

If households could be charged differently for different types of garbage,

If households pay a fixed annual fee for trash disposal,

Under a transferable emissions permit system with n possible polluters, the government enforces the total amount of emissions allowable at X units by

Figure 18.1 All producers in the corbomite industry dump wastes in the river in the production of their output. -Given the information in Figure 18.1, the efficient output in the corbomite industry is:

The efficient level of recycling equates the

How does government provision of public goods solve the free rider problem?

Common property resources tend to be

A lawsuit seeking compensation for damage from pollution

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

When new technologies make cleaner production possible,

Left alone, with no government interference, a profit-maximizing firm will produce emissions

Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers,

Given that MEC(q) = 2q2, what can be inferred about the total cost of pollution as output increases?

If households could be charged differently for different types of garbage,

If households pay a fixed annual fee for trash disposal,

Under a transferable emissions permit system with n possible polluters, the government enforces the total amount of emissions allowable at X units by

Figure 18.1 All producers in the corbomite industry dump wastes in the river in the production of their output. -Given the information in Figure 18.1, the efficient output in the corbomite industry is:

The efficient level of recycling equates the

How does government provision of public goods solve the free rider problem?

Common property resources tend to be

A lawsuit seeking compensation for damage from pollution

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

Given that MEC(q) = 2q², what can be inferred about the total cost of pollution as output increases?