Question 1

If X transferable emissions permits are issued and there are n potential polluters,

Accepted Answer

A)  the government must initially assign each of the potential polluters X/n permits. 
B)  the government must assign X/n permits to each potential polluter and check periodically that those permits have not moved. 
C)  emissions will be the same whether or not the permits are split equally, so long as none of the permits are issued outside the group. 
D)  emissions will be the same no matter who receives them first, so long as the recipient is willing and able to participate in the permit market. 
E)  emissions will be less if the permits are given initially to firms with lower abatement costs. 
A)  the government must initially assign each of the potential polluters X/n permits. 
B)  the government must assign X/n permits to each potential polluter and check periodically that those permits have not moved. 
C)  emissions will be the same whether or not the permits are split equally, so long as none of the permits are issued outside the group. 
D)  emissions will be the same no matter who receives them first, so long as the recipient is willing and able to participate in the permit market. 
E)  emissions will be less if the permits are given initially to firms with lower abatement costs.

Question 2

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. Which of the following is TRUE?

Accepted Answer

A)  The factory will never agree to B, because that would leave them with much less profit than the fishermen. 
B)  C will never occur because that would leave the fishermen with much less profit than the factory. 
C)  If the factory refused to install a filter, the fishermen would refuse to install a treatment plant. 
D)  The factory must install a filter, because they contaminate the water. 
E)  The profits above indicate profit before any agreement is made, and profit varies enough to make a mutually acceptable agreement possible. 
A)  The factory will never agree to B, because that would leave them with much less profit than the fishermen. 
B)  C will never occur because that would leave the fishermen with much less profit than the factory. 
C)  If the factory refused to install a filter, the fishermen would refuse to install a treatment plant. 
D)  The factory must install a filter, because they contaminate the water. 
E)  The profits above indicate profit before any agreement is made, and profit varies enough to make a mutually acceptable agreement possible.

Question 3

Plants, trees, and soils naturally emit carbon dioxide (CO2) that enters the atmosphere. To form a benchmark level for this greenhouse gas, we can determine the amount of CO2 that would end up in the atmosphere if there were no human activity on the planet. Suppose naturally occurring CO2 emissions are 5 million tons per year, the social discount rate is 5%, and the stock dissipation rate is 2%. What is the eventual level of CO2 in the atmosphere if these natural emissions continue at this rate forever?

Accepted Answer

A)  100 million tons 
B)  250 million tons 
C)  25 million tons 
D)  We do not have enough information to answer this question. 
A)  100 million tons 
B)  250 million tons 
C)  25 million tons 
D)  We do not have enough information to answer this question.

Question 4

Many states use container redemption programs to encourage reuse of glass bottles and other recyclable containers. Suppose a state has a current redemption program that imposes a 10-cent per container fee, and then the state increases the fee to 15 cents per container. What is the expected impact of this change on the optimal quantity of unredeemed (scrapped) containers?

Accepted Answer

A)  Optimal quantity increases 
B)  Optimal quantity decreases 
C)  Optimal quantity remains unchanged 
D)  We cannot determine the outcome of this policy change without having more information 
A)  Optimal quantity increases 
B)  Optimal quantity decreases 
C)  Optimal quantity remains unchanged 
D)  We cannot determine the outcome of this policy change without having more information

Question 5

Majority-rule voting

Accepted Answer

A)  usually emphasizes the preferences of extremist voters on one side or the other. 
B)  usually allows extremist voters to band together and swamp the preferences of the median voter. 
C)  never reflects the preferences of the median voter. 
D)  reflects the preferences of the median voter. 
E)  generates economically efficient outcomes in most cases. 
A)  usually emphasizes the preferences of extremist voters on one side or the other. 
B)  usually allows extremist voters to band together and swamp the preferences of the median voter. 
C)  never reflects the preferences of the median voter. 
D)  reflects the preferences of the median voter. 
E)  generates economically efficient outcomes in most cases.

Question 6

Externalities

Accepted Answer

A)  are not reflected in market prices, so they can be a source of economic inefficiency. 
B)  do become reflected in market prices, so they can be a source of economic inefficiency. 
C)  are not reflected in market prices, so they do not adversely affect economic efficiency. 
D)  do become reflected in market prices, so they do not adversely affect economic efficiency. 
E)  may or may not become reflected in market prices, but do not have an impact on economic efficiency in either event. 
A)  are not reflected in market prices, so they can be a source of economic inefficiency. 
B)  do become reflected in market prices, so they can be a source of economic inefficiency. 
C)  are not reflected in market prices, so they do not adversely affect economic efficiency. 
D)  do become reflected in market prices, so they do not adversely affect economic efficiency. 
E)  may or may not become reflected in market prices, but do not have an impact on economic efficiency in either event.

Question 7

One difficulty in managing common property resources is that

Accepted Answer

A)  the monopoly firm that owns such a resource typically has great economic power, so that breaking it up into smaller firms is not practical. 
B)  the monopoly firm that owns such a resource typically is a natural monopoly, so that it is undesirable to break it up into smaller firms. 
C)  many common property resources are so small that management would have to be done on a micro level, greatly increasing government activity in the economy. 
D)  many common property resources are so vast that single ownership or management of them is not practical, especially if they cross international borders. 
E)  more and more of them come into being as pollution increases. 
A)  the monopoly firm that owns such a resource typically has great economic power, so that breaking it up into smaller firms is not practical. 
B)  the monopoly firm that owns such a resource typically is a natural monopoly, so that it is undesirable to break it up into smaller firms. 
C)  many common property resources are so small that management would have to be done on a micro level, greatly increasing government activity in the economy. 
D)  many common property resources are so vast that single ownership or management of them is not practical, especially if they cross international borders. 
E)  more and more of them come into being as pollution increases.

Question 8

Mr. Barnes operates a power plant in the local market. Mr. Barnes' marginal cost function is: MC(q) = 2 + 0.1q. Mr. Barnes can sell all the output he produces for $9 per unit. In generating power, Mr. Barnes also emits pollution that causes damage to the local community. The marginal external cost of his production is: MEC(q) = 0.05q. What level of output will Mr. Barnes choose to maximize profits? Is this level of production efficient? If not, what could the local community do to ensure efficiency?

Accepted Answer

To maximize profits, Mr. Barnes sets: P

Question 9

Many communities use a mixed-flow recycling program in which various types of bottles, cans, and other containers are placed in a single recycling bin. Suppose a community alters its recycling program by mandating that the containers must be sorted by type of material (i.e., glass, aluminum, plastic). What is the expected impact of this change on the optimal quantity of unredeemed (scrapped) containers?

Accepted Answer

A)  Optimal quantity increases 
B)  Optimal quantity decreases 
C)  Optimal quantity remains unchanged 
D)  We cannot determine the outcome of this policy change without having more information 
A)  Optimal quantity increases 
B)  Optimal quantity decreases 
C)  Optimal quantity remains unchanged 
D)  We cannot determine the outcome of this policy change without having more information

Question 10

The demand for injections to immunize against a disease is given as:
P = 13 0.0005Q,
where P = price in dollars, and Q = quantity measured as number of shots per month. The marginal social benefit function has the same vertical intercept as the demand curve and one half the slope (one half in absolute value). The marginal cost of injections is a constant $8.
a. With a competitive market, what price and quantity will prevail, assuming that there is no government intervention?
b. Explain why the demand curve and marginal social benefit functions are different in this case. What is the socially optimal quantity in the market?
c. What government policies could be used to bring about the optimal outcome?

Accepted Answer

a.
Under competition P = MC
13 - 0.0005Q

Question 11

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 $500 per week. If your neighbor has a right to operate this business, how can you achieve the efficient outcome?

Accepted Answer

A)  You cannot afford to pay him enough money to stop working on motorcycles, and he continues to operate the business. 
B)  You pay him some value between $0 and $100 to close his home business. 
C)  You pay him some value between $400 and $500 to close his home business. 
D)  You pay him at least $500 to close his home business. 
A)  You cannot afford to pay him enough money to stop working on motorcycles, and he continues to operate the business. 
B)  You pay him some value between $0 and $100 to close his home business. 
C)  You pay him some value between $400 and $500 to close his home business. 
D)  You pay him at least $500 to close his home business.

Question 12

The city of Econoville currently does not charge a fee to residents to use the city garbage services. The marginal social cost of garbage is: MSCd (gd) = 23gd, where gd is tons of garbage disposed per year. The marginal benefit function of garbage removed from residences is: MB(g) = 1,000 - 2g. Given the lack of a 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) = 46 gr. The marginal benefit of garbage removed from residences is: MB(gd, gr) = 1,000 - 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

Question 13

Which of the following move the handling of a common property resource closest to efficiency?

Accepted Answer

A)  ensuring that the sellers of the resource are perfectly competitive 
B)  ensuring that the seller of the resource is a monopolist 
C)  banning the sale of the resource 
D)  banning the use of the resource 
E)  assigning a usage fee for access to the resource 
A)  ensuring that the sellers of the resource are perfectly competitive 
B)  ensuring that the seller of the resource is a monopolist 
C)  banning the sale of the resource 
D)  banning the use of the resource 
E)  assigning a usage fee for access to the resource

Question 14

The optimum level of pollution emissions

Accepted Answer

A)  is zero. 
B)  occurs where the marginal external benefit is zero. 
C)  occurs where no damage to the environment is being done. 
D)  occurs where the marginal external benefit equals the marginal external cost. 
E)  occurs where the marginal external cost equals the marginal cost of abatement. 
A)  is zero. 
B)  occurs where the marginal external benefit is zero. 
C)  occurs where no damage to the environment is being done. 
D)  occurs where the marginal external benefit equals the marginal external cost. 
E)  occurs where the marginal external cost equals the marginal cost of abatement.

Question 15

Under a transferable emissions permit system,

Accepted Answer

A)  the firms with the lowest marginal abatement cost curves will reduce emissions most. 
B)  the firms with the highest marginal abatement cost curves will reduce emissions most. 
C)  the firms with the lowest marginal social cost curves will reduce emissions most. 
D)  the firms with the highest marginal social cost curves will reduce emissions most. 
E)  all firms will reduce emissions equally. 
A)  the firms with the lowest marginal abatement cost curves will reduce emissions most. 
B)  the firms with the highest marginal abatement cost curves will reduce emissions most. 
C)  the firms with the lowest marginal social cost curves will reduce emissions most. 
D)  the firms with the highest marginal social cost curves will reduce emissions most. 
E)  all firms will reduce emissions equally.

Question 16

Efficient voting outcomes would assign weights to each vote that are:

Accepted Answer

A)  equal. 
B)  egalitarian. 
C)  higher for the median voter and lower for other voters. 
D)  proportional to the voter's strength of preference. 
A)  equal. 
B)  egalitarian. 
C)  higher for the median voter and lower for other voters. 
D)  proportional to the voter's strength of preference.

Question 17

Which of the following examples is NOT a negative stock externality?

Accepted Answer

A)  Goodwill generated by a company 
B)  Noise pollution from an airport 
C)  Odors emitted from a paper mill 
D)  None of these cases are examples of negative stock externalities 
A)  Goodwill generated by a company 
B)  Noise pollution from an airport 
C)  Odors emitted from a paper mill 
D)  None of these cases are examples of negative stock externalities

Question 18

A plastics factory emits water pollutants into a nearby river. The marginal private cost of producing plastics is constant, the marginal external cost of the pollutants increases with the quantity of plasticis, and the demand for plastics is downward sloping. What happens to the socially optimal level of output and market price if the marginal external cost curve shifts upward?

Accepted Answer

A)  Optimal price and quantity decrease 
B)  Optimal price increases, optimal quantity remains unchanged 
C)  Optimal price increases, optimal quantity decreases 
D)  Optimal price and quantity decline 
A)  Optimal price and quantity decrease 
B)  Optimal price increases, optimal quantity remains unchanged 
C)  Optimal price increases, optimal quantity decreases 
D)  Optimal price and quantity decline

Question 19

Which of the following is a negative externality connected to automobile transportation?

Accepted Answer

A)  Driving faster than the 65 mph speed limit is not allowed, even though individuals are able to do it, and many want to. 
B)  In an accident, a person who chooses not to wear a seatbelt becomes an object moving around the inside of the car, possibly hitting other, belted-in, passengers with lethal force. 
C)  Gasoline is taxed on a per-gallon basis. 
D)  Gasoline is imported, and thus increases the trade deficit. 
E)  While stuck in traffic, you have a chance to listen to your favorite CD, which you haven't had the time to do in other places. 
A)  Driving faster than the 65 mph speed limit is not allowed, even though individuals are able to do it, and many want to. 
B)  In an accident, a person who chooses not to wear a seatbelt becomes an object moving around the inside of the car, possibly hitting other, belted-in, passengers with lethal force. 
C)  Gasoline is taxed on a per-gallon basis. 
D)  Gasoline is imported, and thus increases the trade deficit. 
E)  While stuck in traffic, you have a chance to listen to your favorite CD, which you haven't had the time to do in other places.

Question 20

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. What should the fishermen do if they know the factory will maximize profits and no negotiation is possible?

Accepted Answer

A)  Install a treatment plant. 
B)  Do not install a treatment plant. 
C)  It makes no difference if the fishermen do or do not install a treatment plant. 
D)  Install a filter. 
E)  Exit the industry. 
A)  Install a treatment plant. 
B)  Do not install a treatment plant. 
C)  It makes no difference if the fishermen do or do not install a treatment plant. 
D)  Install a filter. 
E)  Exit the industry.

If X transferable emissions permits are issued and there are n potential polluters,

Majority-rule voting

Externalities

One difficulty in managing common property resources is that

Which of the following move the handling of a common property resource closest to efficiency?

The optimum level of pollution emissions

Under a transferable emissions permit system,

Efficient voting outcomes would assign weights to each vote that are:

Which of the following examples is NOT a negative stock externality?

Which of the following is a negative externality connected to automobile transportation?

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

If X transferable emissions permits are issued and there are n potential polluters,

Majority-rule voting

Externalities

One difficulty in managing common property resources is that

Which of the following move the handling of a common property resource closest to efficiency?

The optimum level of pollution emissions

Under a transferable emissions permit system,

Efficient voting outcomes would assign weights to each vote that are:

Which of the following examples is NOT a negative stock externality?

Which of the following is a negative externality connected to automobile transportation?

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