Question 1

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

Question 2

Which of the following is most likely to happen to open-access wildlife resources?

Accepted Answer

A) They will be used efficiently. 
B) They will not be used at all. 
C) It will be unprofitable to use them. 
D) They will be used but will generate no profit. 
E) They will become extinct. 
A) They will be used efficiently. 
B) They will not be used at all. 
C) It will be unprofitable to use them. 
D) They will be used but will generate no profit. 
E) They will become extinct.

Question 3

Pollution arises because

Accepted Answer

A) the atmosphere is a nonrenewable resource 
B) the atmosphere is a renewable resource 
C) of enforceable property rights 
D) the atmosphere is an open-access resource 
E) there is no supply of pollution curve 
A) the atmosphere is a nonrenewable resource 
B) the atmosphere is a renewable resource 
C) of enforceable property rights 
D) the atmosphere is an open-access resource 
E) there is no supply of pollution curve

Question 4

Exhibit 17-7   Exhibit 17-7 represents the consumer market for driving their automobiles.If drivers base their driving decisions on the marginal social cost of driving their cars, how many miles will they drive?

Accepted Answer

A) 1, 000 miles 
B) 2, 000 miles 
C) 3, 000 miles 
D) 4, 000 miles 
E) 5, 000 miles 
A) 1, 000 miles 
B) 2, 000 miles 
C) 3, 000 miles 
D) 4, 000 miles 
E) 5, 000 miles

Question 5

When using the economic efficiency approach to controlling air and water pollution, the government

Accepted Answer

A) forces each firm to produce emissions in the most cost efficient manner irrespective of its cost structure 
B) offers each firm the flexibility to reduce emissions in the most cost effective manner, given its unique cost structure 
C) offers each firm the option of choosing between the cost minimizing emission level and the profit maximizing emission level 
D) provides each firm with some fixed rules and then requires them to maximize profits given these fixed rules 
E) offers each firm the option of using marginal cost pricing and average cost pricing when determining the optimum emissions levels 
A) forces each firm to produce emissions in the most cost efficient manner irrespective of its cost structure 
B) offers each firm the flexibility to reduce emissions in the most cost effective manner, given its unique cost structure 
C) offers each firm the option of choosing between the cost minimizing emission level and the profit maximizing emission level 
D) provides each firm with some fixed rules and then requires them to maximize profits given these fixed rules 
E) offers each firm the option of using marginal cost pricing and average cost pricing when determining the optimum emissions levels

Question 6

Private property rights are easily assigned to open-access resources.

Accepted Answer

A) True 
 B)False

Question 7

The socially optimal level of output of a good with an externality occurs when

Accepted Answer

A) the marginal private costs of production are equal to marginal private revenues 
B) the firm maximizes its profits 
C) the consumer maximizes his or her utility 
D) the marginal social cost of production equals the marginal social benefit of the good 
E) the firm is making a normal profit 
A) the marginal private costs of production are equal to marginal private revenues 
B) the firm maximizes its profits 
C) the consumer maximizes his or her utility 
D) the marginal social cost of production equals the marginal social benefit of the good 
E) the firm is making a normal profit

Question 8

Exhibit 17-9   In Exhibit 17-9, the optimal water quality level is

Accepted Answer

A) 4 
B) 5 
C) 6 
D) 7 
E) 8 
A) 4 
B) 5 
C) 6 
D) 7 
E) 8

Question 9

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 10

When the benefits to society of using a product exceed benefits to the user,

Accepted Answer

A) the product should be strictly regulated 
B) the product should be taxed 
C) the product provides a positive externality 
D) the product is overproduced at the privately determined equilibrium 
E) in time the product will not be produced 
A) the product should be strictly regulated 
B) the product should be taxed 
C) the product provides a positive externality 
D) the product is overproduced at the privately determined equilibrium 
E) in time the product will not be produced

Question 11

The Superfund was designed to clean up

Accepted Answer

A) the acid rain problem 
B) air pollution from automobiles, buses, and trucks 
C) water pollution from agricultural sources (i.e., pesticides) 
D) water pollution from dumping raw sewage 
E) toxic waste dumps 
A) the acid rain problem 
B) air pollution from automobiles, buses, and trucks 
C) water pollution from agricultural sources (i.e., pesticides) 
D) water pollution from dumping raw sewage 
E) toxic waste dumps

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 17-6   In Exhibit 17-6, a subsidy of $3 per unit will lead to the socially optimal level of production.

Accepted Answer

A) True 
 B)False

Question 14

All of the following are examples of negative externalities except one.Which is the exception?

Accepted Answer

A) water pollution 
B) your roommate going on a diet 
C) second-hand smoke 
D) loud conversation in the workplace 
E) your neighbor building a bomb shelter on her front lawn 
A) water pollution 
B) your roommate going on a diet 
C) second-hand smoke 
D) loud conversation in the workplace 
E) your neighbor building a bomb shelter on her front lawn

Question 15

Exhibit 17-2   In Exhibit 17-2, the total social gain from producing the socially efficient output rather than the private equilibrium output is shown by area

Accepted Answer

A) abdf 
B) bed 
C) bcd 
D) acdf 
E) bcde 
A) abdf 
B) bed 
C) bcd 
D) acdf 
E) bcde

Question 16

Which of the following creates a positive externality?

Accepted Answer

A) a paper mill polluting a river 
B) a stock market crash 
C) a neighbor that beautifies her lawn 
D) taxes and subsidies 
E) the greenhouse effect 
A) a paper mill polluting a river 
B) a stock market crash 
C) a neighbor that beautifies her lawn 
D) taxes and subsidies 
E) the greenhouse effect

Question 17

The Coase solution to the problem of externalities

Accepted Answer

A) applies in every situation where externalities are present 
B) only applies to activities that generate positive externalities 
C) only works under perfect competition 
D) only works when bargaining costs are low 
E) can lead to an increase in the common pool problem 
A) applies in every situation where externalities are present 
B) only applies to activities that generate positive externalities 
C) only works under perfect competition 
D) only works when bargaining costs are low 
E) can lead to an increase in the common pool problem

Question 18

Exhibit 17-1   In Exhibit 17-1, the equilibrium level of output determined by private decisions is

Accepted Answer

A) 0 units 
B) 100 units 
C) between 100 and 160 units 
D) 160 units 
E) the answer cannot be determined from the information given 
A) 0 units 
B) 100 units 
C) between 100 and 160 units 
D) 160 units 
E) the answer cannot be determined from the information given

Question 19

If in market equilibrium the marginal social cost of producing a good exceeds the marginal private cost,

Accepted Answer

A) not enough of the product is being produced 
B) the price charged for the good is too high 
C) the good produces a positive externality 
D) the good produces a negative externality 
E) the government should produce the good 
A) not enough of the product is being produced 
B) the price charged for the good is too high 
C) the good produces a positive externality 
D) the good produces a negative externality 
E) the government should produce the good

Question 20

One quarter of the prescription drugs used in the United States are derived from plants found in tropical rainforests.

Accepted Answer

A) True 
 B)False

Exam 17: Externalities and the Environment

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

Which of the following is most likely to happen to open-access wildlife resources?

Pollution arises because

Exhibit 17-7 Exhibit 17-7 represents the consumer market for driving their automobiles.If drivers base their driving decisions on the marginal social cost of driving their cars, how many miles will they drive?

When using the economic efficiency approach to controlling air and water pollution, the government

Private property rights are easily assigned to open-access resources.

The socially optimal level of output of a good with an externality occurs when

Exhibit 17-9 In Exhibit 17-9, the optimal water quality level is

If consuming a good creates a positive externality,

When the benefits to society of using a product exceed benefits to the user,

The Superfund was designed to clean up

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

Exhibit 17-6 In Exhibit 17-6, a subsidy of $3 per unit will lead to the socially optimal level of production.

All of the following are examples of negative externalities except one.Which is the exception?

Exhibit 17-2 In Exhibit 17-2, the total social gain from producing the socially efficient output rather than the private equilibrium output is shown by area

Which of the following creates a positive externality?

The Coase solution to the problem of externalities

Exhibit 17-1 In Exhibit 17-1, the equilibrium level of output determined by private decisions is

If in market equilibrium the marginal social cost of producing a good exceeds the marginal private cost,

One quarter of the prescription drugs used in the United States are derived from plants found in tropical rainforests.

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

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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