Question 1

If farmers decide individually whether or not to vaccinate their cattle against mad cow disease, which of the following is true?

Accepted Answer

A) The equilibrium quantity is too low for efficiency. 
B) The equilibrium price and quantity are too high for efficiency. 
C) The equilibrium price is efficient. 
D) The equilibrium quantity is too high for efficiency. 
E) The equilibrium price and quantity are efficient. 
A) The equilibrium quantity is too low for efficiency. 
B) The equilibrium price and quantity are too high for efficiency. 
C) The equilibrium price is efficient. 
D) The equilibrium quantity is too high for efficiency. 
E) The equilibrium price and quantity are efficient.

Question 2

If a government regulation states that fluorocarbon emissions should be abated by 75 percent but the optimal level of pollution abatement is 85 percent, which of the following must be true?

Accepted Answer

A) The free market will not reduce pollution by less than 85 percent. 
B) The free market will accomplish 85 percent abatement, but it will be inefficient. 
C) If only 75 percent of the pollution is abated, the society will be better off than if 85 percent had been abated. 
D) If only 75 percent of the pollution is abated, the society will be worse off than if 85 percent had been abated. 
E) If 75 percent of the pollution is abated, then in the next period the government should set the abatement level at 95 percent. 
A) The free market will not reduce pollution by less than 85 percent. 
B) The free market will accomplish 85 percent abatement, but it will be inefficient. 
C) If only 75 percent of the pollution is abated, the society will be better off than if 85 percent had been abated. 
D) If only 75 percent of the pollution is abated, the society will be worse off than if 85 percent had been abated. 
E) If 75 percent of the pollution is abated, then in the next period the government should set the abatement level at 95 percent.

Question 3

If the marginal social benefit of consuming a product exceeds the marginal social cost of producing it, social welfare is

Accepted Answer

A) increased by reducing output 
B) decreased by expanding output 
C) unchanged by expanding or reducing output 
D) increased by expanding output 
E) maximized 
A) increased by reducing output 
B) decreased by expanding output 
C) unchanged by expanding or reducing output 
D) increased by expanding output 
E) maximized

Question 4

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 5

A metal-stamping factory moves next to a day care center.Noise from the factory makes it impossible for the kids to nap.It would cost the factory $5 million to move; it would cost $1 million for the day care center to move.Sound insulation for the factory costs $1 million; insulation for the day care center costs $200, 000.The court initially determines that the day care center has the property right and orders the factory to purchase insulation for the day care.But on appeal the factory is awarded the property right.How would the optimal solution to this problem change after the appeals court decision?

Accepted Answer

A) The insulation would still be bought, but it would be bought by the day care center, a result consistent with the Coase theorem. 
B) Insulation for the factory would be bought instead of insulation for the day care center, a result consistent with the Coase theorem. 
C) Insulation for the day care center would still be bought, but it would be bought by the factory, a result consistent with the Coase theorem. 
D) Insulation for the factory would be bought instead of insulation for the day care center, a result inconsistent with the Coase theorem. 
E) The day care center would move instead of buying insulation, a result consistent with the Coase theorem. 
A) The insulation would still be bought, but it would be bought by the day care center, a result consistent with the Coase theorem. 
B) Insulation for the factory would be bought instead of insulation for the day care center, a result consistent with the Coase theorem. 
C) Insulation for the day care center would still be bought, but it would be bought by the factory, a result consistent with the Coase theorem. 
D) Insulation for the factory would be bought instead of insulation for the day care center, a result inconsistent with the Coase theorem. 
E) The day care center would move instead of buying insulation, a result consistent with the Coase theorem.

Question 6

Property rights can be defined and enforced

Accepted Answer

A) only by the government 
B) only by ethical norms 
C) by the government and by ethical norms 
D) only through constant renegotiation 
E) by government, by informal social actions, and by ethical norms 
A) only by the government 
B) only by ethical norms 
C) by the government and by ethical norms 
D) only through constant renegotiation 
E) by government, by informal social actions, and by ethical norms

Question 7

The marginal social benefit of air quality

Accepted Answer

A) declines as air quality increases 
B) rises as air quality increases 
C) remains constant as air quality increases 
D) first falls then rises as air quality increases 
E) is always negative 
A) declines as air quality increases 
B) rises as air quality increases 
C) remains constant as air quality increases 
D) first falls then rises as air quality increases 
E) is always negative

Question 8

Exhibit 17-3   In Exhibit 17-3, the optimal air quality level is where the MSB=MSC.

Accepted Answer

A) True 
 B)False

Question 9

The economic efficiency approach to emission control provides the polluting firm with

Accepted Answer

A) a license produce as much emissions as it wants 
B) the option of choosing between focusing on profit or cost 
C) a process for determining the optimum quantity of emissions 
D) more flexibility in selecting the most cost effective method of control 
E) a subsidy for producing additional emissions 
A) a license produce as much emissions as it wants 
B) the option of choosing between focusing on profit or cost 
C) a process for determining the optimum quantity of emissions 
D) more flexibility in selecting the most cost effective method of control 
E) a subsidy for producing additional emissions

Question 10

Rainforests are often cut down because

Accepted Answer

A) farmers and the government are greedy 
B) the countries involved do not understand the environment 
C) the countries involved are gaining short-term relief from poverty at the cost of long-term environmental preservation 
D) the countries involved are gaining long-term environmental benefits by doing so 
E) cutting them down results in less erosion 
A) farmers and the government are greedy 
B) the countries involved do not understand the environment 
C) the countries involved are gaining short-term relief from poverty at the cost of long-term environmental preservation 
D) the countries involved are gaining long-term environmental benefits by doing so 
E) cutting them down results in less erosion

Question 11

Among the 25 most developed countries in the world where does the United States rank in terms of recycling?

Accepted Answer

A) 5th 
B) 10th 
C) 18th 
D) 20th 
E) 25th 
A) 5th 
B) 10th 
C) 18th 
D) 20th 
E) 25th

Question 12

The destruction of tropical rain forests results in

Accepted Answer

A) a possible decrease in the greenhouse effect 
B) a decrease in gases in the atmosphere 
C) a decrease in the recycling of carbon dioxide 
D) reduced erosion 
E) better long-term growth prospects in the local economy 
A) a possible decrease in the greenhouse effect 
B) a decrease in gases in the atmosphere 
C) a decrease in the recycling of carbon dioxide 
D) reduced erosion 
E) better long-term growth prospects in the local economy

Question 13

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

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 14

In the absence of government intervention, the marginal social cost of pollution abatement would equal its marginal social benefit.

Accepted Answer

A) True 
 B)False

Question 15

Sailboats and motorboats share Emerson Lake, which nobody owns.The sailors say the motorboats are a hazard; the motorboaters say it is the other way around.Frequent collisions occur, with many injuries and some deaths every year.If the City of Emerson were to buy the lake itself,

Accepted Answer

A) the problem would be solved, because the lake would have an owner 
B) the problem would be solved, because no one could use the lake 
C) the city would still have to assign property rights so that use of the lake would be efficient 
D) the city would give the right to use the lake to the larger group 
E) the city would give the right to use the lake to the richer group 
A) the problem would be solved, because the lake would have an owner 
B) the problem would be solved, because no one could use the lake 
C) the city would still have to assign property rights so that use of the lake would be efficient 
D) the city would give the right to use the lake to the larger group 
E) the city would give the right to use the lake to the richer group

Question 16

To enhance social welfare, the government should encourage the production of

Accepted Answer

A) all goods 
B) no goods 
C) goods that provide positive externalities 
D) goods whose social cost exceeds their private cost 
E) goods that provide negative externalities 
A) all goods 
B) no goods 
C) goods that provide positive externalities 
D) goods whose social cost exceeds their private cost 
E) goods that provide negative externalities

Question 17

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.Which of the following best explains why the negative externality faced by the class arises?

Accepted Answer

A) The class has no property right to a quiet environment. 
B) The club has a property right on the ground floor. 
C) The class has a property right on the second floor. 
D) The club uses an inappropriate technology (i.e., no soundproofing). 
E) Both the club and class are profitable. 
A) The class has no property right to a quiet environment. 
B) The club has a property right on the ground floor. 
C) The class has a property right on the second floor. 
D) The club uses an inappropriate technology (i.e., no soundproofing). 
E) Both the club and class are profitable.

Question 18

Other things equal, if the government increased the quantity of pollution rights to be sold,

Accepted Answer

A) pollution would not be affected 
B) the price of pollution rights would rise, and the amount of pollution would decrease 
C) the price of pollution rights would fall, and the amount of pollution would decrease 
D) the price of pollution rights would fall, and the amount of pollution would increase 
E) the price of pollution rights would rise, and the amount of pollution would increase 
A) pollution would not be affected 
B) the price of pollution rights would rise, and the amount of pollution would decrease 
C) the price of pollution rights would fall, and the amount of pollution would decrease 
D) the price of pollution rights would fall, and the amount of pollution would increase 
E) the price of pollution rights would rise, and the amount of pollution would increase

Question 19

When a resource is an open-access resource,

Accepted Answer

A) each individual in the society owns it 
B) the group owns it 
C) no one owns it 
D) the government owns it 
E) some nonprofit agency owns it 
A) each individual in the society owns it 
B) the group owns it 
C) no one owns it 
D) the government owns it 
E) some nonprofit agency owns it

Question 20

A pollution tax

Accepted Answer

A) is itself a form of negative externality 
B) is a positive externality used to offset a negative one 
C) is a price per unit of discharge of pollution 
D) is a tax on pollution control equipment 
E) may cause a common pool problem 
A) is itself a form of negative externality 
B) is a positive externality used to offset a negative one 
C) is a price per unit of discharge of pollution 
D) is a tax on pollution control equipment 
E) may cause a common pool problem

Exam 17: Externalities and the Environment

If farmers decide individually whether or not to vaccinate their cattle against mad cow disease, which of the following is true?

If a government regulation states that fluorocarbon emissions should be abated by 75 percent but the optimal level of pollution abatement is 85 percent, which of the following must be true?

If the marginal social benefit of consuming a product exceeds the marginal social cost of producing it, social welfare is

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

Property rights can be defined and enforced

The marginal social benefit of air quality

Exhibit 17-3 In Exhibit 17-3, the optimal air quality level is where the MSB=MSC.

The economic efficiency approach to emission control provides the polluting firm with

Rainforests are often cut down because

Among the 25 most developed countries in the world where does the United States rank in terms of recycling?

The destruction of tropical rain forests results in

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

In the absence of government intervention, the marginal social cost of pollution abatement would equal its marginal social benefit.

Sailboats and motorboats share Emerson Lake, which nobody owns.The sailors say the motorboats are a hazard; the motorboaters say it is the other way around.Frequent collisions occur, with many injuries and some deaths every year.If the City of Emerson were to buy the lake itself,

To enhance social welfare, the government should encourage the production of

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.Which of the following best explains why the negative externality faced by the class arises?

Other things equal, if the government increased the quantity of pollution rights to be sold,

When a resource is an open-access resource,

A pollution tax

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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