Question 1

For a common resource, the marginal private cost of the resource is equal to the marginal social cost.

Accepted Answer

A) True 
 B)False  False

Question 2

Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution. If it costs $5,000 for firm A to eliminate 100 tons of pollution and it costs firm B $6,000 to eliminate 100 tons of pollution, then

Accepted Answer

A)  firm B will sell its permits to firm A for a price above $6,000. 
B)  firm A will sell its permits to firm B for a price below $6,000. 
C)  firm A will sell its permits to firm B for a price above $6,000. 
D)  firm B will sell its permits to firm A for a price below $6,000. 
A)  firm B will sell its permits to firm A for a price above $6,000. 
B)  firm A will sell its permits to firm B for a price below $6,000. 
C)  firm A will sell its permits to firm B for a price above $6,000. 
D)  firm B will sell its permits to firm A for a price below $6,000. B

Question 3

-The figure above provides information for a factory that produces chemicals that pollute a waterway. The waterway is used by water skiers. If no property rights exist on the waterway and if there is no regulation of pollution, then the factory produces ________ of chemicals a week.

Accepted Answer

A)  1 ton 
B)  as many tons as possible 
C)  3 tons 
D)  5 tons 
A)  1 ton 
B)  as many tons as possible 
C)  3 tons 
D)  5 tons C

Question 4

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. The efficient quantity of transportation services is ________ and the corresponding price is ________.

Accepted Answer

A)  120; $14 
B)  120; $8 
C)  80; $12 
D)  80; $6 
A)  120; $14 
B)  120; $8 
C)  80; $12 
D)  80; $6

Question 5

Burning coal to generate electricity can create pollution. If the market for generating electricity is competitive and is allowed to operate without any government intervention, is the equilibrium quantity of coal burned equal to, more than, or less than the efficient quantity?

Accepted Answer

The equilibrium quantity of coal burned

Question 6

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the equilibrium output is ________ of paper.

Accepted Answer

A)  1,600 tons 
B)  2,400 tons 
C)  3,200 tons 
D)  4,000 tons 
A)  1,600 tons 
B)  2,400 tons 
C)  3,200 tons 
D)  4,000 tons

Question 7

The Coase Theorem is the proposition that if the number of involved parties is low, if property rights ________ and transactions costs are ________, then private transactions are efficient.

Accepted Answer

A)  are nonexistent; low 
B)  exist; high 
C)  are nonexistent; high 
D)  exist; low 
A)  are nonexistent; low 
B)  exist; high 
C)  are nonexistent; high 
D)  exist; low

Question 8

The marginal cost of production that is borne by the entire society is the

Accepted Answer

A)  marginal private cost. 
B)  marginal social cost. 
C)  marginal external cost. 
D)  None of the above answers is correct. 
A)  marginal private cost. 
B)  marginal social cost. 
C)  marginal external cost. 
D)  None of the above answers is correct.

Question 9

"If production of a good creates an external cost, then, when production is such that the marginal private costs are equal to the marginal private benefits, the market outcome will be inefficient." Explain whether this assertion is correct or incorrect.

Accepted Answer

The assertion is correct. Efficiency req

Question 10

If the government assigns private property rights to a common resource, then the

Accepted Answer

A)  resource is under-utilized. 
B)  marginal private cost becomes equal to the marginal social cost. 
C)  government needs to set a quota to achieve efficiency. 
D)  None of the above answers is correct. 
A)  resource is under-utilized. 
B)  marginal private cost becomes equal to the marginal social cost. 
C)  government needs to set a quota to achieve efficiency. 
D)  None of the above answers is correct.

Question 11

-The figure above provides information for a factory that produces chemicals that pollute a waterway. The waterway is used by water skiers. If the waterway is owned by the factory and the Coase theorem applies, then the factory will produce ________ tons of chemicals a week.

Accepted Answer

A)  1 ton 
B)  as many tons as possible 
C)  3 tons 
D)  5 tons 
A)  1 ton 
B)  as many tons as possible 
C)  3 tons 
D)  5 tons

Question 12

The Loma Linda City Council made it official in June 2008, passing the most restrictive smoking ordinance yet in the Inland area. Dr. Linda Ferry, who counsels veterans on quitting smoking at Jerry L. Pettis Memorial VA Medical Center, said that the smoking ordinance would protect children from exposure to secondhand smoke and discourage teenagers and adults from taking up smoking. What is true about this situation?

Accepted Answer

A)  Marginal external costs are negative. 
B)  Marginal external benefits are positive. 
C)  Marginal external costs are positive. 
D)  Marginal external benefits are negative. 
A)  Marginal external costs are negative. 
B)  Marginal external benefits are positive. 
C)  Marginal external costs are positive. 
D)  Marginal external benefits are negative.

Question 13

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium level of output, the marginal external cost per ton is

Accepted Answer

A)  zero. 
B)  $30. 
C)  $80. 
D)  $110. 
A)  zero. 
B)  $30. 
C)  $80. 
D)  $110.

Question 14

Suppose Motorland's government imposes a tax of $1.50 per gallon of gasoline sold. With the tax, the market will

Accepted Answer

A)  underproduce by 0.2 million gallons of gasoline a month. 
B)  underproduce by 0.1 million gallons of gasoline a month. 
C)  overproduce by 0.1 million gallons of gasoline a month. 
D)  produce the efficient quantity of gasoline. 
A)  underproduce by 0.2 million gallons of gasoline a month. 
B)  underproduce by 0.1 million gallons of gasoline a month. 
C)  overproduce by 0.1 million gallons of gasoline a month. 
D)  produce the efficient quantity of gasoline.

Question 15

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the

Accepted Answer

A)  allocation of resources is efficient. 
B)  market equilibrium produces 800 tons more than the efficient amount. 
C)  market equilibrium produces 1,600 tons more than the efficient amount. 
D)  market equilibrium produces 800 tons less than the efficient amount. 
A)  allocation of resources is efficient. 
B)  market equilibrium produces 800 tons more than the efficient amount. 
C)  market equilibrium produces 1,600 tons more than the efficient amount. 
D)  market equilibrium produces 800 tons less than the efficient amount.

Question 16

Suppose Motorland's government imposes a tax of $1.50 per gallon of gasoline sold. With the tax, when the market is in equilibrium, the deadweight loss is

Accepted Answer

A)  zero. 
B)  $37,500 per month. 
C)  $150,000 per month. 
D)  $75,000 per month. 
A)  zero. 
B)  $37,500 per month. 
C)  $150,000 per month. 
D)  $75,000 per month.

Question 17

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for raising goats on a common pasture. The market equilibrium with no government intervention is raising ________.

Accepted Answer

A)  0 goats 
B)  40 goats 
C)  50 goats 
D)  55 goats 
A)  0 goats 
B)  40 goats 
C)  50 goats 
D)  55 goats

Question 18

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. "To ensure this recovery… Ministers agreed a 10 percent cut in days at sea (for North Sea cod)," EU Fisheries Commissioner Joe Borg stated in 2008. What is the goal of this policy?

Accepted Answer

A)  To reduce the number of fishing days to the point where marginal cost per day equals marginal benefit 
B)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal benefit 
C)  To reduce the number of fishing days to the point where marginal social benefit per day equals marginal benefit 
D)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal social benefit 
A)  To reduce the number of fishing days to the point where marginal cost per day equals marginal benefit 
B)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal benefit 
C)  To reduce the number of fishing days to the point where marginal social benefit per day equals marginal benefit 
D)  To reduce the number of fishing days to the point where marginal social cost per day equals marginal social benefit

Question 19

"According to the Coase theorem, if Gabriel wants the local television station to cease having helicopters fly over his house at night, he will be more likely to be able to reach an agreement with the station if the property right to the airspace is clearly defined and the transaction costs of negotiating are high." Is this statement true or false? Explain your answer.

Accepted Answer

The statement is False. The first part o

Question 20

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. Why would overfishing occur in this common market?

Accepted Answer

A)  Fishing occurs until marginal cost per boat equals marginal social benefit which is inefficient. 
B)  Fishing occurs until marginal social cost per boat equals marginal social benefit which is inefficient. 
C)  Fishing occurs until marginal cost per boat equals marginal benefit which is inefficient. 
D)  Fishing occurs until marginal social cost per boat equals marginal cost which is inefficient. 
A)  Fishing occurs until marginal cost per boat equals marginal social benefit which is inefficient. 
B)  Fishing occurs until marginal social cost per boat equals marginal social benefit which is inefficient. 
C)  Fishing occurs until marginal cost per boat equals marginal benefit which is inefficient. 
D)  Fishing occurs until marginal social cost per boat equals marginal cost which is inefficient.

Exam 17: Externalities and the Environment

For a common resource, the marginal private cost of the resource is equal to the marginal social cost.

Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution. If it costs $5,000 for firm A to eliminate 100 tons of pollution and it costs firm B $6,000 to eliminate 100 tons of pollution, then

-The figure above provides information for a factory that produces chemicals that pollute a waterway. The waterway is used by water skiers. If no property rights exist on the waterway and if there is no regulation of pollution, then the factory produces ________ of chemicals a week.

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. The efficient quantity of transportation services is ________ and the corresponding price is ________.

Burning coal to generate electricity can create pollution. If the market for generating electricity is competitive and is allowed to operate without any government intervention, is the equilibrium quantity of coal burned equal to, more than, or less than the efficient quantity?

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the equilibrium output is ________ of paper.

The Coase Theorem is the proposition that if the number of involved parties is low, if property rights ________ and transactions costs are ________, then private transactions are efficient.

The marginal cost of production that is borne by the entire society is the

"If production of a good creates an external cost, then, when production is such that the marginal private costs are equal to the marginal private benefits, the market outcome will be inefficient." Explain whether this assertion is correct or incorrect.

If the government assigns private property rights to a common resource, then the

-The figure above provides information for a factory that produces chemicals that pollute a waterway. The waterway is used by water skiers. If the waterway is owned by the factory and the Coase theorem applies, then the factory will produce ________ tons of chemicals a week.

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium level of output, the marginal external cost per ton is

Suppose Motorland's government imposes a tax of $1.50 per gallon of gasoline sold. With the tax, the market will

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the

Suppose Motorland's government imposes a tax of $1.50 per gallon of gasoline sold. With the tax, when the market is in equilibrium, the deadweight loss is

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for raising goats on a common pasture. The market equilibrium with no government intervention is raising ________.

Scientists have said for years cod was so seriously overfished in European Union waters that there was a risk of extinction due to stock collapse. Why would overfishing occur in this common market?

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. The efficient quantity of transportation services is and the corresponding price is .

The Coase Theorem is the proposition that if the number of involved parties is low, if property rights and transactions costs are , then private transactions are efficient.