Question 1

What is marginal external cost of production?

Accepted Answer

Marginal external cost of prod

Question 2

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the efficient amount of paper?

Accepted Answer

A)  10 tons per week 
B)  60 tons per week 
C)  40 tons per week 
D)  30 tons per week 
A)  10 tons per week 
B)  60 tons per week 
C)  40 tons per week 
D)  30 tons per week

Question 3

What is a cap-and-trade policy? (Be certain to mention marketable permits.) Suppose there are two firms in an area, each emitting tons of sulfur. The government decides on a target level of 200 tons of sulfur, and gives each firm a permit to emit 100 tons of sulfur. Suppose Firm A is very efficient and can reduce pollution by 100 tons with an abatement cost of $500. Firm B has an older plant, so it will cost Firm B $1,000 to reduce emissions by 100 tons. What will occur with marketable permits?

Accepted Answer

A cap-and-trade policy involves the gove

Question 4

When a forest is logged, it is possible for the logging to create "soil runoff," a situation in which the soil, no longer protected by trees, erodes and silts a river miles downstream from the logging area. Is soil runoff created by logging in Montana that ruins a river an example of a private cost to the lumbering company or an external cost?

Accepted Answer

The soil runoff is an external cost. The

Question 5

The tragedy of the commons is the absence of incentives to

Accepted Answer

A)  use commonly owned resources. 
B)  prevent the overuse of commonly owned resources. 
C)  use privately owned resources. 
D)  have commonly owned resources. 
A)  use commonly owned resources. 
B)  prevent the overuse of commonly owned resources. 
C)  use privately owned resources. 
D)  have commonly owned resources.

Question 6

The granite boulders in Rocky Mountain National Park are a favored place among talented climbers who specialize in the art of bouldering, or climbing harder (but shorter) routes without tying into a rope. Climbers have taken to (illegally) stashing foam crash pads underneath the boulders but marmots and other rodents chew up the pads and the litter is spread by the wind. To limit overuse of this park, suppose a limited number of permits are sold each year to climbers who can sell them at any time to other climbers. This method of achieving efficient use of a common resource is most like what government policy?

Accepted Answer

A)  Production quota 
B)  Property right 
C)  Individual transferable quota 
D)  Marginal social benefit right 
A)  Production quota 
B)  Property right 
C)  Individual transferable quota 
D)  Marginal social benefit right

Question 7

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the quantity produced if the market for paper is unregulated?

Accepted Answer

A)  10 tons per week 
B)  60 tons per week 
C)  40 tons per week 
D)  30 tons per week 
A)  10 tons per week 
B)  60 tons per week 
C)  40 tons per week 
D)  30 tons per week

Question 8

When the market for gasoline in Motorland is in equilibrium, the deadweight loss is

Accepted Answer

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

Question 9

-Left unregulated, the equilibrium amount produced in the market described in the table above is

Accepted Answer

A)  550 units. 
B)  600 units. 
C)  650 units. 
D)  700 units. 
A)  550 units. 
B)  600 units. 
C)  650 units. 
D)  700 units.

Question 10

The efficient quantity of output of a product with external costs of production is

Accepted Answer

A)  where the demand curve and the producer's supply curve intersect. 
B)  where the marginal social cost curve and marginal social benefit curve intersect. 
C)  as low as possible. 
D)  zero. 
A)  where the demand curve and the producer's supply curve intersect. 
B)  where the marginal social cost curve and marginal social benefit curve intersect. 
C)  as low as possible. 
D)  zero.

Question 11

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. The efficient level of output is

Accepted Answer

A)  2,000 tons. 
B)  3,000 tons. 
C)  4,000 tons. 
D)  5,000 tons. 
A)  2,000 tons. 
B)  3,000 tons. 
C)  4,000 tons. 
D)  5,000 tons.

Question 12

A private cost is a cost of production that is

Accepted Answer

A)  borne by the producer of a good. 
B)  measured in marginal terms. 
C)  borne by someone other than the producer of a good. 
D)  measured in total terms. 
A)  borne by the producer of a good. 
B)  measured in marginal terms. 
C)  borne by someone other than the producer of a good. 
D)  measured in total terms.

Question 13

Why does an external cost lead to inefficient overproduction?

Accepted Answer

If there is an external cost, then the m

Question 14

Generating electricity creates air pollution. This industry, if left unregulated, will produce

Accepted Answer

A)  more than the efficient level of output. 
B)  the efficient level of output. 
C)  less than the efficient level of output. 
D)  sometimes more and sometimes less than the efficient level of output. 
A)  more than the efficient level of output. 
B)  the efficient level of output. 
C)  less than the efficient level of output. 
D)  sometimes more and sometimes less than the efficient level of output.

Question 15

The Coase Theorem says that which of the following is necessary to lead to an efficient use of resources?

Accepted Answer

A)  presence of transaction costs 
B)  existence of property rights 
C)  government intervention 
D)  All of the above answers are correct. 
A)  presence of transaction costs 
B)  existence of property rights 
C)  government intervention 
D)  All of the above answers are correct.

Question 16

-The above figure shows the market for fertilizer. When fertilizer is applied to lawns, it runs off into neighboring streams and ponds, killing fish and creating an external cost.
a) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market?
b) What is the efficient quantity of fertilizer?
c) Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax?
d) At the output level in part (c), how much is the tax?
e) How much tax revenue does government collect?
f) What is the deadweight loss borne by society if the externality is left uncorrected?

Accepted Answer

a) The equilibrium price is $1,000 a ton

Question 17

A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the fishing club is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced

Accepted Answer

A)  will decrease. 
B)  will stay the same. 
C)  will increase. 
D)  changes, but the direction of the change is ambiguous. 
A)  will decrease. 
B)  will stay the same. 
C)  will increase. 
D)  changes, but the direction of the change is ambiguous.

Question 18

The Coase theorem is the proposition that if property rights exist, the number of parties is small, and transactions costs are low,

Accepted Answer

A)  external costs result in deadweight losses. 
B)  external benefits result in deadweight losses. 
C)  private transactions are efficient. 
D)  public transactions are efficient. 
A)  external costs result in deadweight losses. 
B)  external benefits result in deadweight losses. 
C)  private transactions are efficient. 
D)  public transactions are efficient.

Question 19

Keeping in mind the Coase theorem, in the figure above, if the residents of the town own the lake, how much do they charge the factories to dump waste?

Accepted Answer

A)  $30 per ton of pesticide produced 
B)  $40 per ton of pesticide produced 
C)  $20 per ton of pesticide produced 
D)  Nothing 
A)  $30 per ton of pesticide produced 
B)  $40 per ton of pesticide produced 
C)  $20 per ton of pesticide produced 
D)  Nothing

Question 20

Taxes can yield the efficient level of pollution if the tax is set equal to the

Accepted Answer

A)  marginal benefit of pollution. 
B)  marginal external cost of the pollution. 
C)  marginal social cost of the pollution. 
D)  equilibrium price of the pollution. 
A)  marginal benefit of pollution. 
B)  marginal external cost of the pollution. 
C)  marginal social cost of the pollution. 
D)  equilibrium price of the pollution.

Exam 17: Externalities and the Environment

What is marginal external cost of production?

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the efficient amount of paper?

The tragedy of the commons is the absence of incentives to

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the quantity produced if the market for paper is unregulated?

When the market for gasoline in Motorland is in equilibrium, the deadweight loss is

-Left unregulated, the equilibrium amount produced in the market described in the table above is

The efficient quantity of output of a product with external costs of production is

-The above table shows the marginal benefits and costs from production of fertilizer. There are no external benefits. The efficient level of output is

A private cost is a cost of production that is

Why does an external cost lead to inefficient overproduction?

Generating electricity creates air pollution. This industry, if left unregulated, will produce

The Coase Theorem says that which of the following is necessary to lead to an efficient use of resources?

The Coase theorem is the proposition that if property rights exist, the number of parties is small, and transactions costs are low,

Keeping in mind the Coase theorem, in the figure above, if the residents of the town own the lake, how much do they charge the factories to dump waste?

Taxes can yield the efficient level of pollution if the tax is set equal to the

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

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