Question 1

Pollution occurs when lumber is produced. If the lumber market is unregulated, there would be

Accepted Answer

A)  overproduction of lumber compared to the efficient amount. 
B)  underproduction of lumber compared to the efficient amount. 
C)  sometimes overproduction and sometimes underproduction of lumber compared to the efficient amount. 
D)  an external benefit to producing lumber. 
A)  overproduction of lumber compared to the efficient amount. 
B)  underproduction of lumber compared to the efficient amount. 
C)  sometimes overproduction and sometimes underproduction of lumber compared to the efficient amount. 
D)  an external benefit to producing lumber.

Question 2

If the marginal external cost of building a children's playground equals zero, then the

Accepted Answer

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

Question 3

Which of the following applies to the tragedy of the commons? I. In the absence of government action, there is an absence of incentives to prevent the overuse of the common resource.
II) When consumers take account of the marginal social benefit and marginal social cost, overuse of the resource occurs.
III) Even with government action, it is impossible for an efficient level of output to be achieved.

Accepted Answer

A)  I only 
B)  I and II 
C)  II and III 
D)  I, II and III 
A)  I only 
B)  I and II 
C)  II and III 
D)  I, II and III

Question 4

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. Suppose that the government decides to introduce a pollution tax. What is the tax per vehicle mile that will achieve the efficient outcome?

Accepted Answer

A)  $2 
B)  $4 
C)  $6 
D)  $8 
A)  $2 
B)  $4 
C)  $6 
D)  $8

Question 5

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. Now suppose a Pigovian tax is successfully implemented and the efficient quantity of paper is produced. What is the total tax revenue collected by the government per week?

Accepted Answer

A)  $120 
B)  $840 
C)  $1,200 
D)  $1,800 
A)  $120 
B)  $840 
C)  $1,200 
D)  $1,800

Question 6

-The tables above show the marginal costs and benefits from production of paper. If the efficient level of output is achieved by imposing a tax on paper producers, the government collects tax revenue equal to

Accepted Answer

A)  $64,000. 
B)  $56,000. 
C)  $72,000. 
D)  $48,000. 
A)  $64,000. 
B)  $56,000. 
C)  $72,000. 
D)  $48,000.

Question 7

-Based on the data in the above table, to assure that the efficient amount is produced the government can

Accepted Answer

A)  subsidize the suppliers $8 per unit. 
B)  subsidize the suppliers $2 per unit. 
C)  tax suppliers $2 per unit. 
D)  tax suppliers $8 per unit. 
A)  subsidize the suppliers $8 per unit. 
B)  subsidize the suppliers $2 per unit. 
C)  tax suppliers $2 per unit. 
D)  tax suppliers $8 per unit.

Question 8

A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be ________.

Accepted Answer

A)  efficient only if the trout farmer owns the river 
B)  inefficient if the farming operation owns the river 
C)  efficient if either the farming operation or the trout farmer own the river 
D)  always inefficient 
A)  efficient only if the trout farmer owns the river 
B)  inefficient if the farming operation owns the river 
C)  efficient if either the farming operation or the trout farmer own the river 
D)  always inefficient

Question 9

When external costs are present and government imposes a tax equal to the external marginal cost, then efficiency can be achieved.

Accepted Answer

A) True 
 B)False

Question 10

-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. A quota to prevent the overuse of the common pasture sets the number of goats to be raised equal to ________.

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 11

A common resource is used efficiently if

Accepted Answer

A)  the output is maximized. 
B)  marginal social benefit equals marginal social cost. 
C)  marginal private benefit equals marginal private cost. 
D)  marginal social benefit is maximized. 
A)  the output is maximized. 
B)  marginal social benefit equals marginal social cost. 
C)  marginal private benefit equals marginal private cost. 
D)  marginal social benefit is maximized.

Question 12

Which condition(s) must exist for the Coase theorem to hold? I. Property rights must exist.
II) Transactions costs must be measurable.
III) A small number of parties must be involved.

Accepted Answer

A)  I and II only 
B)  I and III only 
C)  II and III only 
D)  I, II and III 
A)  I and II only 
B)  I and III only 
C)  II and III only 
D)  I, II and III

Question 13

-Using the above figure, in the absence of any government intervention, the number of tons of paper produced will be

Accepted Answer

A)  60 million tons. 
B)  80 million tons. 
C)  100 million tons. 
D)  120 million tons. 
A)  60 million tons. 
B)  80 million tons. 
C)  100 million tons. 
D)  120 million tons.

Question 14

If the number of ITQs issued equals the efficient production level, what is the price of an ITQ?

Accepted Answer

The price of an ITQ equals the

Question 15

What do we mean by "property rights" and why are they important?

Accepted Answer

Property rights are legally established

Question 16

If the marginal social cost of a good equals the marginal private cost of the good, then the marginal external cost of the good

Accepted Answer

A)  is zero. 
B)  equals the marginal social cost. 
C)  equals the marginal social benefit. 
D)  equals the marginal private benefit. 
A)  is zero. 
B)  equals the marginal social cost. 
C)  equals the marginal social benefit. 
D)  equals the marginal private benefit.

Question 17

-In the figure above, if a tax is imposed that generates an efficient allocation of resources, then consumers will pay a price of

Accepted Answer

A)  $250 per unit. 
B)  $200 per unit. 
C)  $150 per unit. 
D)  $100 per unit. 
A)  $250 per unit. 
B)  $200 per unit. 
C)  $150 per unit. 
D)  $100 per unit.

Question 18

-A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. The marginal social cost, private marginal cost, and marginal social benefit from producing chemicals are in the figure above. If polluting is legal and no one owns the lake into which waste is dumped, then the amount of chemicals produced each week will be

Accepted Answer

A)  0 tons. 
B)  4 tons. 
C)  8 tons. 
D)  None of the above answers is correct. 
A)  0 tons. 
B)  4 tons. 
C)  8 tons. 
D)  None of the above answers is correct.

Question 19

-The above figure shows the marginal social benefit, marginal private cost and marginal social cost of producing steel. What is the efficient quantity of steel?

Accepted Answer

A)  0 tons 
B)  2 tons 
C)  4 tons 
D)  8 tons 
A)  0 tons 
B)  2 tons 
C)  4 tons 
D)  8 tons

Question 20

In 2008, a man was charged with one count of illegally stocking wild animals, a civil offense. State investigators had accused him of bringing 31 wild hogs from Texas to Wisconsin to hunt on his private land in 2002, spawning a feral hog population that has caused thousands of dollars in crop damage to hundreds of farms in the region. What is the externality in this example?

Accepted Answer

A)  Bringing 31 wild hogs from Texas to Wisconsin to hunt on his private land 
B)  Spawning a feral hog population 
C)  Illegally stocking wild animals 
D)  Crop damage 
A)  Bringing 31 wild hogs from Texas to Wisconsin to hunt on his private land 
B)  Spawning a feral hog population 
C)  Illegally stocking wild animals 
D)  Crop damage

Exam 17: Externalities and the Environment

Pollution occurs when lumber is produced. If the lumber market is unregulated, there would be

If the marginal external cost of building a children's playground equals zero, then the

-The figure above shows the market for transportation services, which produces an external cost due to the air pollution that is created. Suppose that the government decides to introduce a pollution tax. What is the tax per vehicle mile that will achieve the efficient outcome?

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. Now suppose a Pigovian tax is successfully implemented and the efficient quantity of paper is produced. What is the total tax revenue collected by the government per week?

-The tables above show the marginal costs and benefits from production of paper. If the efficient level of output is achieved by imposing a tax on paper producers, the government collects tax revenue equal to

-Based on the data in the above table, to assure that the efficient amount is produced the government can

A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be ________.

When external costs are present and government imposes a tax equal to the external marginal cost, then efficiency can be achieved.

-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. A quota to prevent the overuse of the common pasture sets the number of goats to be raised equal to ________.

A common resource is used efficiently if

Which condition(s) must exist for the Coase theorem to hold? I. Property rights must exist. II) Transactions costs must be measurable. III) A small number of parties must be involved.

-Using the above figure, in the absence of any government intervention, the number of tons of paper produced will be

If the number of ITQs issued equals the efficient production level, what is the price of an ITQ?

What do we mean by "property rights" and why are they important?

If the marginal social cost of a good equals the marginal private cost of the good, then the marginal external cost of the good

-In the figure above, if a tax is imposed that generates an efficient allocation of resources, then consumers will pay a price of

-The above figure shows the marginal social benefit, marginal private cost and marginal social cost of producing steel. What is the efficient quantity of steel?

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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