Question 1

For the Coase theorem to apply, all of the following conditions must be satisfied except

Accepted Answer

A)  The basic rights of the individuals must be clearly understood. 
B)  There must be no impediments to bargaining. 
C)  Only a few people can be involved. 
D)  Liability rules must be established and enforced. 
A)  The basic rights of the individuals must be clearly understood. 
B)  There must be no impediments to bargaining. 
C)  Only a few people can be involved. 
D)  Liability rules must be established and enforced. D

Question 2

If a common area is turned into a private resource, the owner will have incentives for using that resource efficiently.

Accepted Answer

A) True 
 B)False  True

Question 3

The free-rider problem arises

Accepted Answer

A)  when people feel their contribution is so small relative to the total amount needed that it won't make a difference whether they contribute or not. 
B)  when people realize they will still receive the benefits of a good whether they pay for it or not. 
C)  whenever the government produces a good or service. 
D)  whenever there is a surplus of the product in the market. 
A)  when people feel their contribution is so small relative to the total amount needed that it won't make a difference whether they contribute or not. 
B)  when people realize they will still receive the benefits of a good whether they pay for it or not. 
C)  whenever the government produces a good or service. 
D)  whenever there is a surplus of the product in the market. B

Question 4

Relating to the Economics in Practice on page 338: A number of agencies in the federal government, including the EPA, use the social cost of carbon as their internal carbon fee. In 2015, this price they were paying was ________ per ton of carbon.

Accepted Answer

A)  $18 
B)  $39 
C)  $62 
D)  $100 
A)  $18 
B)  $39 
C)  $62 
D)  $100

Question 5

Social goods are nonrival in consumption.

Accepted Answer

A) True 
 B)False

Question 6

Refer to the information given in Table 16.5 below to answer the question that follows.
Table 16.5 $\begin{array} { ccc } \text { Units of } & \text { Person A's } & \text { Person B's }\
\text {Public Good}&\text { Willingness to Pay}&\text { Willingness to Pay}\ 
\hline1 & \$ 50 & \$ 60 \
2 & 30 & 50 \
3 & 0 & 30\
\hline
\end{array}$
-Refer to Table 16.5. A point on the market demand curve for this public good would be: at a price of ________ quantity demanded would be ________.

Accepted Answer

A)  $30; 5 
B)  $50; 3 
C)  $100; 1 
D)  $110; 1 
A)  $30; 5 
B)  $50; 3 
C)  $100; 1 
D)  $110; 1

Question 7

If there are no externalities, producing where price is greater than marginal cost is inefficient because for every unit produced, consumers derive benefits that are less than the cost of the resources needed to produce it.

Accepted Answer

A) True 
 B)False

Question 8

Taxes, tradable pollution permits, and direct regulation of pollution are all market approaches to dealing with pollution.

Accepted Answer

A) True 
 B)False

Question 9

An injunction is a court order that forbids the continuation of behavior that leads to benefits.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow.   Figure 16.1
-Refer to Figure 16.1. The ________ amount of fertilizer is 50 bags.

Accepted Answer

A)  efficient 
B)  unregulated 
C)  break-even 
D)  equitable 
A)  efficient 
B)  unregulated 
C)  break-even 
D)  equitable

Question 11

Refer to the information in Figure 16.5 below to answer the question(s) that follow.   Figure 16.5
Figure 16.5 shows the marginal benefits of emitting pollution for the only two chemical companies in an industry, Alpha Chemicals and Beta Chemicals. Before any tax on pollution emissions is imposed, each company views pollution as being free.
-Refer to Figure 16.5. Suppose that instead of a tax, the government uses standards to achieve the emission reductions, requiring that each company cut its original emissions in half rather than allowing each company to choose emissions based on their costs. Compared to the situation under the tax, Alpha would ________ and Beta would ________.

Accepted Answer

A)  be able to increase emissions; have to further reduce emissions 
B)  be able to increase emissions; be able to increase emissions 
C)  have to further reduce emissions; have to further reduce emissions 
D)  have to further reduce emissions; be able to increase emissions 
A)  be able to increase emissions; have to further reduce emissions 
B)  be able to increase emissions; be able to increase emissions 
C)  have to further reduce emissions; have to further reduce emissions 
D)  have to further reduce emissions; be able to increase emissions

Question 12

Refer to the data provided in Table 16.1 below to answer the following question(s).
Table 16.1 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.1
 \[\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \
\hline \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm A }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm B }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} \
\hline 1 & \$ 4 & \$ 4 & 1 & \$ 8 & \$ 8 \
\hline 2 & 6 & 10 & 2 & 12 & 20 \
\hline 3 & 9 & 19 & 3 & 16 & 36 \
\hline 4 & 13 & 32 & 4 & 20 & 56 \
\hline 5 & 18 & 50 & 5 & 24 & 80 \
\hline
\end{array}\]
-Refer to Table 16.1. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, how many permits will be traded between the two firms?

Accepted Answer

A)  A will buy two permits from B. 
B)  B will buy two permits from A. 
C)  A will buy one permit from B. 
D)  B will buy one permit from A. 
A)  A will buy two permits from B. 
B)  B will buy two permits from A. 
C)  A will buy one permit from B. 
D)  B will buy one permit from A.

Question 13

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's ________ curve will shift down and the industry ________ curve will shift to the right.

Accepted Answer

A)  marginal cost; demand 
B)  marginal cost; supply 
C)  marginal benefit; demand 
D)  marginal benefit; supply 
A)  marginal cost; demand 
B)  marginal cost; supply 
C)  marginal benefit; demand 
D)  marginal benefit; supply

Question 14

Relating to the Economics in Practice on page 330: If a company that is responsible for an environmental disaster does not end up paying the entire cost of the damage it created, the marginal social cost will be ________ the sum of the marginal costs of production.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  unrelated to 
A)  less than 
B)  greater than 
C)  equal to 
D)  unrelated to

Question 15

If a profit-maximizing perfectly competitive firm does not have to compensate society for a negative externality, the firm will choose to produce where

Accepted Answer

A)  price equals marginal cost. 
B)  price equals marginal social cost. 
C)  marginal cost equals marginal social cost. 
D)  marginal revenue equals marginal social cost. 
A)  price equals marginal cost. 
B)  price equals marginal social cost. 
C)  marginal cost equals marginal social cost. 
D)  marginal revenue equals marginal social cost.

Question 16

Assuming there are no externalities, if a firm produces an output level where the benefits to consumers ________ the cost to suppliers to produce it, then price is ________ marginal cost.

Accepted Answer

A)  are less than; greater than 
B)  exceed; greater than 
C)  exceed; less than 
D)  equal; less than 
A)  are less than; greater than 
B)  exceed; greater than 
C)  exceed; less than 
D)  equal; less than

Question 17

The market will produce ________ level of education when we ________ its external benefits.

Accepted Answer

A)  an efficient; do not consider 
B)  more than an efficient; do not consider 
C)  less than an efficient; do not consider 
D)  more than an efficient; do consider 
A)  an efficient; do not consider 
B)  more than an efficient; do not consider 
C)  less than an efficient; do not consider 
D)  more than an efficient; do consider

Question 18

The free-rider problem is intrinsic to public goods.

Accepted Answer

A) True 
 B)False

Question 19

If the production of a good generates external benefits, the government could increase efficiency by

Accepted Answer

A)  taxing the production of the good to reduce the amount produced. 
B)  subsidizing production of the good to increase the amount produced. 
C)  regulating production of the good to reduce the amount produced. 
D)  requiring all producers of the product to be licensed to produce the product. 
A)  taxing the production of the good to reduce the amount produced. 
B)  subsidizing production of the good to increase the amount produced. 
C)  regulating production of the good to reduce the amount produced. 
D)  requiring all producers of the product to be licensed to produce the product.

Question 20

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow.   Figure 16.1
-Refer to Figure 16.1. Absent government intervention, how much fertilizer will be produced?

Accepted Answer

A)  Zero because any level of production involves an external cost. 
B)  50 bags 
C)  60 bags 
D)  indeterminate from this information 
A)  Zero because any level of production involves an external cost. 
B)  50 bags 
C)  60 bags 
D)  indeterminate from this information

For the Coase theorem to apply, all of the following conditions must be satisfied except

If a common area is turned into a private resource, the owner will have incentives for using that resource efficiently.

The free-rider problem arises

Relating to the Economics in Practice on page 338: A number of agencies in the federal government, including the EPA, use the social cost of carbon as their internal carbon fee. In 2015, this price they were paying was ________ per ton of carbon.

Social goods are nonrival in consumption.

If there are no externalities, producing where price is greater than marginal cost is inefficient because for every unit produced, consumers derive benefits that are less than the cost of the resources needed to produce it.

Taxes, tradable pollution permits, and direct regulation of pollution are all market approaches to dealing with pollution.

An injunction is a court order that forbids the continuation of behavior that leads to benefits.

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow. Figure 16.1 -Refer to Figure 16.1. The ________ amount of fertilizer is 50 bags.

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's curve will shift down and the industry curve will shift to the right.

Relating to the Economics in Practice on page 330: If a company that is responsible for an environmental disaster does not end up paying the entire cost of the damage it created, the marginal social cost will be ________ the sum of the marginal costs of production.

If a profit-maximizing perfectly competitive firm does not have to compensate society for a negative externality, the firm will choose to produce where

Assuming there are no externalities, if a firm produces an output level where the benefits to consumers the cost to suppliers to produce it, then price is marginal cost.

The market will produce level of education when we its external benefits.

The free-rider problem is intrinsic to public goods.

If the production of a good generates external benefits, the government could increase efficiency by

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow. Figure 16.1 -Refer to Figure 16.1. Absent government intervention, how much fertilizer will be produced?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Exam 16: Externalities, Public Goods, and Common Resources

For the Coase theorem to apply, all of the following conditions must be satisfied except

If a common area is turned into a private resource, the owner will have incentives for using that resource efficiently.

The free-rider problem arises

Relating to the Economics in Practice on page 338: A number of agencies in the federal government, including the EPA, use the social cost of carbon as their internal carbon fee. In 2015, this price they were paying was ________ per ton of carbon.

Social goods are nonrival in consumption.

If there are no externalities, producing where price is greater than marginal cost is inefficient because for every unit produced, consumers derive benefits that are less than the cost of the resources needed to produce it.

Taxes, tradable pollution permits, and direct regulation of pollution are all market approaches to dealing with pollution.

An injunction is a court order that forbids the continuation of behavior that leads to benefits.

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow. Figure 16.1 -Refer to Figure 16.1. The ________ amount of fertilizer is 50 bags.

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's ________ curve will shift down and the industry ________ curve will shift to the right.

Relating to the Economics in Practice on page 330: If a company that is responsible for an environmental disaster does not end up paying the entire cost of the damage it created, the marginal social cost will be ________ the sum of the marginal costs of production.

If a profit-maximizing perfectly competitive firm does not have to compensate society for a negative externality, the firm will choose to produce where

Assuming there are no externalities, if a firm produces an output level where the benefits to consumers ________ the cost to suppliers to produce it, then price is ________ marginal cost.

The market will produce ________ level of education when we ________ its external benefits.

The free-rider problem is intrinsic to public goods.

If the production of a good generates external benefits, the government could increase efficiency by

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow. Figure 16.1 -Refer to Figure 16.1. Absent government intervention, how much fertilizer will be produced?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's curve will shift down and the industry curve will shift to the right.

Assuming there are no externalities, if a firm produces an output level where the benefits to consumers the cost to suppliers to produce it, then price is marginal cost.

The market will produce level of education when we its external benefits.