Question 1

What is the rationale behind a tradable emission allowance scheme?

Accepted Answer

A)  to create a market for externalities: the scheme brings together buyers and sellers of marketable permits 
B)  to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance 
C)  to raise revenue for the government through the sale of emission permits and at the same time set an emissions target 
D)  to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance 
A)  to create a market for externalities: the scheme brings together buyers and sellers of marketable permits 
B)  to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance 
C)  to raise revenue for the government through the sale of emission permits and at the same time set an emissions target 
D)  to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

Question 2

Private solutions to the problem of externalities are most likely when

Accepted Answer

A)  government actively encourages these solutions. 
B)  transactions costs are low and the number of bargaining parties is small. 
C)  transactions costs are low and the number of bargaining parties is large. 
D)  transactions costs are low and the monetary damages to third parties are high. 
A)  government actively encourages these solutions. 
B)  transactions costs are low and the number of bargaining parties is small. 
C)  transactions costs are low and the number of bargaining parties is large. 
D)  transactions costs are low and the monetary damages to third parties are high.

Question 3

One difference between the demand for a private good and that for a public good is that

Accepted Answer

A)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, each consumer chooses the price she is willing to pay for a fixed quantity. 
B)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity. 
C)  with a private good, each consumer receives different amounts of benefit from consuming the product but with a public good, every consumer realizes the same amount of benefit from consuming the product. 
D)  the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the public good. 
A)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, each consumer chooses the price she is willing to pay for a fixed quantity. 
B)  with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity. 
C)  with a private good, each consumer receives different amounts of benefit from consuming the product but with a public good, every consumer realizes the same amount of benefit from consuming the product. 
D)  the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the public good.

Question 4

Figure 5-6   Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 5-6. What does D2 represent?

Accepted Answer

A)  the social welfare curve 
B)  the demand curve reflecting marginal social benefits 
C)  the demand curve reflecting marginal private benefits 
D)  the positive externalities curve 
A)  the social welfare curve 
B)  the demand curve reflecting marginal social benefits 
C)  the demand curve reflecting marginal private benefits 
D)  the positive externalities curve

Question 5

Getting an annual flu shot is a way to reduce the chances of not only contracting influenza, but also spreading it to other people. In this sense, getting an annual flu shot is reducing ________ of spreading a contagious disease.

Accepted Answer

A)  positive externalities 
B)  negative externalities 
C)  the private benefit 
D)  the social benefit 
A)  positive externalities 
B)  negative externalities 
C)  the private benefit 
D)  the social benefit

Question 6

A private good is

Accepted Answer

A)  a good that is rival and nonexcludable. 
B)  a good that is nonrival and nonexcludable. 
C)  a good that is rival and excludable. 
D)  a good that is nonrival and excludable. 
A)  a good that is rival and nonexcludable. 
B)  a good that is nonrival and nonexcludable. 
C)  a good that is rival and excludable. 
D)  a good that is nonrival and excludable.

Question 7

An externality refers to economic events outside a market.

Accepted Answer

A) True 
 B)False

Question 8

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

A)  There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C)  The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D)  The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. 
A)  There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C)  The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D)  The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Question 9

A positive externality results when

Accepted Answer

A)  economists are sure that a good or service provides benefits to consumers. 
B)  someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C)  people who live in one country benefit from the production of a good or service that occurs in another country. 
D)  people who are not directly involved in producing or paying for a good or service benefit from it. 
A)  economists are sure that a good or service provides benefits to consumers. 
B)  someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C)  people who live in one country benefit from the production of a good or service that occurs in another country. 
D)  people who are not directly involved in producing or paying for a good or service benefit from it.

Question 10

The market demand for a public good can be determined by

Accepted Answer

A)  adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B)  adding up how much each citizen expects to consume at each possible price. 
C)  adding up how much each consumer is willing to pay for each unit of the public good. 
D)  estimating the value of the benefit that each unit provides and multiplying that by the number of consumers. 
A)  adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B)  adding up how much each citizen expects to consume at each possible price. 
C)  adding up how much each consumer is willing to pay for each unit of the public good. 
D)  estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.

Question 11

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

Accepted Answer

A) True 
 B)False

Question 12

The Coase theorem states that

Accepted Answer

A)  government intervention is always needed if externalities are present. 
B)  assigning property rights is the only thing the government should do in a market economy. 
C)  if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. 
D)  a free-market equilibrium is the best solution to address externalities. 
A)  government intervention is always needed if externalities are present. 
B)  assigning property rights is the only thing the government should do in a market economy. 
C)  if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. 
D)  a free-market equilibrium is the best solution to address externalities.

Question 13

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

Accepted Answer

Transactions costs refer to the costs in

Question 14

What are property rights?

Accepted Answer

A)  the title to ownership of any physical asset 
B)  a legal document verifying ownership of intangible assets 
C)  the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it 
D)  the right of the government to appropriate private assets for the good of society 
A)  the title to ownership of any physical asset 
B)  a legal document verifying ownership of intangible assets 
C)  the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it 
D)  the right of the government to appropriate private assets for the good of society

Question 15

Governments can increase the consumption of a product that creates positive externalities by

Accepted Answer

A)  subsidizing the production of the product so that the supply is increased and market price is reduced. 
B)  taxing the production and consumption of the product. 
C)  convincing everyone to consume the product. 
D)  assigning property rights to the producers of the product. 
A)  subsidizing the production of the product so that the supply is increased and market price is reduced. 
B)  taxing the production and consumption of the product. 
C)  convincing everyone to consume the product. 
D)  assigning property rights to the producers of the product.

Question 16

Classifying a good as rival means

Accepted Answer

A)  that the good is produced in a competitive market. 
B)  that there is a shortage of the good. 
C)  that when one person consumes a unit of the good no one else can consume it. 
D)  anyone who does not pay for the good cannot consume it. 
A)  that the good is produced in a competitive market. 
B)  that there is a shortage of the good. 
C)  that when one person consumes a unit of the good no one else can consume it. 
D)  anyone who does not pay for the good cannot consume it.

Question 17

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using

Accepted Answer

A)  command-and-control policies. 
B)  strong-arm tactics. 
C)  global initiatives. 
D)  market-based policies. 
A)  command-and-control policies. 
B)  strong-arm tactics. 
C)  global initiatives. 
D)  market-based policies.

Question 18

Briefly explain the command-and-control approach in dealing with an externality such as pollution. Give an example of the U.S. government using the command-and-control approach to deal with the pollution problem.

Accepted Answer

Command-and-control is an approach that

Question 19

Figure 5-13   Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13. The efficient equilibrium price of gasoline is ________ per gallon.

Accepted Answer

A)  $3.00 
B)  $3.75 
C)  $4.25 
D)  $5.00 
A)  $3.00 
B)  $3.75 
C)  $4.25 
D)  $5.00

Question 20

A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

Accepted Answer

A) True 
 B)False

Exam 5: Externalities, Environmental Policy, and Public Goods

What is the rationale behind a tradable emission allowance scheme?

Private solutions to the problem of externalities are most likely when

One difference between the demand for a private good and that for a public good is that

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. What does D2 represent?

Getting an annual flu shot is a way to reduce the chances of not only contracting influenza, but also spreading it to other people. In this sense, getting an annual flu shot is reducing ________ of spreading a contagious disease.

A private good is

An externality refers to economic events outside a market.

How does the construction of a market demand curve for a private good differ from that for a public good?

A positive externality results when

The market demand for a public good can be determined by

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

The Coase theorem states that

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

What are property rights?

Governments can increase the consumption of a product that creates positive externalities by

Classifying a good as rival means

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using

Briefly explain the command-and-control approach in dealing with an externality such as pollution. Give an example of the U.S. government using the command-and-control approach to deal with the pollution problem.

Figure 5-13 Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13. The efficient equilibrium price of gasoline is ________ per gallon.

A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. What does D₂ represent?