Question 1

Which of the following is an example of the U.S. government's use of a "command-and-control" approach to reducing pollution?

Accepted Answer

A)  In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010. 
B)  The U.S. government imposed a tax on electric utilities to reduce damages from acid rain. 
C)  The government issued electric utilities tradable emission allowances in order to reduce emissions of nitrogen oxide. 
D)  In the 1980s the U.S. government required the installation of catalytic converters to reduce emissions from all new automobiles. 
A)  In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010. 
B)  The U.S. government imposed a tax on electric utilities to reduce damages from acid rain. 
C)  The government issued electric utilities tradable emission allowances in order to reduce emissions of nitrogen oxide. 
D)  In the 1980s the U.S. government required the installation of catalytic converters to reduce emissions from all new automobiles.

Question 2

What is a "social cost" of production?

Accepted Answer

A)  the cost of the natural resources used up in production 
B)  the total costs of producing a product, both implicit and explicit costs 
C)  the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product 
D)  the cost of the environmental damage created by production 
A)  the cost of the natural resources used up in production 
B)  the total costs of producing a product, both implicit and explicit costs 
C)  the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product 
D)  the cost of the environmental damage created by production

Question 3

The "tragedy of the commons" refers to the phenomenon where

Accepted Answer

A)  individuals are free riders. 
B)  people overuse a common resource. 
C)  people do not internalize an externality. 
D)  there is rivalry in consumption. 
A)  individuals are free riders. 
B)  people overuse a common resource. 
C)  people do not internalize an externality. 
D)  there is rivalry in consumption.

Question 4

Figure 5-3  
-Refer to Figure 5-3. The market equilibrium output level is

Accepted Answer

A)  Qm. 
B)  Qn. 
C)  Qo. 
D)  Qo - Qm. 
A)  Qm. 
B)  Qn. 
C)  Qo. 
D)  Qo - Qm.

Question 5

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

Accepted Answer

A)  individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good. 
B)  the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned. 
C)  individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good. 
D)  the demand for a private good produces consumption externalities; the demand for a public good produces production externalities. 
A)  individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good. 
B)  the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned. 
C)  individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good. 
D)  the demand for a private good produces consumption externalities; the demand for a public good produces production externalities.

Question 6

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of

Accepted Answer

A)  a transactions cost. 
B)  a Pigovian tax. 
C)  a Pigovian subsidy. 
D)  the Coase Theorem. 
A)  a transactions cost. 
B)  a Pigovian tax. 
C)  a Pigovian subsidy. 
D)  the Coase Theorem.

Question 7

If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

Accepted Answer

A) True 
 B)False

Question 8

In 2017, economists working at the U.S. Department of Treasury's Office of Tax Analysis have estimated that the marginal social cost of carbon dioxide emissions was about

Accepted Answer

A)  $7 per metric ton. 
B)  $32 per metric ton. 
C)  $49 per metric ton. 
D)  $70 per metric ton. 
A)  $7 per metric ton. 
B)  $32 per metric ton. 
C)  $49 per metric ton. 
D)  $70 per metric ton.

Question 9

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 D1 represent?

Accepted Answer

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

Question 10

Figure 5-3  
-Refer to Figure 5-3. At the competitive market equilibrium,

Accepted Answer

A)  the size of the external cost is Pm - Po. 
B)  the size of the external benefit is Pm - Po. 
C)  the size of the external cost is Pn - Po. 
D)  the size of the external benefit is Pn - Po. 
A)  the size of the external cost is Pm - Po. 
B)  the size of the external benefit is Pm - Po. 
C)  the size of the external cost is Pn - Po. 
D)  the size of the external benefit is Pn - Po.

Question 11

Explain how mandatory seat belt laws may reduce the negative externalities of risky behavior.

Accepted Answer

Mandatory seat belt laws are designed to

Question 12

Figure 5-2   Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2. The true marginal cost of the last unit produced is represented by the price

Accepted Answer

A)  Pa. 
B)  Pb. 
C)  Pc. 
D)  Pf. 
A)  Pa. 
B)  Pb. 
C)  Pc. 
D)  Pf.

Question 13

How does a public good differ from a quasi-public good? In your answer give an example of each type of good.

Accepted Answer

A pubic good is: (a) nonrivalrous-one pe

Question 14

Free riding refers to a situation in which

Accepted Answer

A)  people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay. 
B)  the marginal cost of allowing additional consumers to consume a public good is zero. 
C)  high income individuals subsidize the production of goods, such as education, that make society better off. 
D)  markets fail to allocate resources efficiently when benefits outweigh costs. 
A)  people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay. 
B)  the marginal cost of allowing additional consumers to consume a public good is zero. 
C)  high income individuals subsidize the production of goods, such as education, that make society better off. 
D)  markets fail to allocate resources efficiently when benefits outweigh costs.

Question 15

Figure 5-2   Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2. The efficient output level is

Accepted Answer

A)  Qd. 
B)  Qb. 
C)  Qa. 
D)  Qb - Qd. 
A)  Qd. 
B)  Qb. 
C)  Qa. 
D)  Qb - Qd.

Question 16

Figure 5-7  
-Refer to Figure 5-7. The marginal cost of reducing pollution curve is the same curve as

Accepted Answer

A)  the supply of pollution reduction curve. 
B)  the demand for pollution reduction curve. 
C)  the negative externality curve. 
D)  the value of pollution reduction curve. 
A)  the supply of pollution reduction curve. 
B)  the demand for pollution reduction curve. 
C)  the negative externality curve. 
D)  the value of pollution reduction curve.

Question 17

Figure 5-3  
-Refer to Figure 5-3. The deadweight loss due to the externality is represented by the area

Accepted Answer

A)  mso. 
B)  msn. 
C)  nso. 
D)  mtn. 
A)  mso. 
B)  msn. 
C)  nso. 
D)  mtn.

Question 18

The social cost of cutting trees for firewood in a government forest is

Accepted Answer

A)  the increased likelihood of flooding as more trees are cut. 
B)  the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C)  opportunity cost to the individual of cutting the wood. 
D)  the marginal costs of cutting the last tree. 
A)  the increased likelihood of flooding as more trees are cut. 
B)  the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C)  opportunity cost to the individual of cutting the wood. 
D)  the marginal costs of cutting the last tree.

Question 19

Which of the following best illustrates free riding?

Accepted Answer

A)  Since no one owns elephants and elephants are valued for their hide, meat, and ivory, elephants can be hunted to extinction. 
B)  For every purchase of a $30 fare card, you are entitled to five free bus rides. 
C)  If your neighbors professionally landscape their front yards, it is likely that the market value of your property will increase. 
D)  All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute. 
A)  Since no one owns elephants and elephants are valued for their hide, meat, and ivory, elephants can be hunted to extinction. 
B)  For every purchase of a $30 fare card, you are entitled to five free bus rides. 
C)  If your neighbors professionally landscape their front yards, it is likely that the market value of your property will increase. 
D)  All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute.

Question 20

Figure 5-2   Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2. The size of marginal external costs can be determined by

Accepted Answer

A)  S2 + S1 at each output level. 
B)  S2 - S1 at each output level. 
C)  the supply curve S2. 
D)  the supply curve S1. 
A)  S2 + S1 at each output level. 
B)  S2 - S1 at each output level. 
C)  the supply curve S2. 
D)  the supply curve S1.

Exam 5: Externalities, Environmental Policy, and Public Goods

Which of the following is an example of the U.S. government's use of a "command-and-control" approach to reducing pollution?

What is a "social cost" of production?

The "tragedy of the commons" refers to the phenomenon where

Figure 5-3 -Refer to Figure 5-3. The market equilibrium output level is

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

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of

If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

In 2017, economists working at the U.S. Department of Treasury's Office of Tax Analysis have estimated that the marginal social cost of carbon dioxide emissions was about

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 D1 represent?

Figure 5-3 -Refer to Figure 5-3. At the competitive market equilibrium,

Explain how mandatory seat belt laws may reduce the negative externalities of risky behavior.

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The true marginal cost of the last unit produced is represented by the price

How does a public good differ from a quasi-public good? In your answer give an example of each type of good.

Free riding refers to a situation in which

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The efficient output level is

Figure 5-7 -Refer to Figure 5-7. The marginal cost of reducing pollution curve is the same curve as

Figure 5-3 -Refer to Figure 5-3. The deadweight loss due to the externality is represented by the area

The social cost of cutting trees for firewood in a government forest is

Which of the following best illustrates free riding?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The size of marginal external costs can be determined by

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 D₁ represent?