Question 1

One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.

Accepted Answer

A) True 
 B)False  True

Question 2

Economist A.C.Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

Accepted Answer

Pigou believed that, in the case of a positive externality in consumption, the government should give consumers a subsidy equal to the value of the externality.By giving a subsidy equal to the value of the externality, the external benefit will become a private benefit and demand for the product will increase to the point where the market equilibrium is also the efficient equilibrium.

Question 3

A market demand curve reflects the

Accepted Answer

A) private benefits of consuming a product. 
B) external benefits of consuming a product. 
C) social benefits of consuming a product. 
D) the sum of private and social benefits of consuming a product. 
A) private benefits of consuming a product. 
B) external benefits of consuming a product. 
C) social benefits of consuming a product. 
D) the sum of private and social benefits of consuming a product. A

Question 4

What does the phrase "internalizing an external cost" mean?

Accepted Answer

A) limiting the extent to which domestic firms can outsource production 
B) prohibiting economic activities that create externalities 
C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output 
D) finding a way to address cross-border pollution 
A) limiting the extent to which domestic firms can outsource production 
B) prohibiting economic activities that create externalities 
C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output 
D) finding a way to address cross-border pollution

Question 5

Private producers have no incentive to provide public goods because

Accepted Answer

A) the government subsidy granted is usually insufficient to enable private producers to make a profit. 
B) production of huge quantities of public goods entails huge fixed costs. 
C) they cannot avoid the tragedy of the commons. 
D) once produced, it will not be possible to exclude those who do not pay for the good. 
A) the government subsidy granted is usually insufficient to enable private producers to make a profit. 
B) production of huge quantities of public goods entails huge fixed costs. 
C) they cannot avoid the tragedy of the commons. 
D) once produced, it will not be possible to exclude those who do not pay for the good.

Question 6

Overuse of a common resource may be avoided by all of the following methods except

Accepted Answer

A) charging for the use of a common resource. 
B)  issuing tradable permits for the use of a common resource. 
C) government taking over ownership of all private common resources. 
D) setting quotas or legal limits on the quantity consumed of the common resource. 
A) charging for the use of a common resource. 
B)  issuing tradable permits for the use of a common resource. 
C) government taking over ownership of all private common resources. 
D) setting quotas or legal limits on the quantity consumed of the common resource.

Question 7

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Suppose Bella is lazy and a spendthrift and Sefronia suspects that Bella will be willing to pay $80.What is Sefronia likely to do, given that she is as rational as any other person?

Accepted Answer

A) She will correctly rationalize that Bella's laziness and spendthrift ways are irrelevant to the decision at hand. 
B) She might claim that she is not willing to pay for a housecleaner, hoping that Bella would pay the entire $80. 
C) She might offer to do Bella's housecleaning chores if Bella would pay her $50. 
D) She will come clean and tell Bella that since Bella is lazy and a spendthrift she should pay a bigger share of the $80. 
A) She will correctly rationalize that Bella's laziness and spendthrift ways are irrelevant to the decision at hand. 
B) She might claim that she is not willing to pay for a housecleaner, hoping that Bella would pay the entire $80. 
C) She might offer to do Bella's housecleaning chores if Bella would pay her $50. 
D) She will come clean and tell Bella that since Bella is lazy and a spendthrift she should pay a bigger share of the $80.

Question 8

Figure 5.7
   
Figure 5.7 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5.7.The current market equilibrium output is partly the result of overfishing.In that case, what does S₂ represent?

Accepted Answer

A) the private marginal benefit of harvesting salmon 
B) the social marginal benefit of harvesting salmon 
C) the private marginal cost of harvesting salmon 
D) the social marginal cost of harvesting salmon 
A) the private marginal benefit of harvesting salmon 
B) the social marginal benefit of harvesting salmon 
C) the private marginal cost of harvesting salmon 
D) the social marginal cost of harvesting salmon

Question 9

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 10

Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange.Several environmental groups have raised money to buy allowances (which they subsequently destroy).As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts.As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever."
Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999.
What would be the impact on the price of the emission allowances in the market?

Accepted Answer

A) The price rises. 
B) The price falls to zero. 
C) The price falls but not to zero. 
D) The price remains unchanged because the allowances purchased by the environmental groups are destroyed. 
A) The price rises. 
B) The price falls to zero. 
C) The price falls but not to zero. 
D) The price remains unchanged because the allowances purchased by the environmental groups are destroyed.

Question 11

Figure 5.3
  
-Refer to Figure 5.3.The size of marginal external benefits can be determined by

Accepted Answer

A) the demand curve D₂. 
B) D₂ + D₁ at each output level. 
C) D₂ - D₁ at each output level. 
D) the demand curve D₁. 
A) the demand curve D₂. 
B) D₂ + D₁ at each output level. 
C) D₂ - D₁ at each output level. 
D) the demand curve D₁.

Question 12

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

Accepted Answer

A Pigovian tax is a government

Question 13

The 2005 European Union Emission Trading Scheme is an example of a

Accepted Answer

A) positive externality. 
B) command and control system. 
C) Coasian solution to pollution control. 
D) cap-and-trade system. 
A) positive externality. 
B) command and control system. 
C) Coasian solution to pollution control. 
D) cap-and-trade system.

Question 14

Explain how mandatory bicycle helmet laws may reduce the negative externalities of risky behaviour.

Accepted Answer

Mandatory bicycle helmet laws are design

Question 15

Figure 5.3
  
-Refer to Figure 5.3.At the competitive market equilibrium, for the last unit produced,

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 16

Private costs

Accepted Answer

A) are borne by producers of a good while social costs are borne by government. 
B) are borne by consumers of a good while social costs are borne by government. 
C) are borne by producers of a good while social costs are borne by society at large. 
D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good. 
A) are borne by producers of a good while social costs are borne by government. 
B) are borne by consumers of a good while social costs are borne by government. 
C) are borne by producers of a good while social costs are borne by society at large. 
D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

Question 17

Figure 5.3
  
-Refer to Figure 5.3.In the absence of any government intervention, the private market

Accepted Answer

A) under produces by Qₒ - Qm units. 
B) over produces by Qₒ - Qm units. 
C) over produces by Qn - Qm units. 
D) under produces by Qn - Qm units. 
A) under produces by Qₒ - Qm units. 
B) over produces by Qₒ - Qm units. 
C) over produces by Qn - Qm units. 
D) under produces by Qn - Qm units.

Question 18

Figure 5.3
  
-Refer to Figure 5.3.The efficient output level is

Accepted Answer

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

Question 19

Conceptually, the efficient level of carbon emissions is the level for which

Accepted Answer

A) the marginal benefit of reducing carbon emissions is maximized. 
B) the marginal cost of reducing carbon emissions is minimized. 
C) the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions. 
D) the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized. 
A) the marginal benefit of reducing carbon emissions is maximized. 
B) the marginal cost of reducing carbon emissions is minimized. 
C) the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions. 
D) the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized.

Question 20

Should the level of pollution be reduced to zero and if not, then to what level?

Accepted Answer

No, the level of pollution should not be

One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.

A market demand curve reflects the

What does the phrase "internalizing an external cost" mean?

Private producers have no incentive to provide public goods because

Overuse of a common resource may be avoided by all of the following methods except

Figure 5.3 -Refer to Figure 5.3.The deadweight loss due to the externality is represented by the area

Figure 5.3 -Refer to Figure 5.3.The size of marginal external benefits can be determined by

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

The 2005 European Union Emission Trading Scheme is an example of a

Explain how mandatory bicycle helmet laws may reduce the negative externalities of risky behaviour.

Figure 5.3 -Refer to Figure 5.3.At the competitive market equilibrium, for the last unit produced,

Private costs

Figure 5.3 -Refer to Figure 5.3.In the absence of any government intervention, the private market

Figure 5.3 -Refer to Figure 5.3.The efficient output level is

Conceptually, the efficient level of carbon emissions is the level for which

Should the level of pollution be reduced to zero and if not, then to what level?

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

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters

Exam 5: Externalities, Environmental Policy, and Public Goods

One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.

A market demand curve reflects the

What does the phrase "internalizing an external cost" mean?

Private producers have no incentive to provide public goods because

Overuse of a common resource may be avoided by all of the following methods except

Figure 5.3 -Refer to Figure 5.3.The deadweight loss due to the externality is represented by the area

Figure 5.3 -Refer to Figure 5.3.The size of marginal external benefits can be determined by

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

The 2005 European Union Emission Trading Scheme is an example of a

Explain how mandatory bicycle helmet laws may reduce the negative externalities of risky behaviour.

Figure 5.3 -Refer to Figure 5.3.At the competitive market equilibrium, for the last unit produced,

Private costs

Figure 5.3 -Refer to Figure 5.3.In the absence of any government intervention, the private market

Figure 5.3 -Refer to Figure 5.3.The efficient output level is

Conceptually, the efficient level of carbon emissions is the level for which

Should the level of pollution be reduced to zero and if not, then to what level?

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

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters