Question 1

Which of the following is an example of a positional arms control agreement?

Accepted Answer

A) Campaign spending limits 
B) Highly selective admissions standards at colleges 
C) Prohibiting speech that causes more harm than good 
D) Public education 
A) Campaign spending limits 
B) Highly selective admissions standards at colleges 
C) Prohibiting speech that causes more harm than good 
D) Public education

Question 2

A cost of an activity that falls on people not engaged in the activity is called a(n):

Accepted Answer

A) external benefit. 
B) prisoner's dilemma. 
C) negative externality. 
D) positive externality. 
A) external benefit. 
B) prisoner's dilemma. 
C) negative externality. 
D) positive externality.

Question 3

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If all ten people can negotiate with each other at no cost, then which of the following outcomes is consistent with the Coase theorem?

Accepted Answer

A) The cigar smoker will not be able to smoke because the majority of people in the room dislike the smell of cigar smoke. 
B) The cigar smoker will pay each of the other nine people fifty-five cents, and they will agree to allow smoking. 
C) The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration. 
D) The nine non-smokers will each pay the cigar smoker fifty cents and the cigar smoker will not smoke. 
A) The cigar smoker will not be able to smoke because the majority of people in the room dislike the smell of cigar smoke. 
B) The cigar smoker will pay each of the other nine people fifty-five cents, and they will agree to allow smoking. 
C) The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration. 
D) The nine non-smokers will each pay the cigar smoker fifty cents and the cigar smoker will not smoke.

Question 4

Which one of the following government actions is intended to generate positive externalities?

Accepted Answer

A) Taxing polluting industries 
B) Speed limits on the highways 
C) Requiring autos to meet minimum emissions regulations 
D) Subsidies for planting trees on hillsides 
A) Taxing polluting industries 
B) Speed limits on the highways 
C) Requiring autos to meet minimum emissions regulations 
D) Subsidies for planting trees on hillsides

Question 5

The following payoff matrix shows the outcomes for the United States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die.   This situation above illustrates a positional externality because:

Accepted Answer

A) using atomic weapons is a dominated strategy. 
B) using atomic weapons improves each country's outcome but hurts the other country. 
C) the game does not have a Nash equilibrium. 
D) no matter what kind of weapons each country chooses, many people will die. 
A) using atomic weapons is a dominated strategy. 
B) using atomic weapons improves each country's outcome but hurts the other country. 
C) the game does not have a Nash equilibrium. 
D) no matter what kind of weapons each country chooses, many people will die.

Question 6

Refer to the figure below. At the private market equilibrium quantity, the social marginal cost of the last unit produced is ________ the marginal benefit of the last unit produced.

Accepted Answer

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

Question 7

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below.    
Suppose pollution is initially unregulated. If the City Council imposes a tax of $91 per day on each ton of smoke emitted, then what will be the total cost to society of the resulting reduction in pollution?

Accepted Answer

A) $90 
B) $180 
C) $270 
D) $360 
A) $90 
B) $180 
C) $270 
D) $360

Question 8

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ________ reduction in driving if demand is ________.

Accepted Answer

A) small; perfectly elastic 
B) large; perfectly inelastic 
C) small; relatively inelastic 
D) large; relatively inelastic 
A) small; perfectly elastic 
B) large; perfectly inelastic 
C) small; relatively inelastic 
D) large; relatively inelastic

Question 9

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each.    
It would cost Firm X ________ to reduce emissions by one ton if it currently emits 3 tons, and ________ to reduce emissions by one ton if it currently emits 2 tons.

Accepted Answer

A) $14; $25 
B) $14; $16 
C) $16; $25 
D) $30; $55 
A) $14; $25 
B) $14; $16 
C) $16; $25 
D) $30; $55

Question 10

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. If they live alone, they each rent a one bedroom, one bath apartment for $500 per month, while if they are roommates, they can split a two bedroom, one bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. The least costly solution to the externality present in this situation is for:

Accepted Answer

A) Curly to endure Moe's snoring. 
B) both to live alone. 
C) Moe to eliminate his snoring. 
D) Moe to pay Curly for his discomfort. 
A) Curly to endure Moe's snoring. 
B) both to live alone. 
C) Moe to eliminate his snoring. 
D) Moe to pay Curly for his discomfort.

Question 11

The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number of Drivers } \
\text { Who Leave at 8 a.m. }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Camunute Time }
\end{array} & \begin{array} { c } 
\text { Murginal } \
\text { Bemefit }
\end{array} \
\hline 100 & 30 \text { minutes } & \$ 10 \
\hline 200 & 65 \text { mirutes } & \$ 8 \
\hline 300 & 110 \text { minutes } & \$ 4 \
\hline 400 & 170 \text { mirutes } & \$ 3 \
\hline 500 & 260 \text { rinutes } & \$ 1 \
\hline
\end{array}$$  
If there is no charge to use the highway, then one would expect that ________ than the socially optimal number of drivers will leave at 8 a.m. because ________.

Accepted Answer

A) more; each driver's use of the highway imposes an external cost on other drivers by increasing the commute time 
B) more; the social marginal benefit of using the highway is greater than the private marginal benefit 
C) less; each driver's use of the highway imposes an external cost on other drivers by increasing the commute time 
D) less; the private marginal benefit of using the highway is greater than the social marginal benefit 
A) more; each driver's use of the highway imposes an external cost on other drivers by increasing the commute time 
B) more; the social marginal benefit of using the highway is greater than the private marginal benefit 
C) less; each driver's use of the highway imposes an external cost on other drivers by increasing the commute time 
D) less; the private marginal benefit of using the highway is greater than the social marginal benefit

Question 12

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below.    
Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, a total of ________ tons of smoke will be emitted each day, and the total cost to society of this policy will be ________ per day.

Accepted Answer

A) 14; $500 
B) 16; $250 
C) 18; $50 
D) 20; $0 
A) 14; $500 
B) 16; $250 
C) 18; $50 
D) 20; $0

Question 13

According to the textbook, social norms:

Accepted Answer

A) are usually ignored. 
B) are a type of positional externality. 
C) can help curtail positional arms races. 
D) are never effective at limiting positional arms races. 
A) are usually ignored. 
B) are a type of positional externality. 
C) can help curtail positional arms races. 
D) are never effective at limiting positional arms races.

Question 14

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

Accepted Answer

A) efficient. 
B) inefficient 
C) ineffective. 
D) fair to all polluters. 
A) efficient. 
B) inefficient 
C) ineffective. 
D) fair to all polluters.

Question 15

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will:

Accepted Answer

A) increase total economic surplus. 
B) decrease total economic surplus. 
C) have no effect on total economic surplus. 
D) lead to a decrease in the price of cigarettes. 
A) increase total economic surplus. 
B) decrease total economic surplus. 
C) have no effect on total economic surplus. 
D) lead to a decrease in the price of cigarettes.

Question 16

If the marginal cost of pollution abatement is smaller for large firms than it is for small firms, then it is efficient for:

Accepted Answer

A) small firms to reduce pollution by more than large firms. 
B) small firms and large firms to reduce pollution by a fixed proportion. 
C) small firms and large firms to increase pollution by a fixed proportion. 
D) large firms to reduce pollution by more than small firms. 
A) small firms to reduce pollution by more than large firms. 
B) small firms and large firms to reduce pollution by a fixed proportion. 
C) small firms and large firms to increase pollution by a fixed proportion. 
D) large firms to reduce pollution by more than small firms.

Question 17

The Coase theorem implies that the initial allocation of property rights:

Accepted Answer

A) determines all aspects of the final outcome of the negotiated agreement. 
B) does not determine which person will be entitled to engage in the externality generating activity, but does determine which person will receive compensation. 
C) determines which person will be entitled to engage in the externality generating activity, but does not affect which person will receive compensation. 
D) must be assigned to the person with the greatest costs. 
A) determines all aspects of the final outcome of the negotiated agreement. 
B) does not determine which person will be entitled to engage in the externality generating activity, but does determine which person will receive compensation. 
C) determines which person will be entitled to engage in the externality generating activity, but does not affect which person will receive compensation. 
D) must be assigned to the person with the greatest costs.

Question 18

Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates:

Accepted Answer

A) a negative externality. 
B) a positive externality. 
C) neither a positive nor a negative externality. 
D) both a positive and a negative externality. 
A) a negative externality. 
B) a positive externality. 
C) neither a positive nor a negative externality. 
D) both a positive and a negative externality.

Question 19

Suppose Oscar and Felix share an apartment. Oscar likes to leave his dirty dishes in the sink, and this really bothers Felix. When Oscar leaves his dirty dishes in the sink, Oscar's surplus from their living arrangement is $400 per month, and Felix's surplus is $300 per month. On the other hand, when Oscar does not leave his dirty dishes in the sink, Oscar's surplus from their living arrangement is $350 per month, and Felix's surplus is $325 per month. There are no rules or regulations that prevent Oscar from leaving his dishes in the sink. In this case, the socially optimal outcome can be achieved:

Accepted Answer

A) if Felix gives Oscar $25 per month to stop leaving his dishes in the sink. 
B) if Felix gives Oscar $50 per month to stop leaving his dishes in the sink. 
C) if Felix gives Oscar more than $75 per month to stop leaving his dishes in the sink. 
D) without any intervention. 
A) if Felix gives Oscar $25 per month to stop leaving his dishes in the sink. 
B) if Felix gives Oscar $50 per month to stop leaving his dishes in the sink. 
C) if Felix gives Oscar more than $75 per month to stop leaving his dishes in the sink. 
D) without any intervention.

Question 20

The essential cause of the tragedy of the commons is the fact that:

Accepted Answer

A) it can be difficult to solve the free-rider problem. 
B) one person's use of a commonly held resource imposes an external cost on others. 
C) when a resource has no price, it leads to a positional externality. 
D) governments may not tax activities that generate negative externalities. 
A) it can be difficult to solve the free-rider problem. 
B) one person's use of a commonly held resource imposes an external cost on others. 
C) when a resource has no price, it leads to a positional externality. 
D) governments may not tax activities that generate negative externalities.

Which of the following is an example of a positional arms control agreement?

A cost of an activity that falls on people not engaged in the activity is called a(n):

Which one of the following government actions is intended to generate positive externalities?

Refer to the figure below. At the private market equilibrium quantity, the social marginal cost of the last unit produced is ________ the marginal benefit of the last unit produced.

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively reduction in driving if demand is .

According to the textbook, social norms:

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will:

If the marginal cost of pollution abatement is smaller for large firms than it is for small firms, then it is efficient for:

The Coase theorem implies that the initial allocation of property rights:

Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates:

The essential cause of the tragedy of the commons is the fact that:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Exam 11: Externalities, Property Rights, and the Environment

Which of the following is an example of a positional arms control agreement?

A cost of an activity that falls on people not engaged in the activity is called a(n):

Which one of the following government actions is intended to generate positive externalities?

Refer to the figure below. At the private market equilibrium quantity, the social marginal cost of the last unit produced is ________ the marginal benefit of the last unit produced.

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ________ reduction in driving if demand is ________.

According to the textbook, social norms:

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will:

If the marginal cost of pollution abatement is smaller for large firms than it is for small firms, then it is efficient for:

The Coase theorem implies that the initial allocation of property rights:

Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates:

The essential cause of the tragedy of the commons is the fact that:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively reduction in driving if demand is .