Question 1

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

Question 2

Goods can be classified on the basis of whether their consumption is

Accepted Answer

A) internal and excludable. 
B) rival and competitive. 
C) includable and cooperative. 
D) rival and excludable. 
A) internal and excludable. 
B) rival and competitive. 
C) includable and cooperative. 
D) rival and excludable. D

Question 3

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. D

Question 4

Figure 15-2   Figure 15-2 shows a market with a negative externality.
-Refer to Figure 15-2.The marginal benefit 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 5

If you burn your trash in the back yard in spite of regulations against it,then you are

Accepted Answer

A) acting economically irrationally and creating a social cost. 
B) avoiding the private costs associated with disposing your trash some other way and creating a social cost. 
C) acting rationally and creating a positive externality. 
D) saving landfill space and creating a social benefit. 
A) acting economically irrationally and creating a social cost. 
B) avoiding the private costs associated with disposing your trash some other way and creating a social cost. 
C) acting rationally and creating a positive externality. 
D) saving landfill space and creating a social benefit.

Question 6

The tragedy of the commons was avoided in the Middle Ages by

Accepted Answer

A) selling common grounds to individuals. 
B) the local police who monitored entry into the commons. 
C) social pressure to uphold traditionally accepted limits on family use of the commons. 
D) the government,which imposed a tax for the use of the commons. 
A) selling common grounds to individuals. 
B) the local police who monitored entry into the commons. 
C) social pressure to uphold traditionally accepted limits on family use of the commons. 
D) the government,which imposed a tax for the use of the commons.

Question 7

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 8

When there is an externality in a market,

Accepted Answer

A) the externality will move the market to an economically efficient equilibrium. 
B) the externality will cause the market price to be less than or greater than the equilibrium price. 
C) the government should use price controls to enable the market to reach equilibrium. 
D) government intervention may increase economic efficiency. 
A) the externality will move the market to an economically efficient equilibrium. 
B) the externality will cause the market price to be less than or greater than the equilibrium price. 
C) the government should use price controls to enable the market to reach equilibrium. 
D) government intervention may increase economic efficiency.

Question 9

Figure 15-6   Figure 15-6 shows the market for measles vaccinations,a product whose use generates positive externalities.
-Refer to Figure 15-6.What does D2 represent?

Accepted Answer

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

Question 10

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

Accepted Answer

A) externalise the externality. 
B) result in a marginal social benefit greater than the marginal cost of the electricity. 
C) be an example of supply side economic policy. 
D) internalise the externality. 
A) externalise the externality. 
B) result in a marginal social benefit greater than the marginal cost of the electricity. 
C) be an example of supply side economic policy. 
D) internalise the externality.

Question 11

If the social cost of producing a good or service exceeds the private cost,

Accepted Answer

A) a positive externality exists. 
B) the sum of consumer surplus and producer surplus is maximised. 
C) the market achieves economic efficiency. 
D) a negative externality exists. 
A) a positive externality exists. 
B) the sum of consumer surplus and producer surplus is maximised. 
C) the market achieves economic efficiency. 
D) a negative externality exists.

Question 12

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Accepted Answer

A) True 
 B)False

Question 13

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 pos

Question 14

What are some of the limitations of the Coase theorem in practice?

Accepted Answer

Some limitations of the theorem are as f

Question 15

When production generates a negative externality,the true cost of production is the

Accepted Answer

A) private cost of production. 
B) public cost of production. 
C) social cost of production. 
D) average cost of production. 
A) private cost of production. 
B) public cost of production. 
C) social cost of production. 
D) average cost of production.

Question 16

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

Accepted Answer

Private cost of production is the cost b

Question 17

Figure 15-8   Consider a chemical plant that discharges toxic fumes over a nearby community.To reduce the emissions of toxic fumes,the firm can install pollution abatement devices.Figure 15-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions.
-Refer to Figure 15-8.Suppose the emissions reduction target is currently established at 8 million tons.What is the area that represents the cost of eliminating an additional 1 million tons?

Accepted Answer

A) A 
B) B + C 
C) A + B 
D) A + B + C 
A) A 
B) B + C 
C) A + B 
D) A + B + C

Question 18

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 for 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 for 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 19

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Accepted Answer

A) Does the intervention program reduce pollution to zero using the least costly method? 
B) Is the intervention program economically efficient? 
C) Does the intervention program make the amount of economic surplus as large as possible? 
D) Is the damage to the environment from government intervention as small as possible? 
A) Does the intervention program reduce pollution to zero using the least costly method? 
B) Is the intervention program economically efficient? 
C) Does the intervention program make the amount of economic surplus as large as possible? 
D) Is the damage to the environment from government intervention as small as possible?

Question 20

Figure 15-3  
-Refer to Figure 15-3.The private profit maximising output level is

Accepted Answer

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

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

Goods can be classified on the basis of whether their consumption is

Private producers have no incentive to provide public goods because

Figure 15-2 Figure 15-2 shows a market with a negative externality. -Refer to Figure 15-2.The marginal benefit of the last unit produced is represented by the price

If you burn your trash in the back yard in spite of regulations against it,then you are

The tragedy of the commons was avoided in the Middle Ages by

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

When there is an externality in a market,

Figure 15-6 Figure 15-6 shows the market for measles vaccinations,a product whose use generates positive externalities. -Refer to Figure 15-6.What does D₂ represent?

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

If the social cost of producing a good or service exceeds the private cost,

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

What are some of the limitations of the Coase theorem in practice?

When production generates a negative externality,the true cost of production is the

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

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

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Figure 15-3 -Refer to Figure 15-3.The private profit maximising output level is

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

The Distribution of Income and Social Policy

Filters

Exam 15: Externalities, Environmental Policy and Public Goods

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

Goods can be classified on the basis of whether their consumption is

Private producers have no incentive to provide public goods because

Figure 15-2 Figure 15-2 shows a market with a negative externality. -Refer to Figure 15-2.The marginal benefit of the last unit produced is represented by the price

If you burn your trash in the back yard in spite of regulations against it,then you are

The tragedy of the commons was avoided in the Middle Ages by

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

When there is an externality in a market,

Figure 15-6 Figure 15-6 shows the market for measles vaccinations,a product whose use generates positive externalities. -Refer to Figure 15-6.What does D2 represent?

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

If the social cost of producing a good or service exceeds the private cost,

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

What are some of the limitations of the Coase theorem in practice?

When production generates a negative externality,the true cost of production is the

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

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

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Figure 15-3 -Refer to Figure 15-3.The private profit maximising output level is

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

The Distribution of Income and Social Policy

Filters

Figure 15-6 Figure 15-6 shows the market for measles vaccinations,a product whose use generates positive externalities. -Refer to Figure 15-6.What does D₂ represent?