Question 1

What does the phrase 'internalising 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 2

Which of the following could be evidence of a market failure?

Accepted Answer

A) Resources in an economy are not fully utilised. 
B) The market price of a product is above the average cost of production. 
C) There is only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs. 
A) Resources in an economy are not fully utilised. 
B) The market price of a product is above the average cost of production. 
C) There is only a handful of firms competing against each other in an industry. 
D) Market prices do not reflect true production costs.

Question 3

Figure 15-10   Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease.Thus,the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 15-10.
-Refer to Figure 15-10.One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidise these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalise the external benefits?

Accepted Answer

A) PE 
B) (PE - PG) 
C) (PE - PF) 
D) (PF - PG) 
A) PE 
B) (PE - PG) 
C) (PE - PF) 
D) (PF - PG)

Question 4

A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.

Accepted Answer

A) True 
 B)False

Question 5

Figure 15-1   Figure 15-1 shows a market with an externality.The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output.The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 15-1.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does S2 represent?

Accepted Answer

A) the market supply curve reflecting private cost 
B) the market supply curve reflecting social cost 
C) the market supply curve reflecting external cost 
D) the market supply curve reflecting implicit cost 
A) the market supply curve reflecting private cost 
B) the market supply curve reflecting social cost 
C) the market supply curve reflecting external cost 
D) the market supply curve reflecting implicit cost

Question 6

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.What is the economically efficient level of pollution reduction?

Accepted Answer

A) 12.5 million tons 
B) 9 million tons 
C) 8 million tons 
D) 0 tons 
A) 12.5 million tons 
B) 9 million tons 
C) 8 million tons 
D) 0 tons

Question 7

If there is pollution in producing a product,then the market equilibrium price

Accepted Answer

A) is too high and equilibrium quantity is too low. 
B) and equilibrium quantity are too low. 
C) and equilibrium quantity are too high. 
D) is too low and equilibrium quantity is too high. 
A) is too high and equilibrium quantity is too low. 
B) and equilibrium quantity are too low. 
C) and equilibrium quantity are too high. 
D) is too low and equilibrium quantity is too high.

Question 8

Which of the following best illustrates the free rider problem?

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 neighbours 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 neighbours 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 9

Figure 15-1   Figure 15-1 shows a market with an externality.The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output.The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 15-1.Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality.The economically efficient output is Q2.In that case,the diagram shows

Accepted Answer

A) the effect of a positive externality in the production of a good. 
B) the effect of a negative externality in the production of a good. 
C) the effect of an external cost imposed on a producer. 
D) the effect of an external benefit such as a subsidy granted to consumers of a good. 
A) the effect of a positive externality in the production of a good. 
B) the effect of a negative externality in the production of a good. 
C) the effect of an external cost imposed on a producer. 
D) the effect of an external benefit such as a subsidy granted to consumers of a good.

Question 10

What is an externality?

Accepted Answer

An externality is a benefit or

Question 11

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

Question 12

A modern example of the tragedy of the commons is the forests in many poor countries.

Accepted Answer

A) True 
 B)False

Question 13

In economics,the optimal level of pollution is

Accepted Answer

A) zero. 
B) the level for which the total benefit from reducing the pollution is the greatest. 
C) the level for which the marginal benefit from reducing the pollution is the greatest. 
D) the level for which the net benefit from reducing the pollution is the greatest. 
A) zero. 
B) the level for which the total benefit from reducing the pollution is the greatest. 
C) the level for which the marginal benefit from reducing the pollution is the greatest. 
D) the level for which the net benefit from reducing the pollution is the greatest.

Question 14

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 is the market equilibrium output level?

Accepted Answer

A) Q1 
B) Q2 
C) Q1 + Q2 
D) Q2 - Q1 
A) Q1 
B) Q2 
C) Q1 + Q2 
D) Q2 - Q1

Question 15

A market supply curve reflects the

Accepted Answer

A) external costs of producing a good or service. 
B) external benefits of producing a good or service. 
C) social costs of producing a good or service. 
D) private costs of producing a good or service. 
A) external costs of producing a good or service. 
B) external benefits of producing a good or service. 
C) social costs of producing a good or service. 
D) private costs of producing a good or service.

Question 16

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

Question 17

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 is the deadweight loss resulting from producing at the market equilibrium?

Accepted Answer

A) B + C 
B) E + C 
C) F 
D) C 
A) B + C 
B) E + C 
C) F 
D) C

Question 18

Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities?

Accepted Answer

A) Ronald Coase 
B) A.C.Pigou 
C) Adam Smith 
D) David Hume 
A) Ronald Coase 
B) A.C.Pigou 
C) Adam Smith 
D) David Hume

Question 19

A negative externality exists if

Accepted Answer

A) there are price controls in a market. 
B) there are quantity controls in a market. 
C) the marginal social cost of producing a good or service exceeds the private cost. 
D) the marginal private cost of producing a good or service exceeds the social cost. 
A) there are price controls in a market. 
B) there are quantity controls in a market. 
C) the marginal social cost of producing a good or service exceeds the private cost. 
D) the marginal private cost of producing a good or service exceeds the social cost.

Question 20

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Accepted Answer

A) the private cost of production 
B) the social cost of production 
C) the external cost of production 
D) the explicit cost of production 
A) the private cost of production 
B) the social cost of production 
C) the external cost of production 
D) the explicit cost of production

What does the phrase 'internalising an external cost' mean?

Which of the following could be evidence of a market failure?

A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.

If there is pollution in producing a product,then the market equilibrium price

Which of the following best illustrates the free rider problem?

What is an externality?

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

A modern example of the tragedy of the commons is the forests in many poor countries.

In economics,the optimal level of pollution is

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 is the market equilibrium output level?

A market supply curve reflects the

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

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 is the deadweight loss resulting from producing at the market equilibrium?

Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities?

A negative externality exists if

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

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

What does the phrase 'internalising an external cost' mean?

Which of the following could be evidence of a market failure?

A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.

If there is pollution in producing a product,then the market equilibrium price

Which of the following best illustrates the free rider problem?

What is an externality?

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

A modern example of the tragedy of the commons is the forests in many poor countries.

In economics,the optimal level of pollution is

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 is the market equilibrium output level?

A market supply curve reflects the

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

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 is the deadweight loss resulting from producing at the market equilibrium?

Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities?

A negative externality exists if

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

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