Question 1

What is meant by the term 'internalising an externality'? How does a Pigovian tax or subsidy internalise an externality?

Accepted Answer

Internalising an externality refers to t

Question 2

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 3

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 4

When there is a positive externality,

Accepted Answer

A) the private benefit received by consumers is greater than the external benefit. 
B) the social benefit received by consumers is greater than the private benefit. 
C) the private benefit received by consumers is greater than the private cost. 
D) the private benefit received by consumers is greater than the social benefit. 
A) the private benefit received by consumers is greater than the external benefit. 
B) the social benefit received by consumers is greater than the private benefit. 
C) the private benefit received by consumers is greater than the private cost. 
D) the private benefit received by consumers is greater than the social benefit.

Question 5

Figure 15-9   Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 15-9 illustrates the situation in the toilet paper market.
-Refer to Figure 15-9.Let's suppose the government imposes a tax of $50 per ton of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Accepted Answer

A) It rises by $50. 
B) It rises by more than $50. 
C) It rises by less than $50. 
D) It remains the same because the tax is imposed on producers who create the externality. 
A) It rises by $50. 
B) It rises by more than $50. 
C) It rises by less than $50. 
D) It remains the same because the tax is imposed on producers who create the externality.

Question 6

Which of the following would result in a positive externality?

Accepted Answer

A) A local government establishes a price ceiling on rental apartments. 
B) An electric utility burns coal that causes acid rain. 
C) Medical research results in a cure for malaria. 
D) McDonald's adds new fat-free items to its menu. 
A) A local government establishes a price ceiling on rental apartments. 
B) An electric utility burns coal that causes acid rain. 
C) Medical research results in a cure for malaria. 
D) McDonald's adds new fat-free items to its menu.

Question 7

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms 'rivalry' and 'excludability' as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.

Accepted Answer

Rivalry occurs when one person's consumi

Question 8

Which of the following describes how a negative externality affects a competitive market?

Accepted Answer

A) The externality causes a difference between the private cost of production and the social cost. 
B) The externality causes a difference between the private cost of production and the private benefit from consumption. 
C) The externality causes consumer surplus to exceed producer surplus. 
D) The externality causes a difference between the private cost of production and the equilibrium price. 
A) The externality causes a difference between the private cost of production and the social cost. 
B) The externality causes a difference between the private cost of production and the private benefit from consumption. 
C) The externality causes consumer surplus to exceed producer surplus. 
D) The externality causes a difference between the private cost of production and the equilibrium price.

Question 9

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Accepted Answer

A) True 
 B)False

Question 10

If electric utilities continually reduce their emissions of sulphur dioxide,

Accepted Answer

A) the utilities will eventually be forced to go out of business. 
B) the marginal benefit of additional emissions will rise. 
C) the marginal cost of further emissions will rise. 
D) the total benefit of sulphur dioxide emissions will fall. 
A) the utilities will eventually be forced to go out of business. 
B) the marginal benefit of additional emissions will rise. 
C) the marginal cost of further emissions will rise. 
D) the total benefit of sulphur dioxide emissions will fall.

Question 11

Figure 15-7  
-Refer to Figure 15-7.The marginal benefit 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 positive externality curve. 
D) the external benefit curve. 
A) the supply of pollution reduction curve. 
B) the demand for pollution reduction curve. 
C) the positive externality curve. 
D) the external benefit curve.

Question 12

Figure 15-3  
-Refer to Figure 15-3.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 13

'A competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus.' This statement

Accepted Answer

A) is true only if there are positive externalities in production in the market. 
B) is true only if there are no negative externalities in the market. 
C) is true only if there are no positive or negative externalities in the market. 
D) is true in theory,but economic efficiency cannot be achieved in a real market. 
A) is true only if there are positive externalities in production in the market. 
B) is true only if there are no negative externalities in the market. 
C) is true only if there are no positive or negative externalities in the market. 
D) is true in theory,but economic efficiency cannot be achieved in a real market.

Question 14

Figure 15-2   Figure 15-2 shows a market with a negative externality.
-Refer to Figure 15-2.The private profit-maximising quantity for the firm is

Accepted Answer

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

Question 15

Which of the following is an example of a positive externality?

Accepted Answer

A) banning the sale of candy in elementary schools 
B) planting trees along the pavement,which adds beauty and creates shade 
C) forbidding the use of cell phones in public 
D) prohibiting street parking in all residential neighbourhoods 
A) banning the sale of candy in elementary schools 
B) planting trees along the pavement,which adds beauty and creates shade 
C) forbidding the use of cell phones in public 
D) prohibiting street parking in all residential neighbourhoods

Question 16

Which of the following is a source of market failure?

Accepted Answer

A) unforeseen circumstances which lead to the bankruptcy of many firms 
B) a lack of government intervention in a market 
C) incomplete property rights or inability to enforce property rights 
D) an inequitable income distribution 
A) unforeseen circumstances which lead to the bankruptcy of many firms 
B) a lack of government intervention in a market 
C) incomplete property rights or inability to enforce property rights 
D) an inequitable income distribution

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 economically efficient output level?

Accepted Answer

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

Question 18

Public goods are distinguished by two primary characteristics.What are they?

Accepted Answer

A) non-rivalry and non-excludability 
B) government intervention and low prices 
C) market failure and high prices 
D) rivalry and exclusivity 
A) non-rivalry and non-excludability 
B) government intervention and low prices 
C) market failure and high prices 
D) rivalry and exclusivity

Question 19

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm,your legal fees would be considered

Accepted Answer

A) external costs. 
B) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution. 
A) external costs. 
B) transactions costs. 
C) marginal benefits. 
D) social costs of the pollution.

Question 20

Classifying a good as excludable means

Accepted Answer

A) that someone can be barred from consuming the good based on race,creed or some other irrelevant characteristic. 
B) that anyone who does not pay for the good cannot consume it. 
C) that consumption of the good causes no externalities. 
D) that a producer with patent or copyright protection can exclude any other producer from selling his product. 
A) that someone can be barred from consuming the good based on race,creed or some other irrelevant characteristic. 
B) that anyone who does not pay for the good cannot consume it. 
C) that consumption of the good causes no externalities. 
D) that a producer with patent or copyright protection can exclude any other producer from selling his product.

What is meant by the term 'internalising an externality'? How does a Pigovian tax or subsidy internalise an externality?

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

What is a 'social cost' of production?

When there is a positive externality,

Which of the following would result in a positive externality?

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms 'rivalry' and 'excludability' as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.

Which of the following describes how a negative externality affects a competitive market?

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

If electric utilities continually reduce their emissions of sulphur dioxide,

Figure 15-7 -Refer to Figure 15-7.The marginal benefit of reducing pollution curve is the same curve as

Figure 15-3 -Refer to Figure 15-3.At the competitive market equilibrium,for the last unit produced,

'A competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus.' This statement

Figure 15-2 Figure 15-2 shows a market with a negative externality. -Refer to Figure 15-2.The private profit-maximising quantity for the firm is

Which of the following is an example of a positive externality?

Which of the following is a source of market failure?

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 economically efficient output level?

Public goods are distinguished by two primary characteristics.What are they?

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm,your legal fees would be considered

Classifying a good as excludable means

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 is meant by the term 'internalising an externality'? How does a Pigovian tax or subsidy internalise an externality?

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

What is a 'social cost' of production?

When there is a positive externality,

Which of the following would result in a positive externality?

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms 'rivalry' and 'excludability' as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.

Which of the following describes how a negative externality affects a competitive market?

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

If electric utilities continually reduce their emissions of sulphur dioxide,

Figure 15-7 -Refer to Figure 15-7.The marginal benefit of reducing pollution curve is the same curve as

Figure 15-3 -Refer to Figure 15-3.At the competitive market equilibrium,for the last unit produced,

'A competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus.' This statement

Figure 15-2 Figure 15-2 shows a market with a negative externality. -Refer to Figure 15-2.The private profit-maximising quantity for the firm is

Which of the following is an example of a positive externality?

Which of the following is a source of market failure?

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 economically efficient output level?

Public goods are distinguished by two primary characteristics.What are they?

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm,your legal fees would be considered

Classifying a good as excludable means

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