Question 1

The Coase solution to the problem of externalities:​

Accepted Answer

A) applies in every situation where externalities are present. 
B) only applies to activities that generate positive externalities. 
C) only works under perfect competition. 
D) only works when bargaining costs are low. 
E) applies when the number of parties involved in the transaction is large. 
A) applies in every situation where externalities are present. 
B) only applies to activities that generate positive externalities. 
C) only works under perfect competition. 
D) only works when bargaining costs are low. 
E) applies when the number of parties involved in the transaction is large.

Question 2

Markets fail when externalities are present:​

Accepted Answer

A) because all the costs and benefits of producing goods are reflected in the market prices of the goods. 
B) because some of the costs and benefits of producing goods are not reflected in the market prices of the goods. 
C) because monopoly power arises. 
D) because profits are not maximized. 
E) because there is underprovision of merit goods. 
A) because all the costs and benefits of producing goods are reflected in the market prices of the goods. 
B) because some of the costs and benefits of producing goods are not reflected in the market prices of the goods. 
C) because monopoly power arises. 
D) because profits are not maximized. 
E) because there is underprovision of merit goods.

Question 3

In the absence of government intervention, the marginal social cost of pollution abatement would equal its marginal social benefit.​

Accepted Answer

A) True 
 B)False

Question 4

The following graph shows the demand, the supply, and the marginal social benefit curves. An unregulated market would produce ______.​ ​
Figure 17.6
​

Accepted Answer

A) 0 units 
B) 10 units​ 
C) 20 units​ 
D) 40 units​ 
E) 50 units​ 
A) 0 units 
B) 10 units​ 
C) 20 units​ 
D) 40 units​ 
E) 50 units​

Question 5

Coase argued that the free market should be able to solve an externality problem without assigning property rights.​

Accepted Answer

A) True 
 B)False

Question 6

If the benefits to society of students attending college exceed the benefits to the students, then:​

Accepted Answer

A) higher education should be strictly regulated. 
B) higher education should be taxed. 
C) higher education provides a positive externality. 
D) higher education is overproduced at the privately determined equilibrium. 
E) higher education provides a negative externality. 
A) higher education should be strictly regulated. 
B) higher education should be taxed. 
C) higher education provides a positive externality. 
D) higher education is overproduced at the privately determined equilibrium. 
E) higher education provides a negative externality.

Question 7

​The following graph shows market equilibrium in the presence of externality in an economy. The equilibrium price and output (determined exclusively by private decisions) are _____. ​
Figure 17.2
​

Accepted Answer

A) $6 and 50 units, respectively 
B) $12 and 50 units, respectively​ 
C) $12 and 40 units, respectively 
D) $6 and 40 units, respectively 
E) less than $6 and more than 50 units, respectively 
A) $6 and 50 units, respectively 
B) $12 and 50 units, respectively​ 
C) $12 and 40 units, respectively 
D) $6 and 40 units, respectively 
E) less than $6 and more than 50 units, respectively

Question 8

A metal stamping factory moves next to a day care center. Noise from the factory makes it impossible for the kids to nap. It would cost the factory $5 million to move and $1 million for the day care center to move. Sound insulation for the factory costs $1 million, while insulation for the day care center costs $200,000. The court determines that the day care center has the property right. Which of the following optimal solution is likely to be true given the scenario?​

Accepted Answer

A) The factory should install sound insulation because that is cheaper than moving. 
B) The factory should pay for the relocation of the day care center. 
C) The factory should buy insulation for the day care center. 
D) The day care center should buy its own insulation. 
E) The day care center should relocate. 
A) The factory should install sound insulation because that is cheaper than moving. 
B) The factory should pay for the relocation of the day care center. 
C) The factory should buy insulation for the day care center. 
D) The day care center should buy its own insulation. 
E) The day care center should relocate.

Question 9

The United States recycles a greater portion of its garbage than Japan does.​

Accepted Answer

A) True 
 B)False

Question 10

To solve the common-pool problem in fishing, governments can _____ or _____.​

Accepted Answer

A) provide a subsidy; restrict production to the socially optimal level 
B) impose a tax; restrict output​ 
C) impose property rights ; prohibit resource use entirely​ 
D) impose a depletion tax; make property rights flexible​ 
E) provide a subsidy; shutdown all firms in this industry​ 
A) provide a subsidy; restrict production to the socially optimal level 
B) impose a tax; restrict output​ 
C) impose property rights ; prohibit resource use entirely​ 
D) impose a depletion tax; make property rights flexible​ 
E) provide a subsidy; shutdown all firms in this industry​

Question 11

If the marginal social cost of producing a product exceeds the marginal social benefit, producers will produce less of it.​

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is an example of an open-access resource?​

Accepted Answer

A) A city subway system 
B) College education​ 
C) The healthcare system in a city​ 
D) Whales in the ocean​ 
E) Pandas in a zoo​ 
A) A city subway system 
B) College education​ 
C) The healthcare system in a city​ 
D) Whales in the ocean​ 
E) Pandas in a zoo​

Question 13

​Private property rights are easily assigned to open-access resources.

Accepted Answer

A) True 
 B)False

Question 14

Fishing, lumbering, tourism, and city buildings in Canada are harmed by acid rain, most of which comes from the United States. According to the Coase theorem, the problem is:​

Accepted Answer

A) easy to solve because the United States and Canada are geographically close. 
B) easy to solve because the United States and Canada are have similar geographical features. 
C) easy to solve because same international property rights are applicable to both the countries. 
D) hard to solve because international negotiations are costly. 
E) hard to solve because Canadians have property rights to clean, nonacidic rain. 
A) easy to solve because the United States and Canada are geographically close. 
B) easy to solve because the United States and Canada are have similar geographical features. 
C) easy to solve because same international property rights are applicable to both the countries. 
D) hard to solve because international negotiations are costly. 
E) hard to solve because Canadians have property rights to clean, nonacidic rain.

Question 15

The following graph shows the market for pollution rights in an economy. The optimal level of air quality is ______.​ ​
Figure 17.3
​

Accepted Answer

A) 0 
B) 40​ 
C) 50​ 
D) 70​ 
E) greater than 70​ 
A) 0 
B) 40​ 
C) 50​ 
D) 70​ 
E) greater than 70​

Question 16

A negative externality is likely to arise if:​

Accepted Answer

A) the government sets up more schools. 
B) a company introduces a research and development unit. 
C) factories install devices to reduce the amount of chemicals released. 
D) the government introduces a measles vaccine. 
E) car owners refuse to pay for devices that reduce the emission of carbon monoxide. 
A) the government sets up more schools. 
B) a company introduces a research and development unit. 
C) factories install devices to reduce the amount of chemicals released. 
D) the government introduces a measles vaccine. 
E) car owners refuse to pay for devices that reduce the emission of carbon monoxide.

Question 17

The Superfund law was designed to clean up:​

Accepted Answer

A) the acid rain problem. 
B) air pollution from automobiles, buses, and trucks. 
C) water pollution from agricultural sources (i.e., pesticides). 
D) water pollution from dumping raw sewage. 
E) toxic waste dumps. 
A) the acid rain problem. 
B) air pollution from automobiles, buses, and trucks. 
C) water pollution from agricultural sources (i.e., pesticides). 
D) water pollution from dumping raw sewage. 
E) toxic waste dumps.

Question 18

Which of the following creates a positive externality?​

Accepted Answer

A) A paper mill that pollutes a river 
B) A stock market crash​ 
C) A neighbor who beautifies her lawn​ 
D) A car that emits carbon monoxide​ 
E) A person who smokes in a public place​ 
A) A paper mill that pollutes a river 
B) A stock market crash​ 
C) A neighbor who beautifies her lawn​ 
D) A car that emits carbon monoxide​ 
E) A person who smokes in a public place​

Question 19

Suppose a city builds a new park that is advertised as being "open to the public" and the grass in the park is ruined by overuse within two months. This would be an example of _____.​

Accepted Answer

A) adverse selection 
B) moral hazard​ 
C) the common-pool problem​ 
D) a positive externality​ 
E) arbitrage​ 
A) adverse selection 
B) moral hazard​ 
C) the common-pool problem​ 
D) a positive externality​ 
E) arbitrage​

Question 20

Oil is an example of a renewable resource.​

Accepted Answer

A) True 
 B)False

The Coase solution to the problem of externalities:

Markets fail when externalities are present:

In the absence of government intervention, the marginal social cost of pollution abatement would equal its marginal social benefit.

The following graph shows the demand, the supply, and the marginal social benefit curves. An unregulated market would produce ______. Figure 17.6

Coase argued that the free market should be able to solve an externality problem without assigning property rights.

If the benefits to society of students attending college exceed the benefits to the students, then:

The following graph shows market equilibrium in the presence of externality in an economy. The equilibrium price and output (determined exclusively by private decisions) are _____. Figure 17.2

The United States recycles a greater portion of its garbage than Japan does.

To solve the common-pool problem in fishing, governments can _ or _.

If the marginal social cost of producing a product exceeds the marginal social benefit, producers will produce less of it.

Which of the following is an example of an open-access resource?

Private property rights are easily assigned to open-access resources.

Fishing, lumbering, tourism, and city buildings in Canada are harmed by acid rain, most of which comes from the United States. According to the Coase theorem, the problem is:

The following graph shows the market for pollution rights in an economy. The optimal level of air quality is ______. Figure 17.3

A negative externality is likely to arise if:

The Superfund law was designed to clean up:

Which of the following creates a positive externality?

Suppose a city builds a new park that is advertised as being "open to the public" and the grass in the park is ruined by overuse within two months. This would be an example of _____.

Oil is an example of a renewable resource.

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Consumer Choice and Demand

Production and Cost in the Firm

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, Entrepreneurship, and Corporate Finance

Transaction Costs, Asymmetric Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Poverty and Redistribution

International Trade

International Finance

Economic Development

Filters

Exam 17: Externalities and the Environment

The Coase solution to the problem of externalities:​

Markets fail when externalities are present:​

In the absence of government intervention, the marginal social cost of pollution abatement would equal its marginal social benefit.​

The following graph shows the demand, the supply, and the marginal social benefit curves. An unregulated market would produce ______.​ ​ Figure 17.6 ​

Coase argued that the free market should be able to solve an externality problem without assigning property rights.​

If the benefits to society of students attending college exceed the benefits to the students, then:​

​The following graph shows market equilibrium in the presence of externality in an economy. The equilibrium price and output (determined exclusively by private decisions) are _____. ​ Figure 17.2 ​

The United States recycles a greater portion of its garbage than Japan does.​

To solve the common-pool problem in fishing, governments can _____ or _____.​

If the marginal social cost of producing a product exceeds the marginal social benefit, producers will produce less of it.​

Which of the following is an example of an open-access resource?​

​Private property rights are easily assigned to open-access resources.

Fishing, lumbering, tourism, and city buildings in Canada are harmed by acid rain, most of which comes from the United States. According to the Coase theorem, the problem is:​

The following graph shows the market for pollution rights in an economy. The optimal level of air quality is ______.​ ​ Figure 17.3 ​

A negative externality is likely to arise if:​

The Superfund law was designed to clean up:​

Which of the following creates a positive externality?​

Suppose a city builds a new park that is advertised as being "open to the public" and the grass in the park is ruined by overuse within two months. This would be an example of _____.​

Oil is an example of a renewable resource.​

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Consumer Choice and Demand

Production and Cost in the Firm

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, Entrepreneurship, and Corporate Finance

Transaction Costs, Asymmetric Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Poverty and Redistribution

International Trade

International Finance

Economic Development

Filters

The Coase solution to the problem of externalities:

Markets fail when externalities are present:

In the absence of government intervention, the marginal social cost of pollution abatement would equal its marginal social benefit.

The following graph shows the demand, the supply, and the marginal social benefit curves. An unregulated market would produce ______. Figure 17.6

Coase argued that the free market should be able to solve an externality problem without assigning property rights.

If the benefits to society of students attending college exceed the benefits to the students, then:

The following graph shows market equilibrium in the presence of externality in an economy. The equilibrium price and output (determined exclusively by private decisions) are _____. Figure 17.2

The United States recycles a greater portion of its garbage than Japan does.

To solve the common-pool problem in fishing, governments can _ or _.

If the marginal social cost of producing a product exceeds the marginal social benefit, producers will produce less of it.

Which of the following is an example of an open-access resource?

Private property rights are easily assigned to open-access resources.

Fishing, lumbering, tourism, and city buildings in Canada are harmed by acid rain, most of which comes from the United States. According to the Coase theorem, the problem is:

The following graph shows the market for pollution rights in an economy. The optimal level of air quality is ______. Figure 17.3

A negative externality is likely to arise if:

The Superfund law was designed to clean up:

Which of the following creates a positive externality?

Suppose a city builds a new park that is advertised as being "open to the public" and the grass in the park is ruined by overuse within two months. This would be an example of _____.

Oil is an example of a renewable resource.