Question 1

If the quantity of smallpox vaccinations is determined by the market forces of demand and supply, which of the following is most likely to be true?​

Accepted Answer

A) The equilibrium quantity will be too low for efficiency. 
B) The equilibrium price and quantity will be too high for efficiency. 
C) The equilibrium price will be too low for efficiency. 
D) The equilibrium quantity will be too high for efficiency. 
E) The equilibrium price and quantity will be efficient. 
A) The equilibrium quantity will be too low for efficiency. 
B) The equilibrium price and quantity will be too high for efficiency. 
C) The equilibrium price will be too low for efficiency. 
D) The equilibrium quantity will be too high for efficiency. 
E) The equilibrium price and quantity will be efficient.

Question 2

Pollution occurs because property rights to some open-access resources are well defined.​

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an example of an activity that generates positive externalities?​

Accepted Answer

A) Driving a car that emits high amounts of carbon monoxide 
B) Dumping wastes into a river​ 
C) Littering streets​ 
D) Initiating a program to encourage education​ 
E) Smoking in a public place 
A) Driving a car that emits high amounts of carbon monoxide 
B) Dumping wastes into a river​ 
C) Littering streets​ 
D) Initiating a program to encourage education​ 
E) Smoking in a public place

Question 4

A tannery discovers a technology that makes it cheaper to reduce the air pollution it generates. On a graph of the optimal level of air quality, the use of the new technology would be represented by:​

Accepted Answer

A) a leftward shift of the marginal social cost curve. 
B) a rightward shift of the marginal social cost curve. 
C) movement to the right along the marginal social cost curve. 
D) movement to the left along the marginal social cost curve. 
E) a downward shift of the marginal social benefit curve. 
A) a leftward shift of the marginal social cost curve. 
B) a rightward shift of the marginal social cost curve. 
C) movement to the right along the marginal social cost curve. 
D) movement to the left along the marginal social cost curve. 
E) a downward shift of the marginal social benefit curve.

Question 5

Which of the following would happen if the government increased the quantity of pollution rights to be sold, other things equal?​

Accepted Answer

A) Pollution would not be affected. 
B) The price of pollution rights would rise, and the amount of pollution would decrease. 
C) The price of pollution rights would fall, and the amount of pollution would decrease. 
D) The price of pollution rights would fall, and the amount of pollution would increase. 
E) The price of pollution rights would rise, and the amount of pollution would increase. 
A) Pollution would not be affected. 
B) The price of pollution rights would rise, and the amount of pollution would decrease. 
C) The price of pollution rights would fall, and the amount of pollution would decrease. 
D) The price of pollution rights would fall, and the amount of pollution would increase. 
E) The price of pollution rights would rise, and the amount of pollution would increase.

Question 6

If farmers decide individually whether or not to vaccinate their cattle against mad cow disease, which of the following is true?​

Accepted Answer

A) The equilibrium quantity is too low for efficiency. 
B) The equilibrium price and quantity are too high for efficiency. 
C) The equilibrium price is efficient. 
D) The equilibrium quantity is too high for efficiency. 
E) The equilibrium price and quantity are efficient. 
A) The equilibrium quantity is too low for efficiency. 
B) The equilibrium price and quantity are too high for efficiency. 
C) The equilibrium price is efficient. 
D) The equilibrium quantity is too high for efficiency. 
E) The equilibrium price and quantity are efficient.

Question 7

The following graph shows the market for pollution rights. An increase in demand indicates ______.​ ​
Figure 17.4
​

Accepted Answer

A) a rise in pollution 
B) increased environmental damage​ 
C) an increase in the price of the right to pollute​ 
D) an increase in the benefit of cleaning up the pollution​ 
E) an increase in the cost of cleaning up the river​ 
A) a rise in pollution 
B) increased environmental damage​ 
C) an increase in the price of the right to pollute​ 
D) an increase in the benefit of cleaning up the pollution​ 
E) an increase in the cost of cleaning up the river​

Question 8

According to the Coase theorem, there will be an efficient solution to the problem of toxic waste:​

Accepted Answer

A) if the creator of the toxic waste is assigned the property right and the bargaining costs are high. 
B) if the victim of toxic waste is assigned the property right and the bargaining costs are high. 
C) regardless of which party is assigned the property right as long as the bargaining costs are small. 
D) if the property rights are shared equally between the creator and the victim of toxic waste. 
E) if the government intervenes. 
A) if the creator of the toxic waste is assigned the property right and the bargaining costs are high. 
B) if the victim of toxic waste is assigned the property right and the bargaining costs are high. 
C) regardless of which party is assigned the property right as long as the bargaining costs are small. 
D) if the property rights are shared equally between the creator and the victim of toxic waste. 
E) if the government intervenes.

Question 9

The following graph shows market equilibrium in the presence of an externality. The socially efficient price and level of output 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 10

Governments often subsidize activities that generate positive externalities in order to get people to engage in more of them.​

Accepted Answer

A) True 
 B)False

Question 11

Fishes in the ocean are:​

Accepted Answer

A) exhaustible and also open-access resources. 
B) renewable and also open-access resources. 
C) private goods. 
D) merit goods​ 
E) renewable resources whenever property rights are well defined. 
A) exhaustible and also open-access resources. 
B) renewable and also open-access resources. 
C) private goods. 
D) merit goods​ 
E) renewable resources whenever property rights are well defined.

Question 12

Which of the following helps explain why pesticides account for much of the water pollution in the United States?​

Accepted Answer

A) Pesticide regulations were repealed by the Environmental Protection Agency. 
B) Pesticide regulations favored genetically engineered crops. 
C) Pesticide regulations were applicable only to large farms. 
D) Pesticide regulations were administered by state agricultural departments. 
E) Pesticide regulations were administered by the federal government. 
A) Pesticide regulations were repealed by the Environmental Protection Agency. 
B) Pesticide regulations favored genetically engineered crops. 
C) Pesticide regulations were applicable only to large farms. 
D) Pesticide regulations were administered by state agricultural departments. 
E) Pesticide regulations were administered by the federal government.

Question 13

The following graph shows equilibrium in a market in the presence of an externality. The amount by which the total social cost of producing the private equilibrium level of output exceeds the total social benefit is _____.​ ​
Figure 17.1
​

Accepted Answer

A) $3,000 
B) $1,000 
C) $5,000 
D) $1,600 
E) $1,400 
A) $3,000 
B) $1,000 
C) $5,000 
D) $1,600 
E) $1,400

Question 14

A meditation class meets on the second floor of a building; the first floor is a nightclub. The loud music from the club disturbs the classes. The club could be soundproofed for a cost of $5,000 or move at a cost of $8,000. The class cannot be soundproofed enough to overcome the music, but could be moved for $4,000. According to the Coase theorem, _____.​

Accepted Answer

A) the club should be soundproofed so both businesses can stay open 
B) the club should be soundproofed because it is the one generating the externality​ 
C) the club should move rather than be soundproofed because eliminating an externality is better than compensating for it​ 
D) the class should move because it can eliminate the externality at a lower cost than can the nightclub​ 
E) whichever business has been there longer has a property right and the other should adjust​ 
A) the club should be soundproofed so both businesses can stay open 
B) the club should be soundproofed because it is the one generating the externality​ 
C) the club should move rather than be soundproofed because eliminating an externality is better than compensating for it​ 
D) the class should move because it can eliminate the externality at a lower cost than can the nightclub​ 
E) whichever business has been there longer has a property right and the other should adjust​

Question 15

Imposition of tax on an open-access resource increases the marginal private cost of using the resource by _____.​

Accepted Answer

A) zero 
B) the amount of the tax​ 
C) the marginal cost of the resource​ 
D) the average private cost of using the resource 
E) the average social cost of using the resource 
A) zero 
B) the amount of the tax​ 
C) the marginal cost of the resource​ 
D) the average private cost of using the resource 
E) the average social cost of using the resource

Question 16

The following graph shows market equilibrium in the presence of an externality in an economy. The equilibrium level of output for the firm is _____.​ ​
Figure 17.1

Accepted Answer

A) 0 units 
B) 100 units​ 
C) between 0 and 100 units​ 
D) 160 units​ 
E) between 100 and 160 units​ 
A) 0 units 
B) 100 units​ 
C) between 0 and 100 units​ 
D) 160 units​ 
E) between 100 and 160 units​

Question 17

The following graph shows equilibrium in a market in the presence of externality in an economy. The total social gain from producing the socially efficient output rather than the private equilibrium output is shown by the area ______.​ ​
Figure 17.2
​
​

Accepted Answer

A) abdf 
B) bed​ 
C) bcd​ 
D) acdf​ 
E) bcde​ 
A) abdf 
B) bed​ 
C) bcd​ 
D) acdf​ 
E) bcde​

Question 18

If producers cannot afford the fees for pollution rights, then:​

Accepted Answer

A) they will adopt ways to pollute without getting detected. 
B) they will buy pollution rights illegally. 
C) they will have to sell their pollution rights. 
D) they will have to find a cheaper way to deal with their pollution. 
E) they will not be able to use their pollution rights. 
A) they will adopt ways to pollute without getting detected. 
B) they will buy pollution rights illegally. 
C) they will have to sell their pollution rights. 
D) they will have to find a cheaper way to deal with their pollution. 
E) they will not be able to use their pollution rights.

Question 19

When society receives more benefits from a good than the individuals who consume the good, then:​

Accepted Answer

A) the marginal social benefit from the good is less than the marginal social cost. 
B) the average social benefit is less than the average social cost. 
C) the property rights on the good has been well defined. 
D) the production of the good generates a positive externality. 
E) the production of the good generates a negative externality. 
A) the marginal social benefit from the good is less than the marginal social cost. 
B) the average social benefit is less than the average social cost. 
C) the property rights on the good has been well defined. 
D) the production of the good generates a positive externality. 
E) the production of the good generates a negative externality.

Question 20

To maximize social welfare in the presence of a negative externality, marginal __________ must equal marginal __________.​

Accepted Answer

A) social cost; private cost 
B) private cost; external cost​ 
C) social cost; social benefit​ 
D) private cost; social benefit​ 
E) social cost; external cost​ 
A) social cost; private cost 
B) private cost; external cost​ 
C) social cost; social benefit​ 
D) private cost; social benefit​ 
E) social cost; external cost​

If the quantity of smallpox vaccinations is determined by the market forces of demand and supply, which of the following is most likely to be true?

Pollution occurs because property rights to some open-access resources are well defined.

Which of the following is an example of an activity that generates positive externalities?

A tannery discovers a technology that makes it cheaper to reduce the air pollution it generates. On a graph of the optimal level of air quality, the use of the new technology would be represented by:

Which of the following would happen if the government increased the quantity of pollution rights to be sold, other things equal?

If farmers decide individually whether or not to vaccinate their cattle against mad cow disease, which of the following is true?

The following graph shows the market for pollution rights. An increase in demand indicates ______. Figure 17.4

According to the Coase theorem, there will be an efficient solution to the problem of toxic waste:

The following graph shows market equilibrium in the presence of an externality. The socially efficient price and level of output are: Figure 17.2

Governments often subsidize activities that generate positive externalities in order to get people to engage in more of them.

Fishes in the ocean are:

Which of the following helps explain why pesticides account for much of the water pollution in the United States?

The following graph shows equilibrium in a market in the presence of an externality. The amount by which the total social cost of producing the private equilibrium level of output exceeds the total social benefit is _____. Figure 17.1

Imposition of tax on an open-access resource increases the marginal private cost of using the resource by _____.

The following graph shows market equilibrium in the presence of an externality in an economy. The equilibrium level of output for the firm is _____. Figure 17.1

The following graph shows equilibrium in a market in the presence of externality in an economy. The total social gain from producing the socially efficient output rather than the private equilibrium output is shown by the area ______. Figure 17.2

If producers cannot afford the fees for pollution rights, then:

When society receives more benefits from a good than the individuals who consume the good, then:

To maximize social welfare in the presence of a negative externality, marginal must equal marginal .

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Exam 17: Externalities and the Environment