Question 1

When the benefits to society of using a product exceed the benefits to the user, then:​

Accepted Answer

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

Question 2

Free markets produce too little output when:​

Accepted Answer

A) negative externalities exist. 
B) positive externalities exist. 
C) production uses fixed-production technology. 
D) production uses variable technology. 
E) the resource is exhaustible. 
A) negative externalities exist. 
B) positive externalities exist. 
C) production uses fixed-production technology. 
D) production uses variable technology. 
E) the resource is exhaustible.

Question 3

When the consumption of a good generates positive externalities, _____.​

Accepted Answer

A) the private demand curve for the good shifts rightward. 
B) the private demand curve for the good shifts leftward. 
C) the private demand curve for the good lies below the marginal social benefit curve. 
D) the private demand curve for the good lies above the marginal social benefit curve. 
E) the equilibrium quantity of the good determined by the free private market is too high. 
A) the private demand curve for the good shifts rightward. 
B) the private demand curve for the good shifts leftward. 
C) the private demand curve for the good lies below the marginal social benefit curve. 
D) the private demand curve for the good lies above the marginal social benefit curve. 
E) the equilibrium quantity of the good determined by the free private market is too high.

Question 4

The depletion of rainforests due to human activities like logging or cattle ranching is an example of:​

Accepted Answer

A) a negative externality. 
B) a positive externality. 
C) adverse selection. 
D) moral hazard. 
E) arbitrage. 
A) a negative externality. 
B) a positive externality. 
C) adverse selection. 
D) moral hazard. 
E) arbitrage.

Question 5

The socially optimal level of output of a good that generates an externality occurs when:​

Accepted Answer

A) the marginal private cost of production equal marginal private revenue. 
B) the firm maximizes its profits. 
C) the marginal private cost of production exceeds the marginal social cost of production. 
D) the marginal social cost of production equals the marginal social benefit of production. 
E) the marginal private cost of the good equals the marginal social benefit of the good. 
A) the marginal private cost of production equal marginal private revenue. 
B) the firm maximizes its profits. 
C) the marginal private cost of production exceeds the marginal social cost of production. 
D) the marginal social cost of production equals the marginal social benefit of production. 
E) the marginal private cost of the good equals the marginal social benefit of the good.

Question 6

The marginal external cost is:​

Accepted Answer

A) the additional cost imposed on society by producing an extra unit of a good. 
B) the cost of producing an extra unit of damaged goods. 
C) the additional cost of importing extra units of a good. 
D) the total cost to society of producing a good. 
E) the marginal cost divided by the marginal revenue. 
A) the additional cost imposed on society by producing an extra unit of a good. 
B) the cost of producing an extra unit of damaged goods. 
C) the additional cost of importing extra units of a good. 
D) the total cost to society of producing a good. 
E) the marginal cost divided by the marginal revenue.

Question 7

Dumping raw sewage into Boston Harbor is an example of a:​

Accepted Answer

A) negative externality. 
B) positive externality. 
C) private cost. 
D) sunk cost. 
E) public good. 
A) negative externality. 
B) positive externality. 
C) private cost. 
D) sunk cost. 
E) public good.

Question 8

When using the traditional command-and-control approach to environmental regulation, the government attempts to:​

Accepted Answer

A) set a minimum requirement and then allows the firm to determine the most efficient method for achieving this requirement. 
B) determine the most efficient method for different industries. 
C) make allowances for differences across industries and between firms. 
D) set engineering standards that are applicable to all situations and do not recognize unique circumstances. 
E) set a maximum requirement and then allows the individual firm the latitude of choosing the most efficient method. 
A) set a minimum requirement and then allows the firm to determine the most efficient method for achieving this requirement. 
B) determine the most efficient method for different industries. 
C) make allowances for differences across industries and between firms. 
D) set engineering standards that are applicable to all situations and do not recognize unique circumstances. 
E) set a maximum requirement and then allows the individual firm the latitude of choosing the most efficient method.

Question 9

Private property rights are defined and enforced:​

Accepted Answer

A) only in a capitalist economy. 
B) only in a command economy. 
C) by the largest firm in an economy. 
D) by the market forces of demand and supply. 
E) by government, by informal social actions, and by ethical norms. 
A) only in a capitalist economy. 
B) only in a command economy. 
C) by the largest firm in an economy. 
D) by the market forces of demand and supply. 
E) by government, by informal social actions, and by ethical norms.

Question 10

Untreated raw sewage in the U.S. is dumped directly into rivers and oceans by ______.​

Accepted Answer

A) the less developed parts of the U.S. 
B) factories in rural areas​ 
C) factories near the rivers and oceans​ 
D) every large city​ 
E) some of the largest cities 
A) the less developed parts of the U.S. 
B) factories in rural areas​ 
C) factories near the rivers and oceans​ 
D) every large city​ 
E) some of the largest cities

When the benefits to society of using a product exceed the benefits to the user, then:

Free markets produce too little output when:

When the consumption of a good generates positive externalities, _____.

The depletion of rainforests due to human activities like logging or cattle ranching is an example of:

The socially optimal level of output of a good that generates an externality occurs when:

The marginal external cost is:

Dumping raw sewage into Boston Harbor is an example of a:

When using the traditional command-and-control approach to environmental regulation, the government attempts to:

Private property rights are defined and enforced:

Untreated raw sewage in the U.S. is dumped directly into rivers and oceans by ______.

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Exam 17: Externalities and the Environment