Question 1

The marginal social cost curve is downward sloping under variable technology.

Accepted Answer

A) True 
 B)False

Question 2

If consuming a good creates a positive externality,

Accepted Answer

A) marginal private benefits exceed marginal social benefits 
B) marginal social benefits exceed marginal private benefits 
C) private demand is equal to marginal social benefit 
D) private demand is greater than marginal social benefit 
E) the private demand curve shifts to the right to coincide with the marginal social benefit curve 
A) marginal private benefits exceed marginal social benefits 
B) marginal social benefits exceed marginal private benefits 
C) private demand is equal to marginal social benefit 
D) private demand is greater than marginal social benefit 
E) the private demand curve shifts to the right to coincide with the marginal social benefit curve

Question 3

Most waste generated in the U.S.ends up in landfills because

Accepted Answer

A) the low opportunity cost of time discourages recycling 
B) Americans earn low incomes 
C) the price of land is relatively low 
D) the low wages in the repair industry encourages repairs 
E) of low productivity and high wages in the waste disposal industry 
A) the low opportunity cost of time discourages recycling 
B) Americans earn low incomes 
C) the price of land is relatively low 
D) the low wages in the repair industry encourages repairs 
E) of low productivity and high wages in the waste disposal industry

Question 4

Marginal external cost equals marginal private cost minus marginal social cost.

Accepted Answer

A) True 
 B)False

Question 5

When an activity results in the creation of external benefits,markets will produce more than the socially optimal level of that activity.

Accepted Answer

A) True 
 B)False

Question 6

A tannery discovers a technology that makes it cheaper to reduce the air pollution it generates in making paper.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 net 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 net benefit curve

Question 7

An externality is

Accepted Answer

A) a cost of a transaction that is borne by a third party 
B) a benefit of a transaction that is enjoyed by a third party 
C) a cost or benefit that arises when market price changes 
D) any cost or benefit of a transaction that is not accounted for in the market price 
E) the external revenue generated by a firm 
A) a cost of a transaction that is borne by a third party 
B) a benefit of a transaction that is enjoyed by a third party 
C) a cost or benefit that arises when market price changes 
D) any cost or benefit of a transaction that is not accounted for in the market price 
E) the external revenue generated by a firm

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; it would cost $1 million for the day care center to move.Sound insulation for the factory costs $1 million; insulation for the day care center costs $200,000.The court initially determines that the day care center has the property right and orders the factory to purchase insulation for the day care.But on appeal the factory is awarded the property right.How would the optimal solution to this problem change after the appeals court decision?

Accepted Answer

A) The insulation would still be bought,but it would be bought by the day care center,a result consistent with the Coase theorem. 
B) Insulation for the factory would be bought instead of insulation for the day care center,a result consistent with the Coase theorem. 
C) Insulation for the day care center would still be bought,but it would be bought by the factory,a result consistent with the Coase theorem. 
D) Insulation for the factory would be bought instead of insulation for the day care center,a result inconsistent with the Coase theorem. 
E) The day care center would move instead of buying insulation,a result consistent with the Coase theorem. 
A) The insulation would still be bought,but it would be bought by the day care center,a result consistent with the Coase theorem. 
B) Insulation for the factory would be bought instead of insulation for the day care center,a result consistent with the Coase theorem. 
C) Insulation for the day care center would still be bought,but it would be bought by the factory,a result consistent with the Coase theorem. 
D) Insulation for the factory would be bought instead of insulation for the day care center,a result inconsistent with the Coase theorem. 
E) The day care center would move instead of buying insulation,a result consistent with the Coase theorem.

Question 9

Exhibit 17-6  
-Exhibit 17-6 illustrates the presence of

Accepted Answer

A) positive externalities 
B) positive and negative externalities 
C) negative externalities 
D) the Coase theorem 
E) a private market with a socially efficient equilibrium 
A) positive externalities 
B) positive and negative externalities 
C) negative externalities 
D) the Coase theorem 
E) a private market with a socially efficient equilibrium

Question 10

Exhibit 17-4  
-In Exhibit 17-4,the shift of the demand curve from D to D' indicates that

Accepted Answer

A) producers want to discharge more pollution into the river 
B) producers want to use more of the river in a nonpolluting way 
C) consumers want producers to clean up the polluted river 
D) consumers want to buy goods that use technology that does not pollute 
E) consumers want to buy the river from the polluter 
A) producers want to discharge more pollution into the river 
B) producers want to use more of the river in a nonpolluting way 
C) consumers want producers to clean up the polluted river 
D) consumers want to buy goods that use technology that does not pollute 
E) consumers want to buy the river from the polluter

Question 11

At the market output and price for a good whose production causes pollution,

Accepted Answer

A) pollution is eliminated 
B) the marginal social cost of production exceeds the marginal social benefit of production 
C) the private cost of production equals the private benefit of production 
D) the marginal social benefit of production equals the marginal social cost of production 
E) too little of the good is produced 
A) pollution is eliminated 
B) the marginal social cost of production exceeds the marginal social benefit of production 
C) the private cost of production equals the private benefit of production 
D) the marginal social benefit of production equals the marginal social cost of production 
E) too little of the good is produced

Question 12

Which of the following provides a positive externality?

Accepted Answer

A) smog 
B) inoculating children against measles 
C) hamburgers 
D) litter 
E) an increase in your earnings 
A) smog 
B) inoculating children against measles 
C) hamburgers 
D) litter 
E) an increase in your earnings

Question 13

Fishing,the lumber industry,tourism,and even 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 allies 
C) easy to solve because international property rights are recognized among capitalist countries 
D) hard to solve because international negotiations are more costly than domestic ones 
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 allies 
C) easy to solve because international property rights are recognized among capitalist countries 
D) hard to solve because international negotiations are more costly than domestic ones 
E) hard to solve because Canadians have property rights to clean,nonacidic rain

Question 14

Exhibit 17-4  
-In Exhibit 17-4,as demand increases,

Accepted Answer

A) pollution increases 
B) the economic damage done by pollution increases 
C) the pollution level is the same,but the price of the right to pollute increases 
D) the pollution level is the same,but the benefit of cleaning up the pollution increases 
E) the cost of cleaning up the rivers increases 
A) pollution increases 
B) the economic damage done by pollution increases 
C) the pollution level is the same,but the price of the right to pollute increases 
D) the pollution level is the same,but the benefit of cleaning up the pollution increases 
E) the cost of cleaning up the rivers increases

Question 15

In order to increase society's well-being,a process that produces a positive externality might be

Accepted Answer

A) taxed to discourage production 
B) subsidized to encourage production 
C) taxed to encourage production 
D) subsidized to discourage production 
E) provided without government intervention 
A) taxed to discourage production 
B) subsidized to encourage production 
C) taxed to encourage production 
D) subsidized to discourage production 
E) provided without government intervention

Question 16

Which of the following is a positive externality of consumption?

Accepted Answer

A) inoculations against a disease reduce the likelihood of transmitting it to others 
B) phosphates from laundry detergents 
C) litter from fast-food containers 
D) ozone depletion from the production of fast-food containers 
E) the greenhouse effect 
A) inoculations against a disease reduce the likelihood of transmitting it to others 
B) phosphates from laundry detergents 
C) litter from fast-food containers 
D) ozone depletion from the production of fast-food containers 
E) the greenhouse effect

Question 17

The socially efficient level of output is determined where

Accepted Answer

A) marginal social cost equals marginal social benefit 
B) marginal private cost equals marginal social benefit 
C) average social cost equals average social benefit 
D) average private cost equals average social benefit 
E) total social cost equals total social benefit 
A) marginal social cost equals marginal social benefit 
B) marginal private cost equals marginal social benefit 
C) average social cost equals average social benefit 
D) average private cost equals average social benefit 
E) total social cost equals total social benefit

Question 18

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

Question 19

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.Which of the following best explains why the negative externality faced by the class arises?

Accepted Answer

A) The class has no property right to a quiet environment. 
B) The club has a property right on the ground floor. 
C) The class has a property right on the second floor. 
D) The club uses an inappropriate technology (i.e.,no soundproofing). 
E) Both the club and class are profitable. 
A) The class has no property right to a quiet environment. 
B) The club has a property right on the ground floor. 
C) The class has a property right on the second floor. 
D) The club uses an inappropriate technology (i.e.,no soundproofing). 
E) Both the club and class are profitable.

Question 20

Suppose environmental groups pressure the local government to reduce the number 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

Exam 19: Externalities and the Environment

The marginal social cost curve is downward sloping under variable technology.

If consuming a good creates a positive externality,

Most waste generated in the U.S.ends up in landfills because

Marginal external cost equals marginal private cost minus marginal social cost.

When an activity results in the creation of external benefits,markets will produce more than the socially optimal level of that activity.

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

An externality is

Exhibit 17-6 -Exhibit 17-6 illustrates the presence of

Exhibit 17-4 -In Exhibit 17-4,the shift of the demand curve from D to D' indicates that

At the market output and price for a good whose production causes pollution,

Which of the following provides a positive externality?

Fishing,the lumber industry,tourism,and even 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

Exhibit 17-4 -In Exhibit 17-4,as demand increases,

In order to increase society's well-being,a process that produces a positive externality might be

Which of the following is a positive externality of consumption?

The socially efficient level of output is determined where

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

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.Which of the following best explains why the negative externality faced by the class arises?

Suppose environmental groups pressure the local government to reduce the number of pollution rights to be sold.Other things equal,

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