Question 1

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 2

When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n)

Accepted Answer

A)  externality 
B)  common pool problem 
C)  nonexcludable resource 
D)  public good 
E)  renewable resource 
A)  externality 
B)  common pool problem 
C)  nonexcludable resource 
D)  public good 
E)  renewable resource

Question 3

Rainforests are often cut down because

Accepted Answer

A)  farmers and the government are greedy 
B)  the countries involved do not understand the environment 
C)  the countries involved are gaining short-term relief from poverty at the cost of long-term environmental preservation 
D)  the countries involved are gaining long-term environmental benefits by doing so 
E)  cutting them down results in less erosion 
A)  farmers and the government are greedy 
B)  the countries involved do not understand the environment 
C)  the countries involved are gaining short-term relief from poverty at the cost of long-term environmental preservation 
D)  the countries involved are gaining long-term environmental benefits by doing so 
E)  cutting them down results in less erosion

Question 4

Unpriced by-products of production or consumption that impose costs on other consumers or firms are known as

Accepted Answer

A)  negative externalities 
B)  effluent fees 
C)  pollution rights 
D)  positive externalities 
E)  moral hazards 
A)  negative externalities 
B)  effluent fees 
C)  pollution rights 
D)  positive externalities 
E)  moral hazards

Question 5

Economists view pollution as an economic problem that arises because

Accepted Answer

A)  private enterprise always minimizes the amount of pollution produced 
B)  profitable firms rarely pollute 
C)  as the economy grows, the level of pollution declines 
D)  firms that pollute do not pay the full social cost of producing their output 
E)  pollution costs are borne by the consumer 
A)  private enterprise always minimizes the amount of pollution produced 
B)  profitable firms rarely pollute 
C)  as the economy grows, the level of pollution declines 
D)  firms that pollute do not pay the full social cost of producing their output 
E)  pollution costs are borne by the consumer

Question 6

Pollution taxes are paid out of the EPA Superfund in order to reduce automobile emissions.

Accepted Answer

A) True 
 B)False

Question 7

As more pollution is abated, the marginal social benefit from further abatement diminishes.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  impose a depletion tax; prohibit resource use entirely 
B)  impose a depletion tax; restrict output 
C)  introduce an offsetting positive externality; prohibit resource use entirely 
D)  use a variable technology; impose a depletion tax 
E)  restrict output; prohibit resource use entirely 
A)  impose a depletion tax; prohibit resource use entirely 
B)  impose a depletion tax; restrict output 
C)  introduce an offsetting positive externality; prohibit resource use entirely 
D)  use a variable technology; impose a depletion tax 
E)  restrict output; prohibit resource use entirely

Question 9

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

Question 10

If periodic use of a resource can be continued indefinitely, that resource is said to be

Accepted Answer

A)  removable 
B)  renewable 
C)  cyclical 
D)  recyclable 
E)  part of a common pool 
A)  removable 
B)  renewable 
C)  cyclical 
D)  recyclable 
E)  part of a common pool

Question 11

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

Accepted Answer

A)  the marginal social benefit for the good is less than the marginal social cost 
B)  too much of the good would be produced by a private market 
C)  property rights are assignable and well defined 
D)  the good produces a positive externality 
E)  the good is exhaustible with fixed-production technology 
A)  the marginal social benefit for the good is less than the marginal social cost 
B)  too much of the good would be produced by a private market 
C)  property rights are assignable and well defined 
D)  the good produces a positive externality 
E)  the good is exhaustible with fixed-production technology

Question 12

NARRBEGIN: Exhibit 17-3
Exhibit 17-3
  
-In Exhibit 17-3, the welfare loss (from society's perspective) that results from 70 units of air quality is shown by area

Accepted Answer

A)  edcb 
B)  eda 
C)  bac 
D)  adc 
E)  there is no loss 
A)  edcb 
B)  eda 
C)  bac 
D)  adc 
E)  there is no loss

Question 13

Unpriced by-products of production or consumption that provide benefits to other consumers or other firms are known as

Accepted Answer

A)  negative externalities 
B)  common pool benefits 
C)  positive externalities 
D)  private benefits 
E)  Coase by-products 
A)  negative externalities 
B)  common pool benefits 
C)  positive externalities 
D)  private benefits 
E)  Coase by-products

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The optimal level of water and air quality

Accepted Answer

A)  is zero, which is a pollution-free environment 
B)  occurs when the marginal private cost of air quality equals its marginal social cost 
C)  is greater if the marginal social cost curve of air quality shifts downward 
D)  occurs when all negative externalities are eliminated 
E)  eliminates the common pool problem 
A)  is zero, which is a pollution-free environment 
B)  occurs when the marginal private cost of air quality equals its marginal social cost 
C)  is greater if the marginal social cost curve of air quality shifts downward 
D)  occurs when all negative externalities are eliminated 
E)  eliminates the common pool problem

Question 16

The most likely reason why Los Angeles has so much smog is that residents

Accepted Answer

A)  do not have strong, enforceable property rights to rapid transit 
B)  do not have strong, enforceable property rights to clean air 
C)  prefer dirty air to the inconvenience of rapid transit 
D)  prefer dirty air to the inconvenience of carpools 
E)  prefer dirty air to the inconvenience of eliminating smog 
A)  do not have strong, enforceable property rights to rapid transit 
B)  do not have strong, enforceable property rights to clean air 
C)  prefer dirty air to the inconvenience of rapid transit 
D)  prefer dirty air to the inconvenience of carpools 
E)  prefer dirty air to the inconvenience of eliminating smog

Question 17

NARRBEGIN: Exhibit 17-2
Exhibit 17-2
  
-In Exhibit 17-2, the socially efficient price and level of output are

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)  not indicated 
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)  not indicated

Question 18

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 can't soundproof enough to overcome the music, but could be moved for $4,000. According to Coase, a socially optimal solution can be achieved if

Accepted Answer

A)  the local government purchases the building 
B)  the building is torn down 
C)  property rights to be noisy are granted to the nightclub 
D)  property rights to a quiet environment are granted to the meditation class 
E)  both the nightclub and the meditation class relocate 
A)  the local government purchases the building 
B)  the building is torn down 
C)  property rights to be noisy are granted to the nightclub 
D)  property rights to a quiet environment are granted to the meditation class 
E)  both the nightclub and the meditation class relocate

Question 19

Firms that emit toxins into the air tend to

Accepted Answer

A)  underproduce because the private cost of production exceeds the social cost 
B)  overproduce because the social cost of production exceeds the private cost 
C)  produce the same as nonpolluting firms 
D)  produce at the socially optimal amount 
E)  cover pollution costs in the product's price 
A)  underproduce because the private cost of production exceeds the social cost 
B)  overproduce because the social cost of production exceeds the private cost 
C)  produce the same as nonpolluting firms 
D)  produce at the socially optimal amount 
E)  cover pollution costs in the product's price

Question 20

NARRBEGIN: Exhibit 17-2
Exhibit 17-2
  
-In Exhibit 17-2, the total social gain from producing the socially efficient output rather than the private equilibrium output is shown by area

Accepted Answer

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

Exam 17: Externalities and the Environment

If consuming a good creates a positive externality,

When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n)

Rainforests are often cut down because

Unpriced by-products of production or consumption that impose costs on other consumers or firms are known as

Economists view pollution as an economic problem that arises because

Pollution taxes are paid out of the EPA Superfund in order to reduce automobile emissions.

As more pollution is abated, the marginal social benefit from further abatement diminishes.

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

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

If periodic use of a resource can be continued indefinitely, that resource is said to be

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

NARRBEGIN: Exhibit 17-3 Exhibit 17-3 -In Exhibit 17-3, the welfare loss (from society's perspective) that results from 70 units of air quality is shown by area

Unpriced by-products of production or consumption that provide benefits to other consumers or other firms are known as

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

The optimal level of water and air quality

The most likely reason why Los Angeles has so much smog is that residents

NARRBEGIN: Exhibit 17-2 Exhibit 17-2 -In Exhibit 17-2, the socially efficient price and level of output are

Firms that emit toxins into the air tend to

NARRBEGIN: Exhibit 17-2 Exhibit 17-2 -In Exhibit 17-2, the total social gain from producing the socially efficient output rather than the private equilibrium output is shown by area

The Art and Science of Economic Analysis

Appendix: Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Consumer Choice and Demand

Production and Cost in the Firm

A: Perfect Competition

B: Perfect Competition

A: Monopoly

B: Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Income Distribution and Poverty

International Trade

International Finance

Economic Development

Filters

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