Question 1

According to the Coase theorem, in order to solve a negative externality problem efficiently,

Accepted Answer

A)  the property right must be assigned to the party with the least-cost alternative 
B)  the property right must be assigned to the victim of pollution 
C)  transaction costs must be high 
D)  transaction costs must be low 
E)  property rights must be determined by the courts 
A)  the property right must be assigned to the party with the least-cost alternative 
B)  the property right must be assigned to the victim of pollution 
C)  transaction costs must be high 
D)  transaction costs must be low 
E)  property rights must be determined by the courts

Question 2

Pollution arises because

Accepted Answer

A)  the atmosphere is a nonrenewable resource 
B)  the atmosphere is a renewable resource 
C)  of enforceable property rights 
D)  the atmosphere is an open-access resource 
E)  there is no supply of pollution curve 
A)  the atmosphere is a nonrenewable resource 
B)  the atmosphere is a renewable resource 
C)  of enforceable property rights 
D)  the atmosphere is an open-access resource 
E)  there is no supply of pollution curve

Question 3

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 4

Smokers and loud talkers who ignore the external effects of their actions are being rational in the economic sense.

Accepted Answer

A) True 
 B)False

Question 5

Mountain bikers and rollerbladers share the only trail in a city park. The city allows everybody into the park and onto the trail. The mountain bikers say the rollerbladers are a hazard to them; the rollerbladers say it's the other way around. Frequently there are collisions and many injuries occur. Which of the following ways of dealing with the problem does not implicitly grant someone a property right?

Accepted Answer

A)  Allow bikers to use the trail on odd-numbered days and rollerbladers to use it on even-numbered days. 
B)  Allow bikers to use the trail in the morning and rollerbladers to use it in the afternoon. 
C)  Allow only bikers in the park because they have invested in the more expensive sports equipment. 
D)  Kick everybody out of the park. 
E)  Build another trail, put rollerbladers on one and bikers on the other, and give bikers the right-of-way at intersections. 
A)  Allow bikers to use the trail on odd-numbered days and rollerbladers to use it on even-numbered days. 
B)  Allow bikers to use the trail in the morning and rollerbladers to use it in the afternoon. 
C)  Allow only bikers in the park because they have invested in the more expensive sports equipment. 
D)  Kick everybody out of the park. 
E)  Build another trail, put rollerbladers on one and bikers on the other, and give bikers the right-of-way at intersections.

Question 6

Society's total cost of producing a good

Accepted Answer

A)  includes only the cost to the firm 
B)  includes only the external cost 
C)  includes all private and external costs 
D)  equals the value of the output level that maximizes the firm's profit 
E)  equals the value of the output level that minimizes the firm's loss 
A)  includes only the cost to the firm 
B)  includes only the external cost 
C)  includes all private and external costs 
D)  equals the value of the output level that maximizes the firm's profit 
E)  equals the value of the output level that minimizes the firm's loss

Question 7

According to the Coase theorem, externality problems may be solved if the parties involved can negotiate. Which of the following is also needed?

Accepted Answer

A)  clearly defined bargaining costs 
B)  enforceable bargaining costs 
C)  clearly defined, enforceable property rights and low bargaining costs 
D)  a property right that cannot be bought or sold 
E)  government regulation 
A)  clearly defined bargaining costs 
B)  enforceable bargaining costs 
C)  clearly defined, enforceable property rights and low bargaining costs 
D)  a property right that cannot be bought or sold 
E)  government regulation

Question 8

Which of the following creates a positive externality?

Accepted Answer

A)  a paper mill polluting a river 
B)  a stock market crash 
C)  a neighbor that beautifies her lawn 
D)  taxes and subsidies 
E)  the greenhouse effect 
A)  a paper mill polluting a river 
B)  a stock market crash 
C)  a neighbor that beautifies her lawn 
D)  taxes and subsidies 
E)  the greenhouse effect

Question 9

NARRBEGIN: Exhibit 17-2
Exhibit 17-2
  
-In Exhibit 17-2, the market equilibrium price and output (determined exclusively by private decisions) 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 10

Puerta Vallarta International Airport is near the coast. At night planes take off and land from the west, over the water. During the day planes approach and leave from the east, over Puerta Vallarta neighborhoods. Night flights into and out of Puerta Vallarta are more dangerous than day flights. Which rights are in conflict in this situation?

Accepted Answer

A)  residents' right to enjoy the ocean and their right to peace and quiet 
B)  residents' right to enjoy the ocean and air passengers' right to enjoy the ocean 
C)  residents' right to peace and quiet and air passengers' right to safety 
D)  residents' right to peace and quiet and safety 
E)  air passengers' right to safety and convenience 
A)  residents' right to enjoy the ocean and their right to peace and quiet 
B)  residents' right to enjoy the ocean and air passengers' right to enjoy the ocean 
C)  residents' right to peace and quiet and air passengers' right to safety 
D)  residents' right to peace and quiet and safety 
E)  air passengers' right to safety and convenience

Question 11

NARRBEGIN: Exhibit 17-4
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 12

NARRBEGIN: Exhibit 17-6
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 13

NARRBEGIN: Exhibit 17-4
Exhibit 17-4
  
-The supply curve in Exhibit 17-4 represents the amount of

Accepted Answer

A)  pollution individuals and firms want to dump into the river 
B)  the river that can still serve as a resource 
C)  pollution the river can accept 
D)  pollution the owner or manager of the resource is willing to clean up 
E)  the pollution-causing good supplied by the industry 
A)  pollution individuals and firms want to dump into the river 
B)  the river that can still serve as a resource 
C)  pollution the river can accept 
D)  pollution the owner or manager of the resource is willing to clean up 
E)  the pollution-causing good supplied by the industry

Question 14

According to the Coase theorem, if bargaining costs are small, then 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 rights 
B)  if the victim of toxic waste is assigned the property rights 
C)  regardless of which party is assigned the property rights 
D)  if the property rights are shared equally between the creator and the victim of toxic waste 
E)  in the form of a pollution tax 
A)  if the creator of the toxic waste is assigned the property rights 
B)  if the victim of toxic waste is assigned the property rights 
C)  regardless of which party is assigned the property rights 
D)  if the property rights are shared equally between the creator and the victim of toxic waste 
E)  in the form of a pollution tax

Question 15

If tuna in the sea are open-access resources, they will be used until the marginal value of additional use equals

Accepted Answer

A)  the marginal product of the resource 
B)  the marginal revenue of the resource 
C)  infinity 
D)  negative infinity 
E)  zero 
A)  the marginal product of the resource 
B)  the marginal revenue of the resource 
C)  infinity 
D)  negative infinity 
E)  zero

Question 16

How much of U.S. garbage is disposed of in landfills?

Accepted Answer

A)  25 percent 
B)  40 percent 
C)  60 percent 
D)  70 percent 
E)  100 percent 
A)  25 percent 
B)  40 percent 
C)  60 percent 
D)  70 percent 
E)  100 percent

Question 17

Mountain bikers and rollerbladers share the only trail in a city park. The city allows everyone into the park and onto the trail. The mountain bikers say the rollerbladers are a hazard to them; the rollerbladers say it's the other way around. Frequently there are collisions, and many injuries occur. What is the property rights problem?

Accepted Answer

A)  Rollerbladers do not have mountain bikes. 
B)  Bikers do not have rollerblades. 
C)  No one owns both bikes and blades. 
D)  No one has property rights to the use of the trail. 
E)  No one owns the park. 
A)  Rollerbladers do not have mountain bikes. 
B)  Bikers do not have rollerblades. 
C)  No one owns both bikes and blades. 
D)  No one has property rights to the use of the trail. 
E)  No one owns the park.

Question 18

NARRBEGIN: Exhibit 17-4
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 19

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 20

The optimal level of pollution occurs where the marginal social benefit is equal to

Accepted Answer

A)  marginal private cost, which equals marginal social cost plus marginal external cost 
B)  marginal social cost, which equals marginal private cost plus marginal external cost 
C)  marginal external cost, which equals marginal private cost plus marginal social cost 
D)  marginal private cost, which equals marginal social cost plus marginal internal cost 
E)  marginal social cost, which equals marginal private cost plus marginal internal cost 
A)  marginal private cost, which equals marginal social cost plus marginal external cost 
B)  marginal social cost, which equals marginal private cost plus marginal external cost 
C)  marginal external cost, which equals marginal private cost plus marginal social cost 
D)  marginal private cost, which equals marginal social cost plus marginal internal cost 
E)  marginal social cost, which equals marginal private cost plus marginal internal cost

Exam 17: Externalities and the Environment

According to the Coase theorem, in order to solve a negative externality problem efficiently,

Pollution arises because

An externality is

Smokers and loud talkers who ignore the external effects of their actions are being rational in the economic sense.

Society's total cost of producing a good

According to the Coase theorem, externality problems may be solved if the parties involved can negotiate. Which of the following is also needed?

Which of the following creates a positive externality?

NARRBEGIN: Exhibit 17-2 Exhibit 17-2 -In Exhibit 17-2, the market equilibrium price and output (determined exclusively by private decisions) are

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

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

NARRBEGIN: Exhibit 17-4 Exhibit 17-4 -The supply curve in Exhibit 17-4 represents the amount of

According to the Coase theorem, if bargaining costs are small, then there will be an efficient solution to the problem of toxic waste

If tuna in the sea are open-access resources, they will be used until the marginal value of additional use equals

How much of U.S. garbage is disposed of in landfills?

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

The socially efficient level of output is determined where

The optimal level of pollution occurs where the marginal social benefit is equal to

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

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