Deck 18: Environmental Economics

Question 1

When the costs of an action are not fully borne by the two parties engaged in a transaction,this is called a(n)

A)externality.
B)equilibrium.
C)property right.
D)internal cost.

Answer 1

externality.

Question 2

If social cost exceeds private cost,there is

A)underproduction of a good.
B)a negative externality.
C)a positive externality.
D)too little economic profit in the activity.

Answer 2

a negative externality.

Question 3

An externality that is not fully paid by the individual using an automobile is

A)insurance for the vehicle.
B)gasoline for the vehicle.
C)air pollution from the vehicle.
D)operation of the vehicle.

Answer 3

air pollution from the vehicle.

Question 4

There is "too much" steel production if the

A)social costs of steel production are significantly lower than the private costs.
B)social benefits of steel production are declining.
C)social costs of steel production are significantly higher than the private costs.
D)social costs of steel production are declining.

Question 5

The total social cost of production is equal to

A)external cost minus internal cost.
B)internal cost minus external cost.
C)external cost plus internal cost.
D)internal cost plus opportunity cost.

Question 6

To find the social cost of an action,add together

A)the external and accounting costs.
B)the private costs and the internal costs.
C)the external costs and the internal costs.
D)the internal costs and the private opportunity costs.

Question 7

When social and private costs differ,economists state that

A)there will be economic profit in the society.
B)the society will produce inside the production possibilities frontier.
C)there is an externality.
D)there is not an efficiency problem but an equity problem.

Question 8

Pollution created by auto exhaust fumes is an example of a situation in which

A)social costs are greater than private costs.
B)social costs are less than private costs.
C)social costs are equal to private costs.
D)social costs are approaching the shutdown point.

Question 9

Private costs are the same as

A)implicit costs.
B)external costs.
C)public costs.
D)internal costs.

Question 10

Social costs are

A)private costs plus any external costs.
B)the costs of the externality only.
C)costs incurred when common property is used.
D)the costs associated with reaching and enforcing agreements.

Question 11

Where pollution is concerned,if an automobile driver considers only the internal costs of his actions,he is apt to

A)use resources very carefully and in small quantities.
B)garage his car and drive very seldom.
C)be making a positive contribution to the greater community.
D)drive too much and use up more scarce resources than he would if he had to cover all his costs.

Question 12

Society must pay the full opportunity cost of any activity

A)that uses scarce resources.
B)that causes costs to rise.
C)that increases revenues.
D)none of the above.

Question 13

Costs that are borne solely by the individuals who incur them are called

A)private costs.
B)public costs.
C)social costs.
D)external costs.

Question 14

An individual who pays for personal auto repair has incurred a

A)social cost.
B)private cost.
C)negative externality.
D)positive externality.

Question 15

Social costs are

A)costs borne by society whenever a resource-using action takes place.
B)costs incurred by government and borne by all taxpayers.
C)costs incurred in governmental welfare programs.
D)external costs minus internal costs.

Question 16

Internal costs are

A)costs borne solely by the individuals who incur them.
B)costs borne by people in the same society as those who incur them.
C)costs borne by people working in the firm that incurs them.
D)all costs incurred in the marketplace.

Question 17

Which of the following statements best defines private costs?

A)They are internal in the sense that the firm or household must explicitly take them into account.
B)They are costs borne by people other than those who commit the action.
C)They are synonymous with social costs.
D)They represent explicit costs incurred by business firms in the private sector.

Question 18

All of the following are private costs of operating an automobile EXCEPT

A)gasoline for the car.
B)depreciation of the vehicle.
C)car insurance.
D)harm to the environment from emissions.

Question 19

A social cost that is not fully paid by the individual using an automobile is

A)traffic congestion.
B)gasoline and oil.
C)insurance.
D)depreciation of the vehicle.

Question 20

When the social costs exceed the private costs,economists state that there is

A)a positive externality.
B)an underproduction of output.
C)a negative externality.
D)social appreciation of resources.

Question 21

Externalities exist because

A)private costs differ from social costs.
B)private costs are equal to social costs.
C)government has created them.
D)they are a function of socialism.

Question 22

If a person does not pay all costs associated with a particular resource-using activity,then

A)the external costs of the activity are greater than the private costs of the activity.
B)the social costs of the activity are greater than the private costs of the activity.
C)the external costs of the activity are greater than the internal costs of the activity.
D)the full costs of the activity are the sum of private costs plus internal costs.

Question 23

When a person does not have to pay the full costs for using a scarce resource,then

A)the use of the resource is not affected since society pays for the resource.
B)more of the resource will be used.
C)the internal costs of using the resource are too high.
D)the social costs of the resource are less than they would be if the "correct" amount of the resource were being used.

Question 24

Which of the following is an example of an external cost?

A)The cost of labor to a firm
B)The pollution caused by automobile exhaust
C)The cost of tires for your car
D)The opportunity cost of getting a college education

Question 25

If a good is produced by firms that generate external costs,the price consumers pay

A)will be efficient as long as it equals the marginal costs of the firms.
B)will be too low.
C)will be too high because the consumers end up paying the costs instead of the firm.
D)will be the correct price,but the quantity sold of the good will be too large.

Question 26

If crop dusting on your farm causes your neighbors to have sore throats,then crop dusting is creating

A)only explicit costs.
B)opportunity costs.
C)external costs.
D)internal costs.

Question 27

In economic analysis,air pollution,water pollution,and scenery destruction are considered to be

A)externalities.
B)internalities.
C)private costs.
D)marginal benefits.

Question 28

Suppose there are two factories on a river,and both need clean water for their production processes.The upstream factory takes in clean water and dumps dirty water back into the river.The downstream firm must clean up the water it gets from the river before using it.In this situation,

A)the private costs of the downstream factory are more than the private costs of the upstream factory,but for both factories private costs and social costs are the same.
B)the social costs are greater than the private costs for the upstream firm,while the social costs are less than the private costs for the downstream firm.
C)the upstream factory's private costs are less than its social costs,and its external costs are borne by the downstream factory.
D)the internal costs of the upstream factory are externalized by the downstream factory,which then passes them on to its customers.

Question 29

If coal-burning electrical utility companies fully internalized pollution costs,then we could expect

A)an increase in electricity prices.
B)a decrease in electricity prices.
C)no change in electricity prices.
D)a greater use of coal to produce electricity.

Question 30

If firms were forced to take into account the full social costs of production,then

A)output would decrease but pollution levels would probably remain at the same levels.
B)output would be unaffected but pollution levels would come down.
C)output and pollution levels would decrease.
D)output could be increased and pollution levels would decrease.

Question 31

When a person does not have to pay the full costs for using a scarce resource,then there is

A)an underproduction of a good.
B)a negative externality.
C)a positive externality.
D)too little economic profit in the activity.

Question 32

If the external costs of production are not taken into account,then production will

A)be less than socially desirable.
B)be more than socially desirable.
C)be the same since only prices are affected by externalities.
D)cease.

Question 33

The Black Ash Steel Company's plant belches large quantities of noxious fumes and black ash into the air.Residents in the surrounding area have higher medical bills because of Black Ash's pollution.If the firm is forced to pay the social costs of its production,

A)the amount of steel it produces will increase in order to pay the additional costs.
B)the price it charges for its steel will decrease.
C)its supply curve will shift to the right.
D)it will produce less and charge more for its steel.

Question 34

When social costs for using a scarce resource are included,then there is

A)a decrease in the production of the good.
B)a negative externality.
C)a decrease in the price of the good.
D)a positive externality.

Question 35

If a good is produced by firms that incur all private and external costs,the price consumers pay

A)will be efficient since it includes all social costs.
B)will be too low.
C)will be too high because the consumers end up paying all of the costs instead of the firm.
D)will be the correct price,but inefficient.

Question 36

When both internal and external costs for using a scarce resource are included,then there is

A)an increase in the production of the good.
B)a negative externality.
C)an increase in the price of the good.
D)a positive externality.

Question 37

If the market price of a good does NOT include all of the costs and benefits that arise from the production or consumption of the good,then

A)the market is perfectly competitive.
B)an externality is present.
C)society is consuming and producing the optimal amount of the good.
D)resources are properly allocated.

Question 38

If the social costs of refining oil are greater than the private costs of oil refining,then

A)the external costs of oil refining are greater than the social costs of oil refining.
B)users of products that use refined oil are paying too much for the products.
C)there is too much oil refining.
D)the amount of oil refining needs to increase in order to bring social costs and private costs in line with each other.

Question 39

The Black Ash Steel Company's plant belches large quantities of noxious fumes and black ash into the air.Residents in the surrounding area have higher medical bills because of Black Ash's pollution.As long as Black Ash is allowed to emit pollution and ignore any externalities,the firm will

A)overproduce.
B)under produce.
C)charge too high a price for its output.
D)be absorbing the full value of its social costs.

Question 40

The Black Ash Steel Company's plant belches large quantities of noxious fumes and black ash into the air.Residents in the surrounding area have higher medical bills because of Black Ash's pollution.These additional medical costs represent

A)a positive externality.
B)a negative externality.
C)the company's private costs.
D)the neighboring families' external costs.

Question 41

Which of the following statements is true about the relationship among external,internal and social costs?

A)Social costs will always be higher than external costs.
B)Social costs will always be higher than internal costs.
C)Internal costs will always be higher than external costs.
D)Internal costs will never equal external costs.

Question 42

The social costs of an activity are greater than the private costs of the activity when

A)a person does not pay all costs associated with a particular resource-using activity.
B)the internal costs of the resource-using activity are less than the external costs of the activity.
C)the internal costs of the resource-using activity are positive.
D)the external costs of the resource-using activity are zero.

Question 43

John raises bees to pollinate his orchard.A couple of bees which escaped ended up pollinating his neighbor's orchard,so

A)John's neighbor has received an internal cost of John's bee-keeping.
B)John's neighbor has received an external cost of John's bee-keeping.
C)John's neighbor has received an external benefit of John's bee-keeping.
D)None of the above is correct.

Question 44

If the social costs of driving an automobile are greater than the private costs of driving an automobile,then

A)the external costs of auto driving exceed the social costs of auto driving.
B)the external costs of auto driving exceed the internal costs.
C)the price of automobile driving is too high.
D)either people drive their autos too much or more funds should be spent on reducing air pollution.

Question 45

The sum of internal and external costs is

A)private costs.
B)social costs.
C)internality.
D)common property.

Question 46

Refer to the above figure.It represents supply and demand for The Black Ash Steel Company's output.The firm's plant belches large quantities of smelly fumes and black ash into the air.Residents in the surrounding area have higher medical bills as a result.If the firm is forced to pay the full social cost of its production,what will occur?

A)Black Ash's supply curve will shift from SA to SB.
B)Demand for the firm's steel will shift to the left.
C)The company's supply curve will shift from SB to SA.
D)Black Ash will increase its own output to cover the cost increase.

Question 47

Costs borne solely by the individuals who incur them are

A)private costs.
B)social costs.
C)internality.
D)common property.

Question 48

Private costs are

A)external costs borne by private firms.
B)explicit costs rather than implicit costs.
C)costs borne by private members of society rather than governmental bodies.
D)costs borne solely by the individuals who incur them.

Question 49

The total costs of using a resource are made up of

A)private costs only.
B)external costs only.
C)social costs only.
D)internal and private costs only.

Question 50

An example of a situation in which the social costs are greater than the private costs would be

A)a new restaurant takes business away from an established restaurant.
B)hand-held calculators putting slide rule manufacturers out of business.
C)when a member of a rock band's ability to hear deteriorates from performing in so many loud concerts.
D)a physician who cannot examine patients with a stethoscope in an examination room adjacent to an airport.

Question 51

Suppose there are two identical factories on a river.Both require clean water for their production processes.The upstream firm gets clean water from the river and dumps dirty water into the river.The downstream firm must clean the water it gets from the river before it can use the water and later it dumps dirty water into the river.In this situation

A)the private costs of the two firms are the same since both dump dirty water into the river.
B)the upstream factory's private costs are lower than its social costs since it passes the costs of the dirty water on to the downstream firm.For the downstream firms,private costs equal social costs.
C)the private costs of the downstream firm are greater than the private costs of the upstream firm and the social costs are less than the private costs for both firms.
D)the private costs of the upstream firm are less than its social costs while the social costs of the downstream firm are less than its private costs.

Question 52

Social costs are

A)costs that are borne by the government.
B)the full cost borne by society whenever a resource use occurs.
C)borne by individuals who incur them.
D)another term for external costs.

Question 53

Which of the following is not a private cost?

A)The health insurance costs a firm must pay for its employees.
B)The pollution caused by a firm dumping its wastes into the river.
C)The coffee pot that Jan dropped and broke this morning.
D)The amount that a firm must pay for raw materials to make its product.

Question 54

John raises bees to pollinate his apple trees.One of the bees just stung him.This is a(n)

A)private cost.
B)social cost.
C)internality.
D)common property.

Question 55

When social costs of an activity exceed private costs

A)there is a tendency for resources to be under-utilized.
B)this means that resources are being efficiently used.
C)there is a tendency for resources to be over-utilized.
D)None of the above is correct.

Question 56

External costs are

A)borne by individuals other than those who incurred them.
B)another term for implicit costs.
C)borne by the public but incurred by the government.
D)borne by the government but incurred by the public.

Question 57

Which of the following statements is true about the relationship among external,internal and social costs?

A)External cost is the difference between social and internal costs.
B)Internal cost is the sum of social and external costs.
C)Social cost is the difference between internal and external costs.
D)None of the above.

Question 58

When a person drives an automobile,that individual is creating

A)internal costs only.
B)private costs only because the individual pays for the insurance,gas etc.
C)external costs only.
D)social costs.

Question 59

The sum of internal and external costs is

A)externalities.
B)social costs.
C)internalities.
D)private costs.

Question 60

When social costs of an activity exceed private costs

A)a market failure exists.
B)there is a tendency for resources to be under-utilized.
C)this means that resources are being efficiently used.
D)the actual price is above the efficient price.

Question 61

Which of the following statements is true for the U.S.economy?

A)Supply of services always reflects all social costs.
B)Demand for services always reflects all social costs.
C)Private costs are not always equal to social costs.
D)Social benefits are always emphasized in advertising.

Question 62

When there are no externalities,

A)social costs are greater than private costs.
B)social costs are less than private costs.
C)private costs are greater than social costs.
D)private costs equal social costs.

Question 63

To find social costs,

A)internal and private costs have to be added together.
B)internal and external costs have to be added together.
C)internal and implicit costs have to be added together.
D)internal and production costs have to be added together.

Question 64

An example of the external costs due to automobile driving is

A)wear and tear on toll roads.
B)the opportunity cost of the driver's time.
C)air pollution due to exhaust fumes.
D)the cost of washing dirty cars.

Question 65

Costs that are borne solely by the individuals who incur them are

A)private costs.
B)social costs.
C)external costs.
D)transaction costs.

Question 66

When the private costs and the social costs are NOT the same,there is a(n)

A)externality.
B)internality.
C)public good.
D)monopoly.

Question 67

If pollutants from smoke stacks in a city such as Newark causes people to paint their homes and cars more frequently,this implies

A)external benefits to the home and car owners.
B)external costs on home and car owners.
C)internal cost to home and car owners.
D)none of the above

Question 68

Which of the following is FALSE?

A)Social costs do not include private costs.
B)Private costs do not include external costs.
C)If social costs are greater than private costs,"too much" of a good is being produced.
D)Pollution is a social cost.

Question 69

A good that has external costs associated with its production will be

A)produced at the optimal level.
B)underproduced.
C)overproduced.
D)not produced.

Question 70

An externality

A)may be positive or negative.
B)means a rapidly rising cost borne by consumers.
C)is the cost of producing a good outside the United States.
D)is the indirect cost,the overhead,of producing a product.

Question 71

In a situation in which internal costs differ from social costs,we say that there exists a(n)

A)welfare loss.
B)welfare benefit.
C)internality.
D)externality.

Question 72

Suppose there are two firms on a river and the production processes of both require clean water.The upstream firm's process dirties the water,which it dumps back into the river.The downstream firm must clean the water before using it in its production process.If the two firms would merge,

A)the external costs of the merged firm would equal the external costs of the upstream firm,which would then be passed on to its customers.
B)the total costs of production fall since the external costs disappear.
C)the external costs of the upstream firm are private costs after the merger.
D)the internal costs of the downstream firm become external costs of the merged firm.

Question 73

When a person can pass some of her costs of using a resource on to someone else,

A)the use of the resource is not affected by her actions.
B)the internal costs of using the resource exceed the private costs.
C)she uses too much of the resource.
D)she uses too little of the resource.

Question 74

A person removes the anti-pollution devices on his automobile.An external cost associated with this is

A)the feeling of guilt the person feels for violating the law.
B)the ticket he gets when a highway patrol officer pulls him over.
C)the man's neighbor washes his car more often because of increasing smog.
D)the man buys less gasoline,reducing the income of local gas stations.

Question 75

When a person smokes a cigarette in his car and throws the butt out of the window,this is a(n)

A)marginal cost.
B)external cost.
C)average total cost.
D)public cost.

Question 76

By adding internal costs to external costs,we determine the total

A)private cost.
B)social cost.
C)psychological cost.
D)marginal cost.

Question 77

Which of the following constitutes an external cost of driving an automobile?

A)insurance
B)fuel
C)pollution
D)wear and tear

Question 78

When the total external and internal costs of a transaction are taken into consideration,this is known as

A)public costs.
B)average total costs.
C)social costs.
D)marginal costs.

Question 79

Another name for internal cost is

A)private cost.
B)social cost.
C)psychological cost.
D)marginal cost.

Question 80

Air pollution is a problem because

A)people are greedy.
B)people are not environmentally conscious.
C)people make use of air without having to bear all the costs of their actions.
D)a market economy does not provide as strong an incentive for environmental cleanup as a socialist economy.