Deck 17: Externalities and the Environment

Question 1

Some pollution occurs because property rights to some resources are well defined.

Answer 1

False

Question 2

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

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

Answer 2

B

Question 3

Pollution arises because

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

Answer 3

D

Question 4

Pollution and other negative externalities arise because

A) there are no enforceable property rights to open-access resources
B) legislators cannot agree on what to do about them
C) they are the price consumers are willing to pay for production of goods and services
D) private property rights to pollute are controlled by businesses
E) science cannot decide how to control them

Question 5

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

Question 6

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

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 7

A person can cause a negative externality by

A) becoming immunized
B) talking loudly in a restaurant
C) landscaping her lawn
D) paying taxes
E) attending school

Question 8

Fish are

A) always renewable resources
B) renewable resources whenever property rights are well defined
C) renewable resources if they are taken and replaced at rates that provide a steady supply
D) renewable resources only if they are replaced at a rate that exceeds the rate at which they are caught
E) renewable resources whenever property rights are well defined and can be easily enforced

Question 9

All of the following are examples of negative externalities except one. Which is the exception?

A) water pollution
B) your roommate going on a diet
C) second-hand smoke
D) loud conversation in the workplace
E) your neighbor building a bomb shelter on her front lawn

Question 10

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

Question 11

An individual who drives a car without a muffler in an attempt to increase fuel economy is creating

A) a positive externality
B) a public good
C) a negative externality
D) a winner's curse
E) vertical inequity

Question 12

Which of the following can be a renewable resource?

A) oil
B) timber
C) coal
D) iron ore
E) uranium

Question 13

Property rights can be defined and enforced

A) only by the government
B) only by ethical norms
C) by the government and by ethical norms
D) only through constant renegotiation
E) by government, by informal social actions, and by ethical norms

Question 14

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

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

Question 15

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

Question 16

Oil is an example of a renewable resource.

Question 17

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)

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

Question 18

An externality is

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 19

Renewable resources are those for which

A) additional units can be purchased in the market
B) additional units can be purchased in the market or provided by government
C) worn-out units can be repaired for further use
D) periodic use can be continued indefinitely
E) additional sources are constantly being discovered

Question 20

All of the following are sources of negative externalities except one. Which is the exception?

A) a paper mill that pollutes a river
B) a person who throws a beer can out the window of a moving car
C) cars, which emit carbon monoxide
D) a solar water heater which is outside and obscure from view
E) products that contribute to the greenhouse effect

Question 21

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

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

Question 22

NARRBEGIN: Exhibit 17-1
Exhibit 17-1

If technology is fixed, the discrepancy between the private equilibrium and the efficient level of output in Exhibit 17-1 is best eliminated by

A) subsidizing the production of the good by $10 per unit
B) taxing the firm producing the good by $10 per unit
C) using a quota system to encourage production of at least 160 units of the good
D) using a quota system to restrict production of the good to no more than 160 units
E) letting the private market operate freely to determine output at equilibrium

Question 23

NARRBEGIN: Exhibit 17-1
Exhibit 17-1

In Exhibit 17-1, the equilibrium level of output determined by private decisions is

A) 0 units
B) 100 units
C) between 100 and 160 units
D) 160 units
E) the answer cannot be determined from the information given

Question 24

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

A) $60
B) $30
C) $6
D) $480
E) $300

Question 25

The common pool problem

A) occurs whenever goods are not rivals in consumption
B) is an example of adverse selection
C) arises whenever property rights are well defined
D) is usually caused by government intervention into private markets
E) is one in which resources to which access is unrestricted will tend to be overused

Question 26

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

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 27

NARRBEGIN: Exhibit 17-1
Exhibit 17-1

In Exhibit 17-1, the amount by which the total social cost of producing the private equilibrium level of output exceeds the total social benefit is

A) $300
B) $50
C) $5,000
D) $1,600
E) $8,000

Question 28

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

Question 29

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

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 30

Suppose that the city builds a new park that is advertised as being "open to the public," and within two months the grass in the park is ruined by overuse. This would be an example of

A) a nonrenewable resource
B) a private good
C) the common pool problem
D) a positive externality
E) a renewable and excludable resource

Question 31

The equilibrium price and quantity in a free market usually reflect private marginal costs and benefits, not social ones.

Question 32

Which of the following is an example of an open-access resource?

A) a city subway system
B) a college education
C) an elementary school education
D) whales in the ocean
E) pandas in the zoo

Question 33

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

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

Question 34

NARRBEGIN: Exhibit 17-2
Exhibit 17-2

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

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 35

NARRBEGIN: Exhibit 17-2
Exhibit 17-2

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

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 36

When a resource is an open-access resource,

A) each individual in the society owns it
B) the group owns it
C) no one owns it
D) the government owns it
E) some nonprofit agency owns it

Question 37

Open-access resources tend to be

A) conserved
B) taxed
C) overused
D) efficiently used
E) used in an environmentally sound manner

Question 38

NARRBEGIN: Exhibit 17-1
Exhibit 17-1

In Exhibit 17-1, the socially efficient level of output is

A) 0 units
B) 100 units
C) between 100 and 160 units
D) 160 units
E) the answer cannot be determined from the information given

Question 39

Government restrictions on the use of an open-access resource

A) may improve efficiency
B) will decrease efficiency
C) are unnecessary
D) contribute to pollution of the resource
E) contribute to depletion of the resource

Question 40

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

Question 41

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

Question 42

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

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 43

Economists view pollution as an economic problem that arises because

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 44

If firms pollute when they produce,

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

Question 45

In order to increase society's total welfarer, a production process that produces a negative externality should be

A) taxed
B) provided by the government
C) ignored
D) subsidized
E) exported

Question 46

If in market equilibrium the marginal social cost of producing a good exceeds the marginal private cost,

A) not enough of the product is being produced
B) the price charged for the good is too high
C) the good produces a positive externality
D) the good produces a negative externality
E) the government should produce the good

Question 47

In a free market, a firm's rate of output is determined

A) where marginal social cost equals marginal social benefit
B) where marginal private benefit equals marginal social benefit
C) where marginal social cost equals marginal private cost
D) where marginal private cost equals marginal private benefit
E) by government

Question 48

A removal or depletion tax on an open-access resource increases the marginal private cost of using the resource by

A) zero
B) the amount of the tax
C) the marginal product of the resource
D) the average private cost of using the resource
E) the average social cost of using the resource

Question 49

The socially optimal amount of pollution abatement may be less than 100 percent.

Question 50

Marginal external costs are

A) additional unpriced costs imposed on society by producing one more unit of a good
B) the cost of damaged goods
C) the additional cost of imported goods
D) the total cost to society of producing a good
E) the marginal cost divided by the marginal revenue

Question 51

Firms that emit toxins into the air tend to

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 52

If the marginal social cost of producing a product exceeds the marginal social benefit, producers will produce less of it.

Question 53

The socially optimal level of output of a good with an externality occurs when

A) the marginal private costs of production are equal to marginal private revenues
B) the firm maximizes its profits
C) the consumer maximizes his or her utility
D) the marginal social cost of production equals the marginal social benefit of the good
E) the firm is making a normal profit

Question 54

When competitive market equilibrium determines a level of output for which the marginal social cost exceeds the marginal social benefit, the private equilibrium results in

A) a positive externality
B) a Coase equilibrium
C) underproduction of the product
D) a market failure
E) external benefits

Question 55

Marginal social cost is equal to

A) total private cost
B) marginal private cost
C) marginal external cost
D) marginal private cost plus marginal external cost
E) marginal private cost divided by marginal external cost

Question 56

The socially efficient level of output is determined where

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 57

If the marginal social benefit of consuming a product exceeds the marginal social cost of producing it, social welfare is

A) increased by reducing output
B) decreased by expanding output
C) unchanged by expanding or reducing output
D) increased by expanding output
E) maximized

Question 58

When the free market produces less than the socially optimal quantity of a good,

A) negative externalities must be present
B) marginal social cost must exceed marginal private cost
C) marginal private benefit must exceed marginal social benefit
D) the government should tax production of the good
E) there has been a market failure

Question 59

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

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

Question 60

Society's total cost of producing a good

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 61

If production is characterized by variable technology, the optimal level of air quality occurs where

A) the marginal private cost of air quality equals the marginal social benefit
B) the marginal social cost of air quality equals the marginal social benefit
C) the marginal social cost of air quality equals the marginal private cost of air quality
D) government regulators set it
E) all costs are absorbed by the polluter

Question 62

As more pollution is abated, the total social benefit from pollution abatement increases.

Question 63

The optimal level of air quality

A) is 100 percent, which creates a pollution-free environment
B) is smaller the lower the marginal social cost of air quality
C) is greater the lower the marginal social benefit of air quality
D) is greater the lower the marginal social cost of air quality
E) is smaller the greater the marginal social benefit of air quality

Question 64

The marginal social cost of air quality increases as air quality increases. If the dirtiest production process would create 700 tons of pollutants, then

A) eliminating the first 20 tons of pollution is cheaper than eliminating the last 20 tons
B) eliminating the last 20 tons of pollution is cheaper than eliminating the first 20 tons
C) more damage will be done by the first 20 tons of pollution than by the last 20 tons
D) more damage will be done by the last 20 tons of pollution than by the first 20 tons
E) the optimal level of air quality is to reduce pollution by 700 tons

Question 65

NARRBEGIN: Exhibit 17-3
Exhibit 17-3

In Exhibit 17-3, the optimal air quality level is

A) 0
B) 40
C) 50
D) 70
E) 100

Question 66

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

Question 67

The marginal social benefit of air quality

A) declines as air quality increases
B) rises as air quality increases
C) remains constant as air quality increases
D) first falls then rises as air quality increases
E) is always negative

Question 68

The optimal level of water and air quality

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 69

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

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

Question 70

The optimal level of air quality

A) is always zero
B) occurs when the marginal social cost of air quality exceeds the marginal social benefit
C) is greater if the marginal social benefit curve of air quality shifts rightward
D) occurs when positive externalities are eliminated
E) eliminates the common pool problem

Question 71

The marginal social benefit curve for water quality slopes downward because

A) the total benefit from clean water decreases as water becomes cleaner
B) the added benefit from cleaner water is greater when water quality is poor than when water quality is high
C) the added benefit from cleaner water is smaller when water quality is poor than when water quality is high
D) the total benefit from clean water increases as water becomes cleaner
E) people demand clean water at any price

Question 72

Environmental problems result when social costs and benefits are different from private costs and benefits.

Question 73

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

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 74

The optimal level of pollution is

A) zero
B) the level at which the marginal social cost of air quality equals the marginal social benefit
C) the level at which the average social cost of air quality equals the average social benefit
D) the level at which the total social cost of air quality equals the total social benefit
E) the level at which the marginal social cost of air quality is minimized

Question 75

When using the economic efficiency approach to controlling air and water pollution, the government

A) forces each firm to produce emissions in the most cost efficient manner irrespective of its cost structure
B) offers each firm the flexibility to reduce emissions in the most cost effective manner, given its unique cost structure
C) offers each firm the option of choosing between the cost minimizing emission level and the profit maximizing emission level
D) provides each firm with some fixed rules and then requires them to maximize profits given these fixed rules
E) offers each firm the option of using marginal cost pricing and average cost pricing when determining the optimum emissions levels

Question 76

The optimal level of air quality will increase if

A) the cost of polluting increases
B) pollution is found to be self-absorbing
C) a new process allows pollution to be removed more cheaply
D) the marginal social cost of air quality increases
E) the marginal social benefit of air quality decreases

Question 77

To achieve the socially optimal level of pollution, the biggest polluters should be targetted for the greates reduction in pollution.

Question 78

NARRBEGIN: Exhibit 17-3
Exhibit 17-3

In Exhibit 17-3, the optimal air quality level is where the MSB=MSC.

Question 79

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

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 does not recognize unique circumstances
E) set a maximum requirement and they allows the individual firm the latitude of choosing the most efficient method

Question 80

If a government regulation states that fluorocarbon emissions should be abated by 75 percent but the optimal level of pollution abatement is 85 percent, which of the following must be true?

A) The free market will not reduce pollution by less than 85 percent.
B) The free market will accomplish 85 percent abatement, but it will be inefficient.
C) If only 75 percent of the pollution is abated, the society will be better off than if 85 percent had been abated.
D) If only 75 percent of the pollution is abated, the society will be worse off than if 85 percent had been abated.
E) If 75 percent of the pollution is abated, then in the next period the government should set the abatement level at 95 percent.