Question 1

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow.  Figure 16.2
-Refer to Figure 16.2. The efficient amount of cars is

Accepted Answer

A)  25. 
B)  35. 
C)  zero because any production results in an external cost. 
D)  indeterminate from the information given.

Question 2

When a perfectly competitive firm weighs price and marginal cost and no externalities exist, it is weighing the ________ benefits to society of additional production against the ________ costs to society of that production.

Accepted Answer

A)  full; full 
B)  marginal; marginal 
C)  marginal; full 
D)  full; marginal

Question 3

Externalities always involve the imposition of costs on parties outside an activity or transaction.

Accepted Answer

A) True 
 B)False

Question 4

Refer to the information provided in Figure 16.3 below to answer the question(s) that follow.  Figure 16.3
-Refer to Figure 16.3. At 15 units of output there are external ________ per unit.

Accepted Answer

A)  costs of $0 
B)  benefits of $2 
C)  costs of $6 
D)  benefits of $8

Question 5

Refer to the information in Figure 16.5 below to answer the question(s) that follow.  Figure 16.5
Figure 16.5 shows the marginal benefits of emitting pollution for the only two chemical companies in an industry, Alpha Chemicals and Beta Chemicals. Before any tax on pollution emissions is imposed, each company views pollution as being free.
-Refer to Figure 16.5. The government decides to impose a tax on pollution emissions to cut total emissions in this industry in half, and based on this decision it has set the tax at $100 per ton of emissions. Following the implementation of this tax, the total amount of pollution emitted in this industry will be ________ tons.

Accepted Answer

A)  25 
B)  50 
C)  75 
D)  100

Question 6

Refer to the information provided in Figure 16.4 below to answer the question(s) that follow.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they have a right to use the airspace while the individuals living in Playa Del Rey feel they have the right to quiet. The following diagram depicts the marginal costs and marginal benefits associated with air travel.  Figure 16.4
-Refer to Figure 16.4. Suppose the government assigns property rights to the residents of Playa Del Rey. No negotiations occur between the parties. The resulting level of air travel is

Accepted Answer

A)  0 units. 
B)  100 units. 
C)  120 units. 
D)  indeterminate from the given information.

Question 7

The field of ________ is concerned with externalities.

Accepted Answer

A)  environmental economics 
B)  macroeconomics 
C)  game theory 
D)  econometric modeling

Question 8

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow.  Figure 16.2
-Refer to Figure 16.2. The unregulated (market) amount of cars is

Accepted Answer

A)  25. 
B)  35. 
C)  zero because any production results in an external cost. 
D)  indeterminate from the information given.

Question 9

________ arises when people realize they will still receive the benefits of a good whether they pay for it or not.

Accepted Answer

A)  The voting paradox 
B)  The free-rider problem 
C)  Logrolling 
D)  The drop-in-the-bucket problem

Question 10

If firms have to account for external costs of production, then marginal social cost

Accepted Answer

A)  equals marginal cost. 
B)  is less than marginal cost. 
C)  is greater than marginal cost. 
D)  is zero.

Question 11

Liability rules are laws that require party A to compensate party B for damages imposed.

Accepted Answer

A) True 
 B)False

Question 12

Relating to the Economics in Practice on page 340: Europe has a carbon tax, and electricity producers are among the largest of the carbon producing firms. The carbon tax increased the price of electricity, and researchers found that the amount of the tax that was actually passed through to consumers reflected a ________ aggregate demand for electricity.

Accepted Answer

A)  perfectly inelastic 
B)  very inelastic 
C)  slightly elastic 
D)  unit elastic

Question 13

If the government wishes to encourage firms to internalize externalities, they should ________ activities resulting in negative externalities and ________ activities resulting in positive externalities

Accepted Answer

A)  tax; subsidize 
B)  subsidize; tax 
C)  ban; generate 
D)  place an injunction against; tax

Question 14

There are 500 families in a neighborhood that are affected by air pollution from a local factory. The pollution is within legal limits, but could be reduced further if the company spent $10,000 on upgraded ventilators. The company agrees to install the ventilators if the affected families contribute the $10,000. A committee starts to collect donations to pay for the ventilators. Which of the following is most likely to occur?

Accepted Answer

A)  Because there are relatively few families involved and the individual contribution is so small, all families will voluntarily contribute. 
B)  Because each individual contribution is so small and individuals will benefit from the reduction in air pollution whether they contribute or not, most people will not contribute and the firm will not upgrade the ventilators. 
C)  Even if the families raise $10,000, the firm will not reduce its air pollution since it is within legal limits. 
D)  The courts will force the firm to spend the $10,000 regardless of whether or not the families contribute the money.

Question 15

According to ________, an efficient mix of public goods is produced when local land/housing prices and taxes reflect consumer preferences.

Accepted Answer

A)  Samuelson's theory 
B)  the Tiebout hypothesis 
C)  the Theory of Public Choice 
D)  the Coase theorem

Exam 16: Externalities, Public Goods, and Common Resources

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow. Figure 16.2 -Refer to Figure 16.2. The efficient amount of cars is

When a perfectly competitive firm weighs price and marginal cost and no externalities exist, it is weighing the benefits to society of additional production against the costs to society of that production.

Externalities always involve the imposition of costs on parties outside an activity or transaction.

Refer to the information provided in Figure 16.3 below to answer the question(s) that follow. Figure 16.3 -Refer to Figure 16.3. At 15 units of output there are external ________ per unit.

The field of ________ is concerned with externalities.

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow. Figure 16.2 -Refer to Figure 16.2. The unregulated (market) amount of cars is

________ arises when people realize they will still receive the benefits of a good whether they pay for it or not.

If firms have to account for external costs of production, then marginal social cost

Liability rules are laws that require party A to compensate party B for damages imposed.

If the government wishes to encourage firms to internalize externalities, they should activities resulting in negative externalities and activities resulting in positive externalities

According to ________, an efficient mix of public goods is produced when local land/housing prices and taxes reflect consumer preferences.