Question 1

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 private cost. 
D) average private cost equals average social benefit. 
E) total social cost equals total social benefit.

Question 2

Most of the Superfund expenditures have been used for court costs and legal fees.

Accepted Answer

A) True 
 B)False

Question 3

A metal-stamping factory moves next to a day care center.Noise from the factory makes it impossible for the kids to nap.It would cost the factory $5 million to move,and it would cost the day care center $1 million to move.Sound insulation for the factory costs $1 million,while insulation for the day care center costs $200,000.The court initially determines that the day care center has the property right.But,on appeal,the factory is awarded the property right.Which of the following is likely to be true according to the Coase theorem?

Accepted Answer

A) The day care center would buy the insulation, a result consistent with the Coase theorem. 
B) The factory would buy the insulation, a result consistent with the Coase theorem. 
C) The factory would buy the insulation for the day care center, a result consistent with the Coase theorem. 
D) The day care center would buy the insulation for the factory, a result inconsistent with the Coase theorem. 
E) The day care center would move instead of buying insulation, a result consistent with the Coase theorem.

Question 4

Exhibit 17.5
 
-Refer to Exhibit 17.5,which shows greenhouse gas emissions for a given rate of electricity production.The marginal social benefit is found at _____

Accepted Answer

A)  point c. 
B)  point a. 
C)  point b. 
D)  A 
E)  A'

Question 5

LoJack is a device used to track and recover a stolen vehicle.Because the device is completely undetectable by a potential thief,the more LoJacks installed,the more nervous thieves get and the fewer vehicles stolen in general.Thus,car owners _____ LoJack get a positive externality when other car owners _____ the device.

Accepted Answer

A) without; install 
B) without; remove 
C) with; install 
D) with; remove 
E) with; do not use

Question 6

Exhibit 17.1
 
-Refer to Exhibit 17.1 which shows a market for electricity.If producers base their output decisions on marginal social cost,the optimal output is _____

Accepted Answer

A) 0 kilowatt-hours. 
B) 50 million kilowatt-hours. 
C) 75 million kilowatt-hours. 
D) between 0 and 50 million kilowatt-hours. 
E) between 50 and 75 million kilowatt-hours.

Question 7

What can cause externalities?

Accepted Answer

A) a cost of a transaction that is borne by the government 
B) a benefit of a transaction that is enjoyed by firms 
C) lack of property rights to some resources 
D) a cost or benefit that arises when market price changes 
E) the revenue generated by a firm

Question 8

Society's total cost of producing a good _____

Accepted Answer

A) includes only the private cost to a firm. 
B) includes only the external cost. 
C) includes all private and external costs. 
D) includes the sunk cost and the total variable cost of a firm. 
E) includes only the average variable cost of production.

Question 9

According to the Coase theorem,if the appropriate property right is assigned to __________,an efficient solution to an externality problem will be achieved.

Accepted Answer

A) the party that has a higher marginal social cost 
B) the party that has a lower marginal social cost 
C) the party that has a higher marginal private benefit 
D) the party that has a lower marginal private benefit 
E) either one of the parties involved

Question 10

An individual who listens to loud music late in the night is creating _____

Accepted Answer

A) a positive externality. 
B) a common-pool problem. 
C) a negative externality. 
D) a free-rider problem. 
E) asymmetric information.

Question 11

Exhibit 17.7
 
-Refer to Exhibit 17.7,which shows the optimal allocation of pollution rights to firms polluting a river.If the government sells the right to pollute the river,_____

Accepted Answer

A) firms will emit Q1 units of the pollutant at a price of P0 each. 
B) firms will emit Q2 units of the pollutant at a price of P0 each. 
C) firms will emit Q0 units of the pollutant at a price of P3 each. 
D) firms will emit Q1 units of the pollutant at a price of P1 each. 
E) firms will emit Q2 units of the pollutant at a price of P3 each.

Question 12

If the quantity of smallpox vaccinations is determined by the market forces of demand and supply,which of the following is most likely to be true?

Accepted Answer

A) The equilibrium quantity will be too low for efficiency. 
B) The equilibrium price and quantity will be too high for efficiency. 
C) The equilibrium price will be too low for efficiency. 
D) The equilibrium quantity will be too high for efficiency. 
E) The equilibrium price and quantity will be efficient.

Question 13

Education confers positive externalities because _____

Accepted Answer

A) some education is done outside the market. 
B) curricula are regulated by the government, even in private schools. 
C) an educated person consuming education gains many personal benefits. 
D) an educated person behaves in a way that benefits others. 
E) education gives benefits to individuals in excess of the costs they pay to get it.

Question 14

If the consumption of education creates a positive externality,then to increase efficiency relative to the outcome determined by private decisions,_____

Accepted Answer

A) more public education should be produced. 
B) the same amount of education must be produced and the price should be lower. 
C) less education must be produced and the price should be higher. 
D) less education must be produced and the price should be lower. 
E) less education must be produced at the same price.

Question 15

Which of the following is a positive externality?

Accepted Answer

A) inoculations against a disease that reduce the likelihood of transmitting it to others 
B) phosphates from laundry detergents 
C) litter from fast food containers 
D) ozone depletion due to the production of fast food containers 
E) the greenhouse effect

Question 16

The Coase solution to the problem of externalities _____

Accepted Answer

A) applies in every situation where externalities are present. 
B) only applies to activities that generate positive externalities. 
C) only works under perfect competition. 
D) only works when bargaining costs are low. 
E) applies when the number of parties involved in the transaction is large.

Question 17

Exhibit 17.3
 
-Refer to Exhibit 17.3,which shows market equilibrium in the presence of an externality.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) less than $6 and more than 50 units, respectively.

Question 18

Which of the following responses to a positive externality enhances society's welfare?

Accepted Answer

A) taxes 
B) subsidies 
C) effluent fees 
D) quotas 
E) a cut in funding

Question 19

Exhibit 17.1
 
-Refer to Exhibit 17.1,which shows a market for electricity.The total social gain from basing production on marginal social cost is reflected by _____

Accepted Answer

A) triangle area abc. 
B) rectangle area abcd. 
C) 50 million kilowatt-hours. 
D) 75 million kilowatt-hours. 
E) demand curve D.

Question 20

Federal efforts to address the common-pool problems of air,water,and ground pollution are coordinated by the _____

Accepted Answer

A) Environmental Protection Agency (EP
A) . 
B) Council on Environmental Quality. 
C) National Oceanic and Atmospheric Administration. 
D) National Park Service. 
E) Fish and Wildlife Service.

Exam 17: Externalities and the Environment