Question 1

A carbon tax which is designed to reduce pollution is an example of a

Accepted Answer

A)  command-and-control policy. 
B)  government administrative rule. 
C)  noneffective incentive. 
D)  market-based policy.

Question 2

Figure 5-6  Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 5-6. What is the market equilibrium output level?

Accepted Answer

A)  Q1 
B)  Q2 
C)  Q1 + Q2 
D)  Q2 - Q1

Question 3

Explain how the decision by parents to not immunize their children, hoping that their children will not get sick because other parents have had their children immunized, is an example of free riding. How is this behavior dangerous to the public?

Accepted Answer

The answer of Explain how the decision by parents to...

Question 4

Which of the following displays these two characteristics: nonrivalry and excludability?

Accepted Answer

A)  a public good 
B)  a private good 
C)  a quasi-public goods 
D)  a common resource

Question 5

Article Summary
According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities.
Source: Meg Handley, "Study: Proximity to Public Transit Boosts Home Values," U.S. News & World Report, March 22, 2013.
-When there is a positive externality in a free market, too much of the good is produced and consumed.

Accepted Answer

A) True 
 B)False

Question 6

Figure 5-16  Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 5-16. Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other. Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Accepted Answer

A)  The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. 
B)  Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. 
C)  The optimal quantity will be installed only if the two parties split the cost of installation equally. 
D)  The optimal quantity will be installed only if Bree pays for the entire installation cost.

Question 7

Which of the following is an example of a common resource?

Accepted Answer

A)  catfish in a private pond in Mississippi 
B)  impounded dogs in a dog pound 
C)  public health care services in the United States 
D)  sea otters in the coastal waters of the Pacific Ocean

Question 8

Figure 5-13  Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13. The amount of the gasoline tax is ________ per gallon.

Accepted Answer

A)  $0.75 
B)  $1.25 
C)  $1.75 
D)  $2.00

Question 9

Figure 5-2  Figure 5-2 shows a market with a negative externality.
-A market demand curve reflects the

Accepted Answer

A)  private benefits of consuming a product. 
B)  external benefits of consuming a product. 
C)  social benefits of consuming a product. 
D)  the sum of private and social benefits of consuming a product.

Question 10

Which of the following exemplifies the tragedy of the commons?

Accepted Answer

A)  Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. 
B)  The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. 
C)  Canadian citizens receive free universal health care administered by provincial governments. 
D)  The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

Question 11

Which of the following could be evidence of a market failure?

Accepted Answer

A)  Resources in an economy are not fully utilized. 
B)  The market price of a product is above the average cost of production. 
C)  There are only a handful of firms competing against each other in an industry. 
D)  Market prices do not reflect true production costs.

Question 12

Article Summary
According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities.
Source: Meg Handley, "Study: Proximity to Public Transit Boosts Home Values," U.S. News & World Report, March 22, 2013.
-The social cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following activities create a negative externality?

Accepted Answer

A)  cleaning up the sidewalk on your block 
B)  graduating from college 
C)  repainting the house you live in to improve its appearance 
D)  keeping a junked car parked on your front lawn

Question 14

The supply curve of a public goods shows

Accepted Answer

A)  the total quantities that all producers are willing and able to supply at each price. 
B)  the maximum amount suppliers require to produce each quantity of the good. 
C)  the total cost of producing each unit of the good. 
D)  the marginal cost of producing each unit of the good.

Question 15

According to Steven Cheung: "Pollination contracts usually include stipulations regarding the number and strength of ...[bee] colonies, the rental fee per hive, the time of delivery...the protection of bees from pesticides, and the strategic placing of hives." Cheung cites this as evidence that

Accepted Answer

A)  the high costs of writing and enforcing complicated written agreements between owners of beehives and apple orchards prevents economic efficiency from being achieved in these markets. 
B)  government intervention is not always necessary to bring about an economically efficient number of apple trees and beehives. 
C)  government regulation of contracts between owners of beehives and apple orchards is necessary to bring about an economically efficient number of apple trees and beehives. 
D)  the beekeeping and apple growing businesses have become more complicated and costly over time due to the legal costs involved.

Question 16

If there are no externalities, a competitive market achieves economic efficiency. If there is a negative externality, economic efficiency will not be achieved because

Accepted Answer

A)  too little of the good will be produced. 
B)  too much of the good will be produced. 
C)  a deadweight loss will occur that is equal to the area under the demand curve for the good. 
D)  economic surplus is maximized.

Question 17

The Wilfer Resort Hotel has a spectacular view of a pine forest along a river bank. Suppose a commercial logger has purchased the pine forest and is planning to clear-cut the forest in a way that has a negative impact on the resort. Can the two parties arrive at a Coasian solution and if so, what is it?

Accepted Answer

The answer of The Wilfer Resort Hotel has a spectacular...

Question 18

In economics, the optimal level of pollution is

Accepted Answer

A)  zero. 
B)  the level for which the total benefit from reducing the pollution is the greatest. 
C)  the level for which the marginal benefit from reducing the pollution is the greatest. 
D)  the level for which the net benefit from reducing the pollution is the greatest.

Question 19

All of the following are examples of public goods except

Accepted Answer

A)  broadcast television with commercials. 
B)  clean water systems. 
C)  stock of knowledge in the public domain. 
D)  crime prevention.

Question 20

Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as

Accepted Answer

A)  excludability. 
B)  public rivalry. 
C)  free riding. 
D)  internalizing an external cost.

Exam 5: Externalities, Environmental Policy, and Public Goods