Question 1

Some policymakers have argue that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. If the government decided to impose a tax on soda, the government will cause

Accepted Answer

A)  consumers to internalize the externality. 
B)  producers to internalize the externality. 
C)  the external cost to drinking soda to become a private cost paid by the government. 
D)  the external cost to drinking soda to become a private cost paid by producers.

Question 2

Figure 5-3 
-Refer to Figure 5-3. At the competitive market equilibrium, for the last unit produced,

Accepted Answer

A)  the size of the external cost is Pm - Po. 
B)  the size of the external benefit is Pm - Po. 
C)  the size of the external cost is Pn - Po. 
D)  the size of the external benefit is Pn - Po.

Question 3

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

Accepted Answer

A)  self-interest motives of producers and consumers 
B)  a lack of concern for human rights 
C)  a lack of competition 
D)  a lack of clearly defined and enforced property rights

Question 4

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms "rivalry" and "excludability" as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

Accepted Answer

The answer of Goods differ on the basis of whether...

Question 5

A positive externality results when

Accepted Answer

A)  economists are sure that a good or service provides benefits to consumers. 
B)  someone pays for a good or service even though she is not directly affected by the production or consumption of it. 
C)  people who live in one country benefit from the production of a good or service that occurs in another country. 
D)  people who are not directly involved in producing or paying for a good or service benefit from it.

Question 6

Medical research that ends in a cure for a serious disease produces positive externalities. What is the impact of this positive externality on economic efficiency?

Accepted Answer

A)  At equilibrium, less than the economically efficient quantity of medical research is produced. 
B)  A deadweight loss occurs because at equilibrium the marginal social cost of medical research is greater than the marginal social benefit. 
C)  At equilibrium, more than the economically efficient quantity of medical research is produced. 
D)  A deadweight loss occurs because at equilibrium the marginal social cost equals the marginal social benefit.

Question 7

Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?

Accepted Answer

A)  rewarding environmental groups for monitoring the activities of private firms that produce products which generate pollution 
B)  imposing quantitative limits on the amount of pollution and imposing a penalty for non-compliance with these limits 
C)  requiring the installation of specific pollution control devices 
D)  instituting a system of tradable emissions allowances

Question 8

Figure 5-9  Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. The private profit-maximizing output level is

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 9

Determine if each of the products below displays any of the following characteristics:
(i) rivalry
(ii) nonrivalry
(iii) excludability
(iv) nonexcludability.
a. a freeway during peak commute hours
b. an online college course
c. infectious disease prevention
d. open source software such as Linux
e. a movie showing at Century Theatres

Accepted Answer

The answer of Determine if each of the products below...

Question 10

What are some of the limitations of the Coase theorem in practice?

Accepted Answer

The answer of What are some of the limitations of...

Question 11

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 market equilibrium quantity of gasoline is ________ million gallons per month.

Accepted Answer

A)  20 
B)  32 
C)  48 
D)  56

Question 12

In economics, the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.

Accepted Answer

A) True 
 B)False

Question 13

Consider the stock of ocean tuna which is massively overfished. It is rational for an individual to exploit the resource rather than to conserve the stock because

Accepted Answer

A)  the private benefit of harvesting tuna is higher than the social benefit of harvesting it. 
B)  the private benefit of harvesting tuna is lower than the social benefit of harvesting it. 
C)  the social cost of harvesting the fish is lower than the private cost. 
D)  the private cost of harvesting the fish is lower than the social cost.

Question 14

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

Accepted Answer

A)  externalize the externality. 
B)  result in a marginal social benefit greater than the marginal cost of the electricity. 
C)  be an example of supply side economic policy. 
D)  internalize the externality.

Question 15

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

Accepted Answer

A) True 
 B)False

Question 16

When there is a negative externality, the private cost of production ________ the social cost of production.

Accepted Answer

A)  is greater than 
B)  is equal to 
C)  eliminates 
D)  is less than

Question 17

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service. The value of the service to each of them is $50 and it costs $80 to hire a housecleaner. Suppose Bella is lazy and a spendthrift and Sefronia suspects that Bella will be willing to pay $80. What is Sefronia likely to do, given that she is as rational as any other person?

Accepted Answer

A)  She will correctly rationalize that Bella's laziness and spendthrift ways are irrelevant to the decision at hand. 
B)  She might claim that she is not willing to pay for a housecleaner, hoping that Bella would pay the entire $80. 
C)  She might offer to do Bella's housecleaning chores if Bella would pay her $50. 
D)  She will come clean and tell Bella that since Bella is lazy and a spendthrift she should pay a bigger share of the $80.

Question 18

For the Coase theorem to work, there must be clear assignment of property rights.

Accepted Answer

A) True 
 B)False

Question 19

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?

Accepted Answer

A)  Coase argued that government intervention is necessary to achieve economic efficiency in markets that are affected by externalities. 
B)  Coase proved that economic efficiency cannot be achieved in a market that is affected by positive or negative externalities. 
C)  Coase argued that under some circumstances, private solutions to the problems of externalities will occur. 
D)  Coase proved that a competitive market achieved a greater degree of economic efficiency than a non-competitive market when externalities occur.

Question 20

The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.

Accepted Answer

A) True 
 B)False

Exam 5: Externalities, Environmental Policy, and Public Goods

Some policymakers have argue that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. If the government decided to impose a tax on soda, the government will cause

Figure 5-3 -Refer to Figure 5-3. At the competitive market equilibrium, for the last unit produced,

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms "rivalry" and "excludability" as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

A positive externality results when

Medical research that ends in a cure for a serious disease produces positive externalities. What is the impact of this positive externality on economic efficiency?

Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?

What are some of the limitations of the Coase theorem in practice?

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 market equilibrium quantity of gasoline is ________ million gallons per month.

In economics, the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.

Consider the stock of ocean tuna which is massively overfished. It is rational for an individual to exploit the resource rather than to conserve the stock because

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

A quasi-public good is similar to a public good in that one person's consumption of the quasi-public good does not reduce the amount available for everyone else.

When there is a negative externality, the private cost of production ________ the social cost of production.

For the Coase theorem to work, there must be clear assignment of property rights.

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?

The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.