Question 1

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

Accepted Answer

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 A

Question 2

An externality is

Accepted Answer

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 D

Question 3

The optimal level of air quality

Accepted Answer

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 C

Question 4

Marginal external costs are

Accepted Answer

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 5

Markets for pollution rights

Accepted Answer

A)   have never been tried in the United States
B)   assign property rights to those who value them least
C)   allow the government to assign property rights
D)   enable those who value them most to pollute
E)   are less efficient than pollution standards

Question 6

Most of the Superfund has been spent on

Accepted Answer

A)   education of the public on environmental issues
B)   research
C)   court costs and legal fees
D)   cleanup and rehabilitation of polluted areas
E)   development and installation of antipollution devices

Question 7

The 'Nuts & Bolts' factory is located next to the movie set for 'The silent man'.The noise coming from the factory makes the movie production close to impossible.The factory can be sound-proofed for $200,000 or it can be moved for $4 million.The movie set can be moved for $1.5 million.Assume that the factory has the property right.What would be the optimal solution to this problem?

Accepted Answer

A)   The factory should pay for its own sound-proofing
B)   The movie producers should pay for the sound-proofing of the factory
C)   The movie producers should pay to move the movie set
D)   The factory should pay to move the movie set
E)   The factory should pay to move the factory

Question 8

By current U.S.law,anyone generating,storing,or transporting hazardous waste must pay to clean it up if it leaks or is otherwise discharged into the environment.This law has been in effect

Accepted Answer

A)   since World War II
B)   since 1960
C)   since 1970
D)   since 1980
E)   only since 1990

Question 9

Which of the following provides a positive externality?

Accepted Answer

A)   smog
B)   inoculating children against measles
C)   hamburgers
D)   litter
E)   an increase in your earnings

Question 10

Free markets produce too little output when

Accepted Answer

A)   negative externalities exist
B)   positive externalities exist
C)   production uses fixed-production technology
D)   production uses variable technology
E)   the resource is exhaustible

Question 11

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)

Accepted Answer

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

Question 12

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

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

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 15

Which of the following doesn't provide a positive externality:

Accepted Answer

A)   Education
B)   Research
C)   Botanical garden
D)   Chicken farm
E)   Vaccination

Question 16

In the United States,what percentage of smog comes from automobiles?

Accepted Answer

A)   5 percent
B)   15 percent
C)   25 percent
D)   40 percent
E)   80 percent

Question 17

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

Accepted Answer

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 18

Most waste generated in the U.S.ends up in landfills because

Accepted Answer

A)   the low opportunity cost of time discourages recycling
B)   Americans earn low incomes
C)   the price of land is relatively low
D)   the low wages in the repair industry encourages repairs
E)   of low productivity and high wages in the waste disposal industry

Question 19

Markets fail when externalities are present

Accepted Answer

A)   because all of the costs and benefits of producing a good are reflected in the market price
B)   because some of the costs and benefits of producing a good are not reflected in the market price
C)   only if they are negative;positive externalities are not market failures
D)   because profits are not maximized
E)   if the positive externalities are less than the negative externalities

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 17: Externalities and the Environment