Question 1

If a firm is NOT forced to pay for external costs, it will

Accepted Answer

A)  continue to overproduce the good. 
B)  continue to under produce the good. 
C)  request a subsidy from the government. 
D)  raise prices.

Question 2

You enter a classroom, which is littered with newspapers. This is because

Accepted Answer

A)  students are too lazy to clean up. 
B)  maintenance people only clean once a day. 
C)  it is a way to protest against the tuition rates. 
D)  students do not pay for littering.

Question 3

Suppose people value clean air more as their incomes increase, then

Accepted Answer

A)  the marginal cost curve of pollution abatement to shift left, increasing the degree of air quality. 
B)  the marginal cost curve of pollution abatement to shift right, increasing the degree of air quality. 
C)  the marginal benefit curve of pollution abatement to shift right, increasing the degree of air quality. 
D)  the marginal benefit curve of pollution abatement to shift left, increasing the degree of air quality.

Question 4

Your neighbor has just planted some fragrant flowers. The wonderful scent drifts into your room and makes you happy.

Accepted Answer

A)  This scent is an internal cost to you. 
B)  This cannot be an externality since you are enjoying the scent. 
C)  This is an externality since you get a benefit from your neighbor's flowers. 
D)  The social cost of this activity is entirely borne by you neighbor.

Question 5

The most efficient way to get firms to reduce pollution is to

Accepted Answer

A)  set uniform emission standards and require all firms to meet the standards. 
B)  make the worst polluters shut down and go out of business. 
C)  make them pay for the social costs of production and let them decide how to respond to the higher costs. 
D)  provide firms and consumers with the information about the effects of their actions and encourage them to behave responsibly.

Question 6

The trade-off of saving the spotted owls in the Pacific Northwest was

Accepted Answer

A)  the loss of salmon in the region. 
B)  the increase in the number of marbled murrelets. 
C)  the loss of logging activities by lumber companies. 
D)  none.

Question 7

The optimal quantity of air pollution is

Accepted Answer

A)  whatever amount of pollution is produced by the profit maximizing firm. 
B)  found by equating the marginal benefits from further reductions in pollution and the marginal costs of further reductions in pollution. 
C)  found by setting the quantity of air pollution equal to the quantity of water pollution. 
D)  a meaningless concept since monetary values cannot be attached to problems associated with pollution.

Question 8

An externality refers to the idea that

Accepted Answer

A)  explicit costs differ from implicit costs. 
B)  decision-makers do not internalize all the costs. 
C)  we cannot do anything that does not affect other people. 
D)  private and internal costs differ.

Question 9

The marginal benefit of pollution abatement is the

Accepted Answer

A)  additional cost to clean up an additional unit of pollution. 
B)  additional benefit from cleaning up an additional unit of pollution. 
C)  total social costs of pollution clean-up divided by total social benefits. 
D)  total social costs of pollution clean-up divided by the total units of clean-up.

Question 10

-Refer to the above figure. S1 is the supply curve that includes only private costs. S2 is the supply curve that includes social costs. The free market rate of output is ________ and the corrected, socially optimal amount of output is ________.

Accepted Answer

A)  Q4; Q1 
B)  Q2; Q1 
C)  Q4; Q2 
D)  Q2; Q4

Question 11

When no one owns a particular resource

Accepted Answer

A)  property rights are clearly defined. 
B)  individuals have legal recourse for any damages caused to their resource. 
C)  no one has any incentive to consider externality spillovers associated with that resource. 
D)  positive externalities will arise.

Question 12

John raises bees to pollinate his orchard. A couple of bees which escaped ended up pollinating his neighbor's orchard, so

Accepted Answer

A)  John's neighbor has received an internal cost of John's bee-keeping. 
B)  John's neighbor has received an external cost of John's bee-keeping. 
C)  John's neighbor has received an external benefit of John's bee-keeping. 
D)  None of the above is correct.

Question 13

Private costs are the same as

Accepted Answer

A)  implicit costs. 
B)  social costs. 
C)  public costs. 
D)  internal costs.

Question 14

When the social costs exceed the private costs, economists state that there is

Accepted Answer

A)  a positive externality. 
B)  an underproduction of output. 
C)  a negative externality. 
D)  a waste of resources in production.

Question 15

In order to internalize the externality due to pollution, the government should impose a tax based on

Accepted Answer

A)  the economic damage associated with the pollution. 
B)  the physical amount of pollution. 
C)  the size of the firm causing the pollution. 
D)  the value of the pollution-causing business activity.

Question 16

What is an externality?

Accepted Answer

The answer of What is an externality?...

Question 17

The sum of internal and external costs is

Accepted Answer

A)  private cost. 
B)  social cost. 
C)  opportunity cost. 
D)  common property.

Question 18

Private costs are

Accepted Answer

A)  external costs borne by private firms. 
B)  explicit costs rather than implicit costs. 
C)  costs borne by private members of society rather than governmental bodies. 
D)  costs borne solely by the individuals who incur them.

Question 19

Which of the following is a TRUE statement?

Accepted Answer

A)  Externalities cannot be solved by market solutions and always require government action. 
B)  Externalities would never be a problem if people were willing to comply with government regulations. 
C)  Voluntary agreements can solve externality situations by making the party incurring the costs bear the costs of his or her actions. 
D)  Externalities can only be handled by government regulation and emission taxes cannot work effectively.

Question 20

-Refer to the above figure. If the marginal cost curve for pollution abatement shifts to the right, everything considered, the

Accepted Answer

A)  degree of air quality or cleanliness will also decrease. 
B)  the degree of air quality or cleanliness will stay unchanged. 
C)  the degree of air quality will improve. 
D)  the marginal cost of pollution abatement has nothing to do with air quality.

Exam 31: Environmental Economics