Concept Based
Suppose at the current amount of pollution, the marginal social benefit of pollution is greater than the marginal social cost of pollution, then:
a. there is too little pollution.
b. there is too much pollution.
c. society is achieving the optimal amount of pollution.
d. the externality is minimized.
e. there is no pollution.
a. there is too little pollution.
In the figure, the optimal level of pollution is:
a. zero, since no pollution is best for society.
b. where the marginal social benefit curve intersects the quantity axis.
c. where the marginal social cost curve intersects the quantity axis.
d. where the marginal social benefit curve intersects the marginal social cost curve.
e. where the marginal social benefit curve intersects the vertical axis.
d. where the marginal social benefit curve intersects the marginal social cost curve.
An efficient solution takes place at a price of ____ and a quantity of ____.
a. $5; 40
b. $15; 30
c. $25; 30
d. $15; 15
e. $0; 45
b. $15; 30
A private good is:
a. excludable and rival in consumption.
b. nonexcludable and nonrival in consumption.
c. excludable and nonrival in consumption.
d. nonexcludable and rival in consumption.
e. subject to the free-rider problem.
a. excludable and rival in consumption.
The Coase theorem states that in the presence of externalities, a market economy will:
a. always reach an efficient solution.
b. never reach an efficient solution.
c. reach an efficient solution if transaction costs are sufficiently low.
d. reach an efficient solution only in the case of government regulation.
e. reach an efficient solution only if the number of parties involved is large.
c. reach an efficient solution if transaction costs are sufficiently low.
The marginal benefit from pollution ____ as the quantity of pollution emissions ____.
a. remains constant; increases
b. decreases; decreases
c. increases; increases
d. remains constant; decreases
e. decreases; increases
e. decreases; increases
The graph shows the marginal social cost and marginal social benefit of pollution. What level of pollution represents the socially optimal level?
a. Q1
b. Q2
c. Q3
d. Q4
e. 0
b. Q2
If this market produced ____ units, then ____.
a. 30; it would be efficient
b. 30; MSB > MSC
c. 45; total cost would equal total benefits
d. 45; MSC = 0
e. 20; MSC > MSB
a. 30; it would be efficient
Pigouvian taxes:
a. tax the profits of polluting firms.
b. are taxes designed to reduce external costs.
c. are essentially the same as emissions standards.
d. are tradable emissions permits.
e. fail to internalize an externality.
b. are taxes designed to reduce external costs.
Since the 1960s, power plants have taken actions, such as switching to low-sulfur coal and installing scrubbers in their smokestacks, which have significantly reduced the problem of acid rain. Power plants took these actions mainly because:
a. of concern about the environment.
b. large firms in the United States have a history of being “good citizens” and doing what is best for society, even if this reduces their profits somewhat.
c. government policies provided power companies with incentives to take these actions.
d. these actions lower production costs and allow the power companies to earn more profit.
e. the marginal social benefit of pollution has increased over time.
c. government policies provided power companies with incentives to take these actions.
When an activity like smoking generates a negative externality, the:
a. market demand curve is below the marginal social benefit curve.
b. market will produce less than the efficient level of output.
c. firm will reach normal profits.
d. market will produce more than the efficient level of output.
e. market will produce the efficient level of output.
d. market will produce more than the efficient level of output.
(These questions hint that there's no government overseeance)
You can sell your used cell phone on an auction website like eBay, but expect a low selling price because potential bidders do not know as much as you do about the quality of that phone you are selling. These low prices are a result of
a. signaling.
b. expired warranties.
c. moral hazard.
d. asymmetric information.
e. an insurance death spiral.
d. asymmetric information.
If this market produced ____ units, then ____.
a. 40; MSB = MSC
b. 30; MSB < MSC
c. 40; MSB < MSC
d. 30; MSC < MSB
e. 20; MSC > MSB
c. 40; MSB < MSC
Laws that restrict or prohibit leaf burning or trash burning is an example of:
a. Pigouvian taxes.
b. internalization of externalities.
c. transaction costs.
d. environmental standards.
e. tradable pollution permits.
d. environmental standards.
An externality is said to be internalized:
a. when individuals take external costs and benefits into account in their decision making.
b. in situations in which the Coase theorem is irrelevant or cannot be applied.
c. when individuals successfully petition the government to ban or restrict activities that generate negative externalities.
d. when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.
e. when the government strictly forbids the activity generating the externality.
a. when individuals take external costs and benefits into account in their decision making.
Clean water in a river is nonexcludable in that:
a. the supplier cannot prevent consumption by people who do not pay for it.
b. more than one person can consume the same unit of the good at the same time.
c. individuals ignore the effect their use has on the amount of the resource remaining for others.
d. the market suffers from inefficiently low consumption.
e. one person’s consumption reduces the supply for the next person to consume.
a. the supplier cannot prevent consumption by people who do not pay for it.
One way the government of Alaska could prevent overuse of waters for crab fishing would be to:
a. subsidize fishermen to create more competition.
b. expand the length of the fishing season.
c. offer tax breaks for more efficient boats.
d. allow competition from foreign fishermen.
e. sell exclusive licenses for the right to fish.
e. sell exclusive licenses for the right to fish.
Without government intervention, this market will generate deadweight loss equal to:
a. (P0 - P1)*( Q2- Q1)
b. (Q2- Q1)
c. P1* Q2
d. 1/2*(P0 - P2)*( Q2- Q1)
e. (P0- P2)*( Q2- Q1)
d. 1/2*(P0 - P2)*( Q2- Q1)
A Pigouvian subsidy is:
a. designed to discourage activities generating externalities.
b. designed to encourage activities generating external benefits.
c. appropriate when the marginal social cost curve is above the marginal cost of production curve.
d. appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.
e. appropriate if the market price of a product is greater than the marginal social benefit of that product.
b. designed to encourage activities generating external benefits.
With tradable emissions permits, the price of the permit is determined by:
a. the government.
b. the supply of and demand for permits.
c. environmental protection organizations.
d. the World Trade Organization.
e. those harmed by the pollution.
b. the supply of and demand for permits.
The best example of an artificially scarce good is:
a. legal services.
b. national defense.
c. a municipal library.
d. cable television broadcasting.
e. a computer.
d. cable television broadcasting.
Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas where roses are grown. Then the market price of roses:
a. is less than the marginal social benefit of roses.
b. is more than the marginal social benefit of roses.
c. equals the marginal social benefit of roses.
d. is less than the marginal social cost of roses.
e. is greater than the marginal social cost of roses.
a. is less than the marginal social benefit of roses.
The table shows the total cost and total individual benefit of animal control for residents of a small town. If there are 1,000 residents, what is the marginal social benefit of the fourth animal control officer?
a. $10
b. $9,000
c. $10,000
d. $90,000
e. $100,000
c. $10,000
The licenses that enable the holder to pollute up to a specified amount during a given time period that can be bought and sold by polluters are called:
a. emissions taxes.
b. Pigouvian taxes.
c. Pigouvian subsidies.
d. environmental standards.
e. tradable emissions permits.
e. tradable emissions permits.
Laws that restrict or prohibit leaf burning or trash burning is an example of:
a. Pigouvian taxes.
b. internalization of externalities.
c. transaction costs.
d. environmental standards.
e. tradable pollution permits.
d. environmental standards.
Consumption of a common resource is inefficiently too ____, because the marginal social cost of the resource is ____ the private marginal cost.
a. low; greater than
b. low; less than
c. high; greater than
d. high; less than
e. low; equal to
c. high; greater than
The marginal external cost of a good or activity equals the amount:
a. by which the marginal social benefit curve is higher than the demand curve.
b. by which the marginal social cost curve is lower than the supply curve.
c. by which the marginal social cost curve is higher than the supply curve.
d. at which the marginal social benefit curve intersects the demand curve.
e. by which the marginal social benefit curve is lower than the demand curve.
c. by which the marginal social cost curve is higher than the supply curve.
An efficient solution to society’s pollution decision is to find the quantity of pollution for which:
a. MSB < MSC.
b. MSC < MSB.
c. total cost = total benefit.
d. MSC = MSB.
e. pollution is eliminated.
d. MSC = MSB.
An artifically scarce good is:
a. excludable and rival in consumption.
b. nonexcludable and nonrival in consumption.
c. excludable and nonrival in consumption.
d. nonexcludable and rival in consumption.
e. subject to the free-rider problem.
c. excludable and nonrival in consumption.
A field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called:
a. fair trade policy.
b. product safety policy.
c. fuel efficiency standards.
d. excise tax policy.
e. antitrust policy.
e. antitrust policy.
Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to exchange the rights to this total discharge level with other cities. This is an example of:
a. emissions taxes.
b. Pigouvian taxes.
c. tradable emissions permits.
d. environmental standards.
e. Pigouvian subsidies.
c. tradable emissions permits.
Assigning property rights helps to correct problems associated with common resources:
a. since it effectively allows property owners to exclude users and to manage the resource more efficiently.
b. since it allows the government to determine the amount that would lead to the socially optimal amount.
c. because it then makes the good nonrival in consumption.
d. and therefore allows the market to better assess the marginal social benefits.
e. since it effectively allows property owners to exclude users and to overexploit the resource more efficiently.
a. since it effectively allows property owners to exclude users and to manage the resource more efficiently.