Question 1

Because producers do not bear the external cost of pollution,

Accepted Answer

A)   the economically efficient level of production is achieved.
B)   private production is below the economically efficient level.
C)   private production exceeds the economically efficient level.
D)   the market price is too high.E) B) and C)
F) A) and D)

Question 2

If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

Accepted Answer

A) True 
 B)False  False

Question 3

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

Rivalry occurs when one person's consumi...

Question 4

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

Accepted Answer

A Pigovian tax is a government tax intended to bring about an efficient level of output in the presence of externalities. A Pigovian tax eliminates deadweight loss.

Question 5

-Refer to Figure 15-8. What is the economically efficient level of pollution reduction?

Accepted Answer

A)   12.5 million tons
B)   9 million tons
C)   8 million tons
D)   0 tonsE) A) and B)
F) C) and D)

Question 6

Which of the following is a source of market failure?

Accepted Answer

A)   unforeseen circumstances which lead to the bankruptcy of many firms
B)   a lack of government intervention in a market
C)   incomplete property rights or inability to enforce property rights
D)   an inequitable income distributionE) All of the above
F) A) and C)

Question 7

A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Accepted Answer

A) True 
 B)False

Question 8

2. B)  D2 + D1 at each output level C)  D2 - D1 at each output level. D)  the demand curve D1." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-3. The size of marginal external benefits can be determined by

Accepted Answer

A)   the demand curve D2.
B)   D2 + D1 at each output level
C)   D2 - D1 at each output level.
D)   the demand curve D1.E) C) and D)
F) B) and C) C

Question 9

The free rider problem refers to a situation in which

Accepted Answer

A)   people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.
B)   the marginal cost of allowing additional consumers to consume a public good is zero.
C)   high income individuals subsidise the production of goods, such as education, that make society better off.
D)   markets fail to allocate resources efficiently when benefits outweigh costs.E) A) and B)
F) All of the above

Question 10

2 represent? A)  the market supply curve that reflects social cost B)  the market supply curve that reflect private cost C)  the market supply curve that reflects external cost D)  the market supply curve that reflects social benefit" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-4. What does S2 represent?

Accepted Answer

A)   the market supply curve that reflects social cost
B)   the market supply curve that reflect private cost
C)   the market supply curve that reflects external cost
D)   the market supply curve that reflects social benefitE) B) and D)
F) A) and B)

Question 11

In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was

Accepted Answer

A)   the area of pasture was non-excludable and the consumption of the grass was rival.
B)   self-interest motives led livestock owners to raise too many cows and sheep.
C)   due to a policy of neglect on the part of the English government.
D)   it did not get enough rainfall.E) B) and C)
F) B) and D)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Compare two situations. (A)  A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B)  A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that

Accepted Answer

A)   bargaining between the firm and the victims of the air pollution caused by the firm will result in little reduction of pollution in either situation (
A)   or (
B)   because the firm has greater economic and political power than the victims.
B)   bargaining between the firm and the victims of the air pollution caused by the firm would lead to a greater reduction in pollution in situation (
A)   than situation (
B)  .
C)   bargaining between the firm and the victims of the air pollution caused by the firm would lead to a smaller reduction in pollution in situation (
A)   than situation (
B)  .
D)   bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (
A)   and situation (
B)  .E) None of the above
F) All of the above

Question 14

Which of the following must be present to reach a private solution to an externality problem?

Accepted Answer

A)   A majority of the parties affected by the externality must agree to a solution.
B)   The transactions costs to negotiate a solution must be relatively low.
C)   The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution.
D)   The government must approve the solution for it to be a legal solution.E) None of the above
F) All of the above

Question 15

A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

Accepted Answer

A) True 
 B)False

Question 16

For-profit producers will produce only private goods because

Accepted Answer

A)   markets exist for private goods but not for public goods.
B)   the cost of production can be easily determined.
C)   buyers will be willing to pay for the goods since the benefits are excludable.
D)   all external benefits can be internalised using market prices.E) B) and C)
F) A) and C)

Question 17

Should the level of pollution be reduced to zero and if not, then to what level?

Accepted Answer

No, the level of pollution should not be...

Question 18

A product is considered to be rival if

Accepted Answer

A)   you can keep those who did not pay for the item from enjoying its benefits.
B)   you cannot keep those who did not pay for the item from enjoying its benefits.
C)   your consumption of the product reduces the quantity available for others to consume.
D)   it is jointly owned by all members of a community.E) A) and D)
F) A) and C)

Question 19

m. B)  Qn. C)  Qo. D)  Qo - Qm." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-3. The efficient output level is

Accepted Answer

A)   Qm.
B)   Qn.
C)   Qo.
D)   Qo - Qm.E) All of the above
F) B) and C)

Question 20

A positive externality causes

Accepted Answer

A)   the marginal social benefit to be equal to the marginal private cost of the last unit produced.
B)   the marginal social benefit to be less than the marginal private cost of the last unit produced.
C)   the marginal social benefit to exceed the marginal private cost of the last unit produced.
D)   the marginal private benefit to exceed the marginal social cost of the last unit produced.E) A) and D)
F) A) and C)

Exam 15: Externalities , Environmental Policy and Public Goods

Because producers do not bear the external cost of pollution,

Correct Answer
verified

If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

Correct Answer
verified
False

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.

Correct Answer
verified
Rivalry occurs when one person's consumi...
View Answer

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

Correct Answer
verified
A Pigovian tax is a government tax intended to bring about an efficient level of output in the presence of externalities. A Pigovian tax eliminates deadweight loss.

-Refer to Figure 15-8. What is the economically efficient level of pollution reduction?

Correct Answer
verified

Which of the following is a source of market failure?

Correct Answer
verified

A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Correct Answer
verified

-Refer to Figure 15-3. The size of marginal external benefits can be determined by

Correct Answer
verified
C

The free rider problem refers to a situation in which

Correct Answer
verified

-Refer to Figure 15-4. What does S₂ represent?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that

Correct Answer
verified

Which of the following must be present to reach a private solution to an externality problem?

Correct Answer
verified

A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

Correct Answer
verified

For-profit producers will produce only private goods because

Correct Answer
verified

Should the level of pollution be reduced to zero and if not, then to what level?

Correct Answer
verified
No, the level of pollution should not be...
View Answer

A product is considered to be rival if

Correct Answer
verified

-Refer to Figure 15-3. The efficient output level is

Correct Answer
verified

A positive externality causes

Correct Answer
verified

Exam 15: Externalities , Environmental Policy and Public Goods

Because producers do not bear the external cost of pollution,

Correct AnswerverifiedShow Answer

If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

Correct AnswerverifiedFalse

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.

Correct AnswerverifiedRivalry occurs when one person's consumi...View AnswerShow Answer

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

Correct AnswerverifiedA Pigovian tax is a government tax intended to bring about an efficient level of output in the presence of externalities. A Pigovian tax eliminates deadweight loss.

-Refer to Figure 15-8. What is the economically efficient level of pollution reduction?

Correct AnswerverifiedShow Answer

Which of the following is a source of market failure?

Correct AnswerverifiedShow Answer

A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Correct AnswerverifiedShow Answer

-Refer to Figure 15-3. The size of marginal external benefits can be determined by

Correct AnswerverifiedC

The free rider problem refers to a situation in which

Correct AnswerverifiedShow Answer

-Refer to Figure 15-4. What does S2 represent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that

Correct AnswerverifiedShow Answer

Which of the following must be present to reach a private solution to an externality problem?

Correct AnswerverifiedShow Answer

A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

Correct AnswerverifiedShow Answer

For-profit producers will produce only private goods because

Correct AnswerverifiedShow Answer

Should the level of pollution be reduced to zero and if not, then to what level?

Correct AnswerverifiedNo, the level of pollution should not be...View AnswerShow Answer

A product is considered to be rival if

Correct AnswerverifiedShow Answer

-Refer to Figure 15-3. The efficient output level is

Correct AnswerverifiedShow Answer

A positive externality causes

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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False

Correct Answer
verified
Rivalry occurs when one person's consumi...
View Answer

Correct Answer
verified
A Pigovian tax is a government tax intended to bring about an efficient level of output in the presence of externalities. A Pigovian tax eliminates deadweight loss.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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C

Correct Answer
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-Refer to Figure 15-4. What does S₂ represent?

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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No, the level of pollution should not be...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified