Question 1

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Accepted Answer

A)  the Pigovian method of pollution control.
B)  a command-and-control approach to pollution reduction.
C)  a Coasian solution to pollution reduction.
D)  a tradable emission allowance system of pollution control.E) A) and B)
F) A) and C)

Question 2

An externality is

Accepted Answer

A)  a benefit realized by the purchaser of a good or service.
B)  a cost paid for by the producer of a good or service.
C)  a benefit or cost experienced by someone who is not a producer or consumer of a good or service.
D)  anything that is external or not relevant to the production of a good or service.E) C) and D)
F) None of the above

Question 3

Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain.Acid rain damages trees and crops and kills fish.Because the utilities do not bear the cost of the acid rain,they overproduce the quantity of electricity.This is illustrated in Figure 5-11.
-Refer to Figure 5-11.S1 represents the supply curve that reflects the private cost of production and S2 represents the supply curve that reflects the social cost of production.One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalize the cost of the externality?

Accepted Answer

A)  P0
B)  P2-P0
C)  P1-P0
D)  P2-P1E) All of the above
F) A) and B)

Question 4

State the Coase theorem.

Accepted Answer

The Coase theorem states that if transac...

Question 5

Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Accepted Answer

A)  Pa.
B)  Pb.
C)  Pc.
D)  Pf.E) B) and C)
F) A) and B)

Question 6

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

Accepted Answer

A)  equal to the marginal external cost at the economically efficient level of pollution.
B)  equal to the marginal private cost of production at the economically efficient level of pollution.
C)  equal to the amount of the deadweight loss created in the absence of a pollution tax.
D)  at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.E) B) and D)
F) None of the above

Question 7

The marginal private cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 8

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

Accepted Answer

A)  a transactions cost.
B)  a Pigovian tax.
C)  a Pigovian subsidy.
D)  the Coase Theorem.E) A) and C)
F) B) and C)

Question 9

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Accepted Answer

A)  increase;increase
B)  increase;decrease
C)  decrease;increase
D)  decrease;decreaseE) None of the above
F) All of the above

Question 10

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.Let's suppose the government imposes a tax of $50 per unit of toilet paper to bring about the efficient level of production.What happens to the market price of toilet paper?

Accepted Answer

A)  It rises by $50 per unit.
B)  It rises by more than $50 per unit.
C)  It rises by less than $50 per unit.
D)  It remains the same because the tax is imposed on producers who create the externality.E) A) and D)
F) All of the above

Question 11

The supply curve of a public good shows

Accepted Answer

A)  the total quantities that all producers are willing and able to supply at each price.
B)  the maximum amount suppliers require to produce each quantity of the good.
C)  the total cost of producing each unit of the good.
D)  the marginal cost of producing each unit of the good.E) None of the above
F) A) and B)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Suppose there are several paper mills producing paper for a market.These mills,located upstream from a fishing village,discharge a large amount of wastewater into the river.The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source.Figure 5-4 shows the paper market.Use this Figure to answer the following question(s) .
-Refer to Figure 5-4.What does S1 represent?

Accepted Answer

A)  the market supply curve that reflects social cost
B)  the market supply curve that reflects only external cost
C)  the market supply curve that reflects only private benefit
D)  the market supply curve that reflects private costE) A) and C)
F) B) and C)

Question 14

Governments can increase the consumption of a product that creates positive externalities by

Accepted Answer

A)  subsidizing the production of the product so that the supply is increased and market price is reduced.
B)  taxing the production and consumption of the product.
C)  convincing everyone to consume the product.
D)  assigning property rights to the producers of the product.E) C) and D)
F) A) and D)

Question 15

Which of the following describes how a negative externality affects a competitive market?

Accepted Answer

A)  The externality causes a difference between the private cost of production and the social cost.
B)  The externality causes a difference between the private cost of production and the private benefit from consumption.
C)  The externality causes consumer surplus to exceed producer surplus.
D)  The externality causes a difference between the private cost of production and the equilibrium price.E) None of the above
F) A) and C)

Question 16

An important difference between the demand for a private good and the demand for a public good is that

Accepted Answer

A)  individuals reveal their preferences for a public good but they do not have to reveal their preferences a private good.
B)  the resources used to provide public goods are common resources or government owned;the resources used to produce private goods are all privately owned.
C)  individuals reveal their preferences for a private good but they do not have to reveal their preferences for a public good.
D)  the demand for a private good produces consumption externalities;the demand for a public good produces production externalities.E) B) and D)
F) All of the above

Question 17

When products that create positive externalities are produced,at the market equilibrium output,the social benefit generated by consuming the product exceeds the private benefit.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

If there is pollution in producing a product,then the market equilibrium price

Accepted Answer

A)  is too high and equilibrium quantity is too low.
B)  and equilibrium quantity are too low.
C)  and equilibrium quantity are too high.
D)  is too low and equilibrium quantity is too high.E) B) and C)
F) A) and B)

Question 20

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 internalized using market prices.E) A) and B)
F) A) and C)

Exam 5: Externalities, environmental Policy, and Public Goods

State the Coase theorem.

Correct Answer
verified
The Coase theorem states that if transac...
View Answer

Governments can increase the consumption of a product that creates positive externalities by

Correct Answer
verified

An important difference between the demand for a private good and the demand for a public good is that

Correct Answer
verified

If there is pollution in producing a product,then the market equilibrium price

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

When products that create positive externalities are produced,at the market equilibrium output,the social benefit generated by consuming the product exceeds the private benefit.

Correct Answer
verified

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would and the equilibrium price of soda would .

Correct Answer
verified

Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Correct Answer
verified

Correct Answer
verified

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

Correct Answer
verified

The marginal private cost of a good or service is the cost borne by the producer.

Correct Answer
verified

For-profit producers will produce only private goods because

Correct Answer
verified

The supply curve of a public good shows

Correct Answer
verified

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

Correct Answer
verified

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

Correct Answer
verified

Which of the following describes how a negative externality affects a competitive market?

Correct Answer
verified

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Correct Answer
verified

An externality is

Correct Answer
verified

Exam 5: Externalities, environmental Policy, and Public Goods

State the Coase theorem.

Correct AnswerverifiedThe Coase theorem states that if transac...View AnswerShow Answer

Governments can increase the consumption of a product that creates positive externalities by

Correct AnswerverifiedShow Answer

An important difference between the demand for a private good and the demand for a public good is that

Correct AnswerverifiedShow Answer

If there is pollution in producing a product,then the market equilibrium price

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When products that create positive externalities are produced,at the market equilibrium output,the social benefit generated by consuming the product exceeds the private benefit.

Correct AnswerverifiedShow Answer

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Correct AnswerverifiedShow Answer

Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The true marginal cost of the last unit produced is represented by the price

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

Correct AnswerverifiedShow Answer

The marginal private cost of a good or service is the cost borne by the producer.

Correct AnswerverifiedShow Answer

For-profit producers will produce only private goods because

Correct AnswerverifiedShow Answer

The supply curve of a public good shows

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

Correct AnswerverifiedShow Answer

Which of the following describes how a negative externality affects a competitive market?

Correct AnswerverifiedShow Answer

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Correct AnswerverifiedShow Answer

An externality is

Correct AnswerverifiedShow Answer

Correct Answer
verified
The Coase theorem states that if transac...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Some policymakers have argued that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would and the equilibrium price of soda would .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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