Question 1

Consider the following characteristics: 
a. low transactions costs
b. small levels of pollution
c. high levels of pollution
d. clear assignment of property rights
Which of the above are assumptions behind the Coase Theorem?

Accepted Answer

A)   a, b, and d
B)   a, c, and d
C)   a and d
D)   a onlyE) A) and C)
F) All of the above

Question 2

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would

Accepted Answer

A)   externalize the externality.
B)   result in a marginal social benefit greater than the marginal cost of the electricity.
C)   be an example of supply-side economic policy.
D)   internalize the externality.E) A) and C)
F) All of the above

Question 3

Congressman Murphy made the following proposal: "We should establish policies that completely eliminate air pollution. This is the only way to ensure that none of our citizens suffer the negative effects of air pollution." If Congressman Murphy's proposal was adopted and all forms of air pollution were eliminated, which of the following would be true?

Accepted Answer

A)   The total cost of pollution reductions would equal the total benefit to society.
B)   Economic efficiency would be maximized.
C)   The total benefit to society from reductions in air pollution would be maximized.
D)   The marginal cost of the last unit of pollution eliminated would exceed the marginal benefit.E) B) and C)
F) A) and B)

Question 4

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Accepted Answer

A)   is true only if there are positive externalities in production in the market.
B)   is true only if there are no negative externalities in the market.
C)   is true only if there are no positive or negative externalities in the market.
D)   is true in theory, but economic efficiency cannot be achieved in a real market.E) B) and C)
F) A) and B)

Question 5

Figure 5-11 1 represents the supply curve that reflects the marginal private cost of production and S2 represents the supply curve that reflects the marginal 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? A)  P0 B)  P2-P0 C)  P1-P0 D)  P2-P1" class="answers-bank-image d-inline" rel="preload" > 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 marginal private cost of production and S2 represents the supply curve that reflects the marginal 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) None of the above
F) All of the above

Question 6

Figure 5-9  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. An efficient way to get the firm to produce the socially optimal output level is

Accepted Answer

A)   for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce.
B)   to impose a tax to make the industry bear the external costs it creates.
C)   to grant a subsidy to enable the industry to internalize the external costs of production.
D)   to assign property rights to the firms in the industry.E) A) and B)
F) C) and D)

Question 7

Consider the following methods of pollution reduction: 
a. the government sets a target for maximum emissions
b. the government mandates the installation of specific pollution abatement equipment
c. the government imposes a per unit tax on the good that creates pollution
d. the government gives firms a tax rebate for every unit of pollution abated
Which of the above is an example of a command-and-control approach to reducing pollution?

Accepted Answer

A)   a only
B)   b only
C)   a and b only
D)   a, b, and d only
E)   a, b, c, and dF) B) and E)
G) A) and C)

Question 8

Figure 5-9  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 B)
F) B) and C)

Question 9

Pollution is an example of a

Accepted Answer

A)   public good.
B)   positive externality.
C)   private cost.
D)   negative externalityE) B) and C)
F) A) and C)

Question 10

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Accepted Answer

A)   enforcement costs.
B)   implicit costs.
C)   explicit costs.
D)   transactions costs.E) A) and D)
F) A) and C)

Question 11

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?

Accepted Answer

A)   Coase argued that government intervention is necessary to achieve economic efficiency in markets that are affected by externalities.
B)   Coase proved that economic efficiency cannot be achieved in a market that is affected by positive or negative externalities.
C)   Coase argued that under some circumstances private solutions to the problems of externalities will occur.
D)   Coase proved that a competitive market achieved a greater degree of economic efficiency than a non-competitive market when externalities occur.E) A) and B)
F) A) and C)

Question 12

Issuing tradable emission allowances to polluting firms will result in those firms polluting more than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 13

State and local governments subsidize college students with grants and low-interest loans. The loans and subsidies are examples of

Accepted Answer

A)   positive externalities.
B)   Coase subsidies.
C)   Pigovian subsidies.
D)   emission allowances.E) A) and D)
F) C) and D)

Question 14

The cost borne by a producer in the production of a good or service is called

Accepted Answer

A)   private cost.
B)   public cost.
C)   social cost.
D)   internal cost.E) A) and B)
F) C) and D)

Question 15

If electric utilities continually reduce their emissions of sulfur dioxide,

Accepted Answer

A)   the utilities will eventually be forced to go out of business.
B)   the marginal benefit of additional emissions will rise.
C)   the marginal cost of further emissions will rise.
D)   the total benefit of sulfur dioxide emissions will fall.E) None of the above
F) B) and C)

Question 16

What is an externality?

Accepted Answer

An externality is a benefit or...

Question 17

If the social cost of producing a good or service exceeds the private cost

Accepted Answer

A)   a positive externality exists.
B)   the sum of consumer surplus and producer surplus is maximized.
C)   the market achieves economic efficiency.
D)   a negative externality exists.E) None of the above
F) B) and D)

Question 18

One problem with using a command-and-control approach to pollution reduction is that the monitoring costs may be too high.

Accepted Answer

A) True 
 B)False

Question 19

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the Coase theorem holds and the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

Accepted Answer

A)   would be significantly less than if the owners of the smelter were legally liable for damages.
B)   would be less than the amount at which the marginal benefit of pollution reduction equaled the marginal cost.
C)   would be the same as if it would be if the owners of the smelter were legally liable.
D)   would be too small; the government would have to intervene to bring about an efficient outcome.E) C) and D)
F) A) and C)

Question 20

Which of the following is an example of a common resource?

Accepted Answer

A)   elephants in the wild
B)   lions in a zoo
C)   a college education
D)   public transportationE) A) and D)
F) B) and C)

Exam 5: Externalities, Environmental Policy, and Public Goods

Correct Answer
verified

One problem with using a command-and-control approach to pollution reduction is that the monitoring costs may be too high.

Correct Answer
verified

Correct Answer
verified

Issuing tradable emission allowances to polluting firms will result in those firms polluting more than is socially desirable.

Correct Answer
verified

What is an externality?

Correct Answer
verified
An externality is a benefit or...
View Answer

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would

Correct Answer
verified

Correct Answer
verified

If electric utilities continually reduce their emissions of sulfur dioxide,

Correct Answer
verified

If the social cost of producing a good or service exceeds the private cost

Correct Answer
verified

State and local governments subsidize college students with grants and low-interest loans. The loans and subsidies are examples of

Correct Answer
verified

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?

Correct Answer
verified

Which of the following is an example of a common resource?

Correct Answer
verified

Pollution is an example of a

Correct Answer
verified

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the Coase theorem holds and the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The cost borne by a producer in the production of a good or service is called

Correct Answer
verified

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Correct Answer
verified

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Correct Answer
verified

Consider the following characteristics: a. low transactions costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights Which of the above are assumptions behind the Coase Theorem?

Correct Answer
verified

Exam 5: Externalities, Environmental Policy, and Public Goods

Correct AnswerverifiedShow Answer

One problem with using a command-and-control approach to pollution reduction is that the monitoring costs may be too high.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Issuing tradable emission allowances to polluting firms will result in those firms polluting more than is socially desirable.

Correct AnswerverifiedShow Answer

What is an externality?

Correct AnswerverifiedAn externality is a benefit or...View AnswerShow Answer

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If electric utilities continually reduce their emissions of sulfur dioxide,

Correct AnswerverifiedShow Answer

If the social cost of producing a good or service exceeds the private cost

Correct AnswerverifiedShow Answer

State and local governments subsidize college students with grants and low-interest loans. The loans and subsidies are examples of

Correct AnswerverifiedShow Answer

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?

Correct AnswerverifiedShow Answer

Which of the following is an example of a common resource?

Correct AnswerverifiedShow Answer

Pollution is an example of a

Correct AnswerverifiedShow Answer

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the Coase theorem holds and the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The cost borne by a producer in the production of a good or service is called

Correct AnswerverifiedShow Answer

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Correct AnswerverifiedShow Answer

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Correct AnswerverifiedShow Answer

Consider the following characteristics: a. low transactions costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights Which of the above are assumptions behind the Coase Theorem?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An externality is a benefit or...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified