Question 1

An advantage of imposing a tax on the producer that generates pollution is that

Accepted Answer

A)   it forces the polluting producer to internalize the external cost of the pollution.
B)   the government can keep tabs on exactly what is produced in an industry.
C)   it will eliminate pollution.
D)   a producer can pass the cost of the pollution to consumers.

Question 2

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 3

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

Accepted Answer

A)   The externality causes a difference between the private benefit from consumption and the social benefit.
B)   The externality causes a difference between the private benefit from production and the social cost of production.
C)   The externality causes quantity demanded to exceed quantity supplied.
D)   The externality causes a difference between the social cost of production and the social cost of consumption.

Question 4

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Accepted Answer

A)   access to the commons can be restricted through community norms and laws
B)   offer subsidies to consumers
C)   force people to move away from the commons
D)   persuade people to use less of the scarce resource through an advertising campaign

Question 5

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; decrease

Question 6

"When it comes to public goods, individuals do not reveal their true preferences because it is not in their self interest to do so." Evaluate this statement.

Accepted Answer

The statement is True. For example, in t...

Question 7

Figure 5-1 1 is not the economically efficient output. The economically efficient output is Q2. -Refer to Figure 5-1. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows A)  the effect of a positive externality in the production of a good. B)  the effect of a negative externality in the production of a good. C)  the effect of an external cost imposed on a producer. D)  the effect of an external benefit such as a subsidy granted to consumers of a good." class="answers-bank-image d-inline" rel="preload" > Figure 5-1 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2.
-Refer to Figure 5-1. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows

Accepted Answer

A)   the effect of a positive externality in the production of a good.
B)   the effect of a negative externality in the production of a good.
C)   the effect of an external cost imposed on a producer.
D)   the effect of an external benefit such as a subsidy granted to consumers of a good.

Question 8

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.

Question 9

Figure 5-8  Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions.
-Refer to Figure 5-8. Suppose the emissions reduction target is currently established at 8 million tons. Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?

Accepted Answer

A)   No, because there is a net cost represented by the area B + C.
B)   Yes, because the marginal benefit exceeds the marginal cost at 8 million tons.
C)   Yes, because toxic fumes are dangerous and must be eliminated at any cost.
D)   No, because the firms will pass the additional cost on to consumers.

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

Accepted Answer

A)   self-interest motives of producers and consumers
B)   a lack of concern for human rights
C)   a lack of competition
D)   a lack of clearly defined and enforced property rights

Question 13

If the United States and other developed nations pay the cost of reducing public emissions, developing nations such as China could benefit from the reduction while not contributing to it. In this sense, one can think of reducing carbon emissions as being like a

Accepted Answer

A)   public good.
B)   private good.
C)   quasi-private good.
D)   quasi-public good.

Question 14

Article Summary
According to the online real estate database company Zillow, homes located near a Whole Foods or Trader Joe's location have appreciated in value at double the rate of homes in other areas. From 1997 to 2014, the median U.S. home had appreciated 71 percent, while a median home near a Whole Foods or Trader Joe's appreciated 140 percent and 148 percent, respectively. Although some analysts believe this is due to these retailers often opening stores in high-income neighborhoods, Zillow researchers found that before a Whole Foods or Trader Joe's opened, homes near where the stores would eventually be appreciated at the same pace of comparable homes across the city, but after the stores opened the appreciation rate of homes in close proximity increased at a faster rate.
Source: Marian McPherson, "Living near these 2 stores boosts a home's value," inman.com, June 19, 2017

-Refer to the Article Summary. Assuming the findings are correct and all else equal, people who do not shop at Whole Foods or Trader Joe's can still benefit from living near the stores, as is shown by the higher home values. As a result, the marginal social benefit from living near a Whole Foods or Trader Joe's is ________ the marginal private benefit to those who shop at these stores.

Accepted Answer

A)   equal to
B)   greater than
C)   less than
D)   unrelated to

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.

Question 16

Figure 5-6 1 and Q2 exceeds the marginal cost B)  because the marginal private cost for each additional unit between Q1 and Q2 exceeds the marginal private benefit C)  because the marginal social cost for each additional unit between Q1 and Q2 exceeds the marginal social benefit D)  because the marginal social benefit for each additional unit between Q1 and Q2 exceeds the marginal cost" class="answers-bank-image d-inline" rel="preload" > Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 5-6. Why is there a deadweight loss?

Accepted Answer

A)   because the marginal private benefit for each additional unit between Q1 and Q2 exceeds the marginal cost
B)   because the marginal private cost for each additional unit between Q1 and Q2 exceeds the marginal private benefit
C)   because the marginal social cost for each additional unit between Q1 and Q2 exceeds the marginal social benefit
D)   because the marginal social benefit for each additional unit between Q1 and Q2 exceeds the marginal cost

Question 17

Figure 5-9 1. B)  Q2. C)  Q3. D)  Q4." class="answers-bank-image d-inline" rel="preload" > 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. The market equilibrium output level is

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.

Question 18

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 if the property rights are assigned and transactions costs are low

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)  .

Question 19

Figure 5-13  Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13. If the government wanted to bring about the efficient level of gasoline production by imposing a tax, the actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.

Accepted Answer

A)   $3.00
B)   $3.75
C)   $4.25
D)   $5.00

Question 20

Public goods are distinguished by two primary characteristics. What are they?

Accepted Answer

A)   nonrivalry and nonexcludability
B)   government intervention and low prices
C)   market failure and high prices
D)   rivalry and exclusivity

Exam 5: Externalities, Environmental Policy, and Public Goods

Correct Answer
verified

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

Correct Answer
verified

Correct Answer
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Correct Answer
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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

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 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. Why is there a deadweight loss?

Correct Answer
verified

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

Correct Answer
verified

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. The market equilibrium output level is

Correct Answer
verified

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

Correct Answer
verified

If the United States and other developed nations pay the cost of reducing public emissions, developing nations such as China could benefit from the reduction while not contributing to it. In this sense, one can think of reducing carbon emissions as being like a

Correct Answer
verified

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

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

Correct Answer
verified

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Correct Answer
verified

Correct Answer
verified

Public goods are distinguished by two primary characteristics. What are they?

Correct Answer
verified

Correct Answer
verified

An advantage of imposing a tax on the producer that generates pollution is that

Correct Answer
verified

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

Correct Answer
verified

"When it comes to public goods, individuals do not reveal their true preferences because it is not in their self interest to do so." Evaluate this statement.

Correct Answer
verified
The statement is True. For example, in t...
View Answer

Exam 5: Externalities, Environmental Policy, and Public Goods

Correct AnswerverifiedShow Answer

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. Why is there a deadweight loss?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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. The market equilibrium output level is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the United States and other developed nations pay the cost of reducing public emissions, developing nations such as China could benefit from the reduction while not contributing to it. In this sense, one can think of reducing carbon emissions as being like a

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Public goods are distinguished by two primary characteristics. What are they?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An advantage of imposing a tax on the producer that generates pollution is that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

"When it comes to public goods, individuals do not reveal their true preferences because it is not in their self interest to do so." Evaluate this statement.

Correct AnswerverifiedThe statement is True. For example, in t...View AnswerShow Answer

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

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The statement is True. For example, in t...
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