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In economics, the optimal level of pollution is


A) zero.
B) the level for which the total benefit from reducing the pollution is the greatest.
C) the level for which the marginal benefit from reducing the pollution is the greatest.
D) the level for which the net benefit from reducing the pollution is the greatest.

E) B) and C)
F) C) and D)

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Figure 5-4 Figure 5-4 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 S₂ 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 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 S₂ 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

E) All of the above
F) A) and B)

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Figure 5-7 Figure 5-7 -Refer to Figure 5-7.Which of the following statements is true? A) At QE the benefits of reducing pollution outweigh the cost of pollution reduction. B) At QB society is under allocating resources to pollution reduction. C) The optimal quantity of pollution reduction is QB. D) The optimal quantity of pollution reduction is QE. -Refer to Figure 5-7.Which of the following statements is true?


A) At QE the benefits of reducing pollution outweigh the cost of pollution reduction.
B) At QB society is under allocating resources to pollution reduction.
C) The optimal quantity of pollution reduction is QB.
D) The optimal quantity of pollution reduction is QE.

E) B) and C)
F) None of the above

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Figure 5-3 Figure 5-3 -Refer to Figure 5-3.The market equilibrium output level is A) Q<sub>m</sub>. B) Q<sub>n</sub>. C) Qₒ. D) Qₒ - Q<sub>m</sub>. -Refer to Figure 5-3.The market equilibrium output level is


A) Qm.
B) Qn.
C) Qₒ.
D) Qₒ - Qm.

E) A) and C)
F) B) and C)

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Economists Kenneth Chay and Michael Greenstone found that in the two years following the passage of the Clean Air Act of 1970, the sharp reduction in air pollution also led to a decline in infant deaths.Although this and other studies provide compelling evidence of the link between pollution and infant health, it is not clear that reductions from the much lower levels of ambient pollution today would have the same effect.Which of the following reasons could explain this?


A) The cost of pollution abatement today is much higher than it was in the 1970s. Thus, it would be far more costly to achieve the same level of benefit today as the benefit achieved in 1970.
B) When levels of pollution are high, the marginal benefit of reducing pollution also is high. It follows therefore that the benefit of reducing air pollution in 1970 would be much higher than the benefit from a proportional reduction in air pollution today when the level of pollution is much lower.
C) Today, the level of pollution is much higher. Therefore, it will take a much larger reduction in air pollution to reap benefits similar to those in 1970.
D) When levels of pollution are high, the marginal benefit of reducing pollution is low. Therefore, it was necessary to significantly reduce air pollution in 1970 before benefits could be realized. Today, when the level of pollution is much lower, such drastic measures are unnecessary.

E) None of the above
F) A) and B)

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

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A Pigovian tax is a government...

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Congress passed the Clean Air Act in 1970.Since this act was passed, emissions of the six main air pollutants


A) have fallen by more than one-half.
B) have increased significantly due to the growth of the U.S. economy.
C) cannot be measured since Congress failed to appropriate money to monitor the level of emissions.
D) have remained essentially constant, even though significant economic growth has occurred in the United States since 1970.

E) B) and C)
F) B) and D)

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Goods can be classified on the basis of whether their consumption is


A) internal and excludable.
B) rival and competitive.
C) includable and cooperative.
D) rival and excludable.

E) None of the above
F) All of the above

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


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.

E) All of the above
F) B) and C)

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Figure 5-3 Figure 5-3 -Refer to Figure 5-3.At the competitive market equilibrium, A) the size of the external cost is P<sub>m</sub> - Pₒ. B) the size of the external benefit is P<sub>m</sub> - Pₒ. C) the size of the external cost is P<sub>n</sub> - Pₒ. D) the size of the external benefit is P<sub>n</sub> - Pₒ. -Refer to Figure 5-3.At the competitive market equilibrium,


A) the size of the external cost is Pm - Pₒ.
B) the size of the external benefit is Pm - Pₒ.
C) the size of the external cost is Pn - Pₒ.
D) the size of the external benefit is Pn - Pₒ.

E) B) and D)
F) B) and C)

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A product is considered to be excludable if it is jointly owned by all members of a community.

A) True
B) False

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Some environmentalists have criticized tradable emission allowances on the grounds that they give permit holders a license to pollute.Furthermore, environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment.Use economic reasoning to evaluate this criticism.

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The criticism ignores one of the central...

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Figure 5-13 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 tax would raise the price paid by consumers by ________ per gallon. A) $0.75 B) $1.25 C) $1.75 D) $2.00 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 tax would raise the price paid by consumers by ________ per gallon.


A) $0.75
B) $1.25
C) $1.75
D) $2.00

E) A) and D)
F) B) and D)

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Conceptually, the efficient level of carbon emissions is the level for which


A) the marginal benefit of reducing carbon emissions is maximized.
B) the marginal cost of reducing carbon emissions is minimized.
C) the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.
D) the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized.

E) B) and D)
F) B) and C)

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According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention.


A) A. C. Pigou
B) Adam Smith
C) Ronald Coase
D) John Maynard Keynes

E) A) and B)
F) A) and C)

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Figure 5-16 Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights. -Refer to Figure 5-16.What is the optimal quantity of street lights to install? A) 3 B) 4 C) 6 D) 9 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights. -Refer to Figure 5-16.What is the optimal quantity of street lights to install?


A) 3
B) 4
C) 6
D) 9

E) All of the above
F) A) and B)

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Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities?


A) Ronald Coase
B) A. C. Pigou
C) Adam Smith
D) David Hume

E) None of the above
F) A) and D)

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Figure 5-16 Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights. -Refer to Figure 5-16.How much is Amit willing to pay per street light to have 4 street lights installed? A) $3,600 B) $2,700 C) $1,800 D) $900 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights. -Refer to Figure 5-16.How much is Amit willing to pay per street light to have 4 street lights installed?


A) $3,600
B) $2,700
C) $1,800
D) $900

E) B) and C)
F) C) and D)

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A negative externality is an example of market failure.The root of the problem lies in the definition and enforcement of property rights.Explain.

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If harmed parties do not have rights or ...

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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


A) the area of pasture was nonexcludable 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) A) and D)
F) None of the above

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