Question 1

"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 th...

Question 2

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?

Accepted Answer

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) A) and D)
F) C) and D)

Question 3

Economist A.C.Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

Accepted Answer

Pigou believed that, in the case of a po...

Question 4

Figure 5-2
  
Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The private profit-maximizing quantity for the firm is

Accepted Answer

A)  Qₐ.
B)  Qb.
C)  Qb - Qd.
D)  Qd.E) B) and C)
F) A) and B)

Question 5

Which of the following describes a positive externality?

Accepted Answer

A)  John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale.
B)  People who do not attend college still benefit from others who receive a college education.
C)  The government imposes a tax on cigarettes in order to discourage smoking among teenagers.
D)  Mary volunteers to drive her neighbor's children to soccer practice.E) All of the above
F) A) and C)

Question 6

If the marginal social benefit of consuming a good or a service exceeds the marginal private benefit

Accepted Answer

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

Question 7

The U.S.government has frequently used a "command-and-control" approach in dealing with pollution.Which of the following describes this approach?

Accepted Answer

A)  The government uses taxes in order to internalize the externalities caused by pollution.
B)  The government uses subsidies to encourage firms to use new technology that reduces pollution.
C)  The government imposes quantitative limits on the amount of pollution firms are allowed to generate.
D)  The government distributes information to consumers and producers on how to reduce pollution.E) A) and B)
F) All of the above

Question 8

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.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Accepted Answer

A)  The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves.
B)  Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed.
C)  The optimal quantity will be installed only if the two parties split the cost of installation equally.
D)  The optimal quantity will be installed only if Bree pays for the entire installation cost.E) None of the above
F) A) and B)

Question 9

A private good is

Accepted Answer

A)  a good that is rivalrous and nonexcludable.
B)  a good that is nonrivalrous and nonexcludable.
C)  a good that is rivalrous and excludable.
D)  a good that is nonrivalrous and excludable.E) None of the above
F) B) and D)

Question 10

The social cost of cutting trees for firewood in a government forest is

Accepted Answer

A)  the increased likelihood of flooding as more trees are cut.
B)  the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees.
C)  opportunity cost to the individual of cutting the wood.
D)  the marginal costs of cutting the last tree.E) B) and C)
F) A) and B)

Question 11

When production generates a negative externality, the true cost of production is the

Accepted Answer

A)  private cost of production.
B)  public cost of production.
C)  social cost of production.
D)  average cost of production.E) A) and D)
F) C) and D)

Question 12

Figure 5-3
 
-Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Accepted Answer

A)  mso.
B)  msn.
C)  nso.
D)  mtn.E) B) and C)
F) A) and D)

Question 13

The demand curve for a public good is also called the

Accepted Answer

A)  total welfare curve.
B)  marginal social benefit curve.
C)  total social benefit curve.
D)  total willingness-to-pay curve.E) B) and D)
F) A) and D)

Question 14

Figure 5-6
  
Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 5-6.What is the market equilibrium output level?

Accepted Answer

A)  Q₁
B)  Q₂
C)  Q₁ + Q₂
D)  Q₂ - Q₁E) B) and C)
F) A) and C)

Question 15

Alternative approaches for reducing carbon dioxide emissions are

Accepted Answer

A)  carbon taxes and carbon scrubbing.
B)  carbon trading and carbon subsidies.
C)  carbon taxes and carbon trading.
D)  burning low carbon coal and deforestation.E) B) and D)
F) A) and B)

Question 16

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

Accepted Answer

A) True 
 B)False

Question 17

The "tragedy of the commons" refers to the phenomenon where

Accepted Answer

A)  individuals are free riders.
B)  people overuse a common resource.
C)  people do not internalize an externality.
D)  there is rivalry in consumption.E) B) and C)
F) A) and D)

Question 18

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

Accepted Answer

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) C) and D)

Question 19

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

Question 20

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.E) A) and B)
F) C) and D)

Exam 5: Externalities, Environmental Policy, and Public Goods

When production generates a negative externality, the true cost of production is the

Correct Answer
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Alternative approaches for reducing carbon dioxide emissions are

Correct Answer
verified

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

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.What is the market equilibrium output level?

Correct Answer
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A private good is

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

Correct Answer
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The social cost of cutting trees for firewood in a government forest is

Correct Answer
verified

The demand curve for a public good is also called the

Correct Answer
verified

The "tragedy of the commons" refers to the phenomenon where

Correct Answer
verified

If the marginal social benefit of consuming a good or a service exceeds the marginal private benefit

Correct Answer
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Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The private profit-maximizing quantity for the firm is

Correct Answer
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Which of the following describes a positive externality?

Correct Answer
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"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
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The statement is true.For example, in th...
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Figure 5-3 -Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Correct Answer
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Correct Answer
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Correct Answer
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Pigou believed that, in the case of a po...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

The U.S.government has frequently used a "command-and-control" approach in dealing with pollution.Which of the following describes this approach?

Correct Answer
verified

Exam 5: Externalities, Environmental Policy, and Public Goods

When production generates a negative externality, the true cost of production is the

Correct AnswerverifiedShow Answer

Alternative approaches for reducing carbon dioxide emissions are

Correct AnswerverifiedShow Answer

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

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.What is the market equilibrium output level?

Correct AnswerverifiedShow Answer

A private good is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The social cost of cutting trees for firewood in a government forest is

Correct AnswerverifiedShow Answer

The demand curve for a public good is also called the

Correct AnswerverifiedShow Answer

The "tragedy of the commons" refers to the phenomenon where

Correct AnswerverifiedShow Answer

If the marginal social benefit of consuming a good or a service exceeds the marginal private benefit

Correct AnswerverifiedShow Answer

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The private profit-maximizing quantity for the firm is

Correct AnswerverifiedShow Answer

Which of the following describes a positive externality?

Correct AnswerverifiedShow Answer

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 th...View AnswerShow Answer

Figure 5-3 -Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPigou believed that, in the case of a po...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The U.S.government has frequently used a "command-and-control" approach in dealing with pollution.Which of the following describes this approach?

Correct AnswerverifiedShow Answer

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The statement is true.For example, in th...
View Answer

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Pigou believed that, in the case of a po...
View Answer

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