Question 1

1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, diagram shows A)  the effect of a subsidy granted to producers of a good. B)  the effect of an excess demand in a market. C)  the effect of a positive externality in the consumption of a good. D)  the effect of a negative externality in the consumption of a good." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-5. 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, diagram shows

Accepted Answer

A)   the effect of a subsidy granted to producers of a good.
B)   the effect of an excess demand in a market.
C)   the effect of a positive externality in the consumption of a good.
D)   the effect of a negative externality in the consumption of a good.E) A) and C)
F) C) and D)

Question 2

1 represent? A)  the private marginal benefit of harvesting salmon B)  the social marginal benefit of harvesting salmon C)  the private marginal cost of harvesting salmon D)  the social marginal cost of harvesting salmon" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-14. The current market equilibrium output is partly the result of overfishing. In that case, what does S1 represent?

Accepted Answer

A)   the private marginal benefit of harvesting salmon
B)   the social marginal benefit of harvesting salmon
C)   the private marginal cost of harvesting salmon
D)   the social marginal cost of harvesting salmonE) B) and D)
F) B) and C)

Question 3

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good. All of the following will result from the tax except

Accepted Answer

A)   an increase in the equilibrium market price.
B)   a decrease in the equilibrium quantity produced and consumed.
C)   a decrease in market supply of the good.
D)   an increase in the demand for the good.E) A) and B)
F) A) and C)

Question 4

Overuse of a common resource may be avoided by all of the following methods except

Accepted Answer

A)   charging for the use of a common resource.
B)   issuing tradable permits for the use of a common resource.
C)   government taking over ownership of all private common resources.
D)   setting quotas or legal limits on the quantity consumed of the common resource.E) C) and D)
F) A) and B)

Question 5

a. B)  Pb. C)  Pc. D)  Pf." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-2. 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) All of the above
F) B) and D)

Question 6

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

Question 7

Which of the following would result in a positive externality?

Accepted Answer

A)   A local government establishes a price ceiling on rental apartments.
B)   An electric utility burns coal that causes acid rain.
C)   Medical research results in a cure for malaria.
D)   McDonald's adds new fat-free items to its menu.E) A) and B)
F) C) and D)

Question 8

-Refer to Figure 15-4. What is the deadweight loss from producing at the market equilibrium?

Accepted Answer

A)   area C
B)   area E
C)   area D
D)   area FE) All of the above
F) None of the above

Question 9

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 B)
F) B) and C)

Question 10

Private solutions to the problem of externalities are most likely when

Accepted Answer

A)   government actively encourages these solutions.
B)   transactions costs are low and the number of bargaining parties is small.
C)   transactions costs are low and the number of bargaining parties is large.
D)   transactions costs are low and the monetary damages to third parties is high.E) All of the above
F) A) and D)

Question 11

It is difficult for a private market to provide the economically efficient quantity of a public good because

Accepted Answer

A)   by law, governments cannot use cost-benefit analysis to determine this quantity.
B)   public goods produce positive and negative externalities.
C)   individual preferences are not revealed in the market for the good.
D)   it is too expensive to produce the necessary amount of the good.E) B) and D)
F) C) and D)

Question 12

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

Question 13

When there is a negative externality, the private cost of production ________ the social cost of production.

Accepted Answer

A)   is greater than
B)   is equal to
C)   eliminates
D)   is less thanE) A) and C)
F) A) and D)

Question 14

Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.

Accepted Answer

A)   necessary; equitable
B)   necessary; efficient
C)   not necessary; equitable
D)   not necessary; efficientE) C) and D)
F) All of the above

Question 15

State and local governments subsidise university 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 B)
F) C) and D)

Question 16

E B)  (PE - PG)  C)  (PE - PF)  D)  (PF - PG) " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-10. One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidise these vaccinations. What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalise the external benefits?

Accepted Answer

A)   PE
B)   (PE - PG) 
C)   (PE - PF) 
D)   (PF - PG) E) A) and B)
F) B) and D)

Question 17

2 and not the current equilibrium output of Q1, what does D1 represent? A)  the demand curve reflecting external benefits B)  the demand curve reflecting social benefits C)  the demand curve reflecting private benefits D)  the demand curve reflecting the sum of private and social benefits" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-5. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?

Accepted Answer

A)   the demand curve reflecting external benefits
B)   the demand curve reflecting social benefits
C)   the demand curve reflecting private benefits
D)   the demand curve reflecting the sum of private and social benefitsE) None of the above
F) C) and D)

Question 18

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

Question 19

2 exceeds the marginal benefit B)  because the marginal private cost of producing each additional unit in excess of Q2 exceeds the marginal benefit C)  because the marginal social benefit of producing each additional unit in excess of Q2 exceeds the private cost D)  because the marginal private benefit of producing each additional unit in excess of Q2 exceeds the social cost" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 15-4. Why is there a deadweight loss?

Accepted Answer

A)   because the marginal social cost of producing each additional unit in excess of Q2 exceeds the marginal benefit
B)   because the marginal private cost of producing each additional unit in excess of Q2 exceeds the marginal benefit
C)   because the marginal social benefit of producing each additional unit in excess of Q2 exceeds the private cost
D)   because the marginal private benefit of producing each additional unit in excess of Q2 exceeds the social costE) B) and D)
F) All of the above

Question 20

If there are no externalities, a competitive market achieves economic efficiency. If there is a negative externality, economic efficiency will not be achieved because

Accepted Answer

A)   too little of the good will be produced.
B)   too much of the good will be produced.
C)   a deadweight loss will occur that is equal to the area under the demand curve for the good.
D)   economic surplus is maximised.E) None of the above
F) C) and D)

Exam 15: Externalities , Environmental Policy and Public Goods

Which of the following would result in a positive externality?

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

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Overuse of a common resource may be avoided by all of the following methods except

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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

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When there is a negative externality, the private cost of production ________ the social cost of production.

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

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If there are no externalities, a competitive market achieves economic efficiency. If there is a negative externality, economic efficiency will not be achieved because

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-Refer to Figure 15-10. One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidise these vaccinations. What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalise the external benefits?

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-Refer to Figure 15-5. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?

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-Refer to Figure 15-4. Why is there a deadweight loss?

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-Refer to Figure 15-4. What is the deadweight loss from producing at the market equilibrium?

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Private solutions to the problem of externalities are most likely when

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

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-Refer to Figure 15-2. The true marginal cost of the last unit produced is represented by the price

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-Refer to Figure 15-5. 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, diagram shows

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

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-Refer to Figure 15-14. The current market equilibrium output is partly the result of overfishing. In that case, what does S1 represent?

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Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good. All of the following will result from the tax except

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It is difficult for a private market to provide the economically efficient quantity of a public good because

Correct AnswerverifiedShow Answer

Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.

Correct AnswerverifiedShow Answer

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-Refer to Figure 15-5. If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does D₁ represent?

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-Refer to Figure 15-5. 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, diagram shows

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-Refer to Figure 15-14. The current market equilibrium output is partly the result of overfishing. In that case, what does S₁ represent?

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Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is to achieve an amount of pollution.

Correct Answer
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