Deck 14: The Federal Reserve System

Question 1

If a firm adopts a production process that is costly in order to reduce pollution, the result is

A) A decrease in the firm's MC curve and a decrease in the firm's profits.
B) An increase in the firm's ATC curve and an increase in the firm's profits.
C) A decrease in the profit-maximizing rate of output and a decrease in the firm's profits.
D) A decrease in the firm's ATC curve and an increase in the firm's profits.

Answer 1

C

Question 2

Requiring that a firm engage in pollution abatement will likely do all of the following except

A) Reduce profits for the firm.
B) Reduce the amount of output the firm produces.
C) Shift the firm's MC curve upward.
D) Shift the firm's ATC curve downward.

Answer 2

D

Question 3

The true economic costs of pollution control are the

A) Dollars spent on pollution control equipment, administrative costs, compliance training, and the like.
B) Resources used to control pollution.
C) Improved resource productivity levels provided by pollution control.
D) Most highly valued alternative goods and services that could be produced if the resources were not used to reduce pollution.

Answer 3

D

Question 4

Which of the following is not a form of air pollution?

A) Acid rain.
B) Smog.
C) The greenhouse effect.
D) Thermal pollution.

Question 5

Sophisticated waste treatment plants can reduce organic pollution by up to ____ percent.

A) 99
B) 95
C) 75
D) 25

Question 6

The Environmental Protection Agency estimates that the total cost of pollution to society

A) Is $3 billion a year.
B) Is $10 billion a year.
C) Cannot be measured.
D) Is $50 billion a year.

Question 7

The behavior of profit-maximizing producers is guided by

A) Philanthropy.
B) Self-interest.
C) Aesthetic concerns.
D) Social costs.

Question 8

In general, a firm's efficiency decision will result in

A) A plant that maximizes profits.
B) A pollution-causing production process if that process minimizes costs.
C) An unpolluted environment.
D) Lower prices for products associated with a pollution-causing production process.

Question 9

Electric power plants account for over ____ percent of all thermal discharges.

A) 80
B) 60
C) 40
D) 20

Question 10

External costs occur because

A) Private costs do not reflect the full costs to society.
B) Government failure increases costs for the firm.
C) All costs are absorbed by the firm.
D) Firms make a choice other than the most cost-efficient production method.

Question 11

Only ____ percent of the U.S. population is served by a system of sewers and adequate water treatment plants.

A) 40
B) 50
C) 60
D) 70

Question 12

From an economic standpoint, the pursuit of a zero-pollution environment is

A) The morally correct strategy, and costs should not be a consideration.
B) Probably not in society's interest because of the high opportunity costs.
C) The economically correct strategy.
D) The economically correct strategy as long as benefits accrue to society.

Question 13

Thermal pollution is brought about by the discharge of

A) Sulfur dioxide.
B) Steam or heated water.
C) Carbon dioxide.
D) Solid waste.

Question 14

According to the text, which of the following is a form of water pollution?

A) Slaughter waste.
B) Thermal pollution.
C) Smog.
D) Solid waste pollution.

Question 15

According to the EPA, using known and available technology, what percentage of the current air and water pollution could be eliminated with current resources?

A) 10 percent.
B) 25 percent.
C) 75 percent.
D) 95 percent.

Question 16

The reason pollution occurs is because people tend to

A) Consider the impact of their activities on society first.
B) Maximize their personal welfare, balancing private benefits against private costs.
C) Maximize their personal welfare, balancing social benefits against social costs.
D) Maximize society's welfare, balancing private benefits against private costs.

Question 17

According to the text, which of the following is the prime cause of the greenhouse effect?

A) Sulfur dioxide.
B) Nitrogen oxide.
C) Carbon dioxide.
D) Carbon monoxide.

Question 18

Which of the following is assumed to be the most important motivation for producers?

A) The desire to minimize external costs.
B) The desire to maximize economic profits.
C) The desire to minimize social costs above private costs.
D) The desire to maximize social benefits and private revenues at the same time.

Question 19

Assigning values to environmental damage is relatively

A) Easy because of current scientific techniques.
B) Easy because all items have a market value.
C) Difficult because many items have intangible benefits and thus do not have a market price.
D) Easy because the government has the legislative authority to assign prices.

Question 20

According to EPA studies, the United States generates over ____ billion tons of solid waste each year.

A) 50
B) 100
C) 5
D) 25

Question 21

When external costs are present,

A) There is market failure.
B) There is government failure.
C) Private costs are greater than social costs.
D) The market conveys the full costs of production.

Question 22

When private and social costs are equal,

A) Market failure occurs.
B) There are no external costs.
C) Government failure occurs.
D) There is no opportunity cost.

Question 23

The market will overproduce goods that have external costs because

A) Producers have lower costs than society has.
B) Producers experience higher costs than society.
C) The government is not able to produce these goods.
D) Producers cannot keep the goods from consumers who don't pay, so they produce a greater amount.

Question 24

If the social costs of an economic activity are $120 and the private costs are $75, then the external costs of the activity are ____, and market failure _______.

A) $195; does not occur
B) $45; does not occur
C) $195; occurs
D) $45; occurs

Question 25

If a firm that pollutes wants to maximize profits, it will produce where

A) The social value of production equals the social cost of production.
B) Private and social costs are equal.
C) Marginal revenue and private marginal cost are equal.
D) Social benefits exceed social costs.

Question 26

If the social costs of an economic activity are $200 and the private costs are $200, then the external costs of the activity are ____, and market failure _______.

A) $0; does not occur
B) $400; does not occur
C) $0; occurs
D) $400; occurs

Question 27

Which of the following is not the case when social costs are greater than private costs?

A) The market's price signals are flawed.
B) Resources are allocated efficiently.
C) There is market failure.
D) External costs exist.

Question 28

Under the market mechanism, a market characterized by external costs will produce too

A) Little output and too much pollution.
B) Much output and too much pollution.
C) Little output and too little pollution.
D) Much output and too little pollution.

Question 29

Social costs are

A) The total resource costs of an economic activity.
B) Usually less than private costs.
C) The costs of an economic activity borne by the producer.
D) Equal to external costs minus private costs.

Question 30

If firms were charged the full social opportunity cost of the resources they used, there would be

A) No external costs.
B) Government failure.
C) Market failure.
D) A need for government intervention.

Question 31

All of the following are negative externalities in production except

A) Secondhand smoke in a restaurant.
B) Acid rain produced by power plants.
C) Carbon dioxide emissions from the production of steel.
D) Thermal pollution into a river from an electric plant.

Question 32

Which of the following is a market incentive to discourage pollution?

A) Emission charges and user charges.
B) User charges and government regulation.
C) Command-and-control options.
D) The greenhouse effect.

Question 33

An example of a negative externality in consumption is

A) A power plant's release of thermal pollution into a nearby river.
B) A passenger on a train littering.
C) A large cattle farm creating air pollution.
D) You finishing college and contributing to society.

Question 34

If a manufacturer does not have to pay for its contribution to pollution, it will produce

A) Too much output from a social viewpoint.
B) Inefficiently from a private viewpoint.
C) Unprofitably from a private viewpoint.
D) At a price that is too high from a social viewpoint.

Question 35

External costs are

A) Domestic economic impacts of foreign events.
B) The difference between social and private costs.
C) Outside costs that producers absorb.
D) Effects of government on the private sector.

Question 36

An external cost is borne by

A) The producer of the good.
B) The consumers of the good.
C) A third party to the market transaction.
D) Employees of the firm that produces the good.

Question 37

When external costs exist,

A) There is government failure.
B) Market prices do not convey the full costs of production.
C) The market achieves the optimal mix of output.
D) Private costs are greater than social costs.

Question 38

In order to maximize social welfare, a firm's production of a good should occur at the output where

A) Social marginal cost equals social marginal benefit.
B) Price equals social marginal revenue.
C) Marginal revenue equals price.
D) All pollution is entirely eliminated.

Question 39

External costs are the difference between

A) Social costs and private costs.
B) Benefits and costs.
C) Average and marginal costs.
D) Marginal social benefits and marginal social costs.

Question 40

A power plant in Illinois produces electricity by burning coal. This results in acid rain that kills trees and wildlife in New York. This is an example of

A) An external cost.
B) Inequity.
C) A public bad.
D) A private cost.

Question 41

An emission charge is

A) A subsidy to the consumers who are hurt by pollution.
B) A charge on consumers who buy goods made by firms that pollute.
C) An attempt to change consumers' behavior by direct government intervention.
D) A fee imposed on polluters based on the quantity of pollution they generate.

Question 42

The primary purpose of tradable pollution permits is to

A) Reduce the level of pollution to optimal levels.
B) Reduce the cost of pollution control.
C) Eliminate private costs.
D) Completely eliminate pollution.

Question 43

If the government imposed a green tax on gasoline, ceteris paribus, the price of gasoline should

A) Increase.
B) Decrease.
C) Remain unchanged.
D) Increase initially but later decrease.

Question 44

Laws requiring the sorting and recycling of trash are an example of

A) Pollution fines.
B) Higher user fees.
C) Process regulation.
D) Emission charges.

Question 45

An emission charge

A) Reduces private marginal cost and reduces output.
B) Reduces private marginal cost and increases output.
C) Increases private marginal cost and reduces output.
D) Increases private marginal cost and increases output.

Question 46

A five-cent container deposit on bottles

A) Decreases the incentive to recycle.
B) Increases the incentive to recycle.
C) Makes it more profitable for firms to use these containers.
D) Encourages pollution.

Question 47

A polluting company can be billed in proportion to its pollution through

A) Higher user fees.
B) Emission charges.
C) Privatization.
D) Tradable pollution permits.

Question 48

Which of the following is not a market incentive to discourage pollution?

A) Emission charges.
B) Higher user fees.
C) Regulatory intervention.
D) Green taxes.

Question 49

When the government requires a firm to pay an emission charge in proportion to its pollution,

A) Both average total costs and marginal costs rise.
B) Average total costs rise, but marginal costs do not.
C) Marginal costs rise, but average total costs do not.
D) Neither marginal costs nor average total costs are affected.

Question 50

By altering market incentives, the government tries to shift

A) External costs to society.
B) External costs to the producer.
C) Private costs to society.
D) Social costs to the producer.

Question 51

Tradable pollution permits, when compared to command-and-control options, tend to

A) Provide the same amount of pollution abatement at a higher cost.
B) Provide the same amount of pollution abatement at a lower cost.
C) Provide the same amount of pollution abatement at the same cost.
D) Be inefficient.

Question 52

A five-cent container deposit on bottles

A) Increases the price of containers that do not use recycled materials.
B) Has no impact on the price of recycled materials.
C) Increases the price of recycled materials and thus discourages recycling.
D) Decreases the price of recycled materials and thus encourages recycling.

Question 53

A market for power plant pollution rights will

A) Reduce the total amount of pollution by power plants beyond the required reduction level.
B) Lower pollution control costs.
C) Result in all power plants meeting pollution standards at lower costs.
D) Increase the total amount of pollution by power plants.

Question 54

A polluting company may be able to purchase the right to pollute through

A) Higher user fees.
B) Emission charges.
C) Pollution fines.
D) Pollution permits.

Question 55

If the tax on gasoline is increased to provide incentives to curb air pollution, then the tax serves as

A) A user fee.
B) A command-and-control standard.
C) A pollution fine.
D) An emission charge.

Question 56

Producers can be encouraged to internalize external costs by

A) Imposing emission charges but not pollution fines.
B) Reducing user fees.
C) Altering market incentives but not through regulatory intervention.
D) Imposing pollution fines or higher user fees.

Question 57

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 reduced pollution through

A) Central planning.
B) Command-and-control regulatory standards.
C) Pollution fines.
D) Emission charges.

Question 58

If the government imposed a green tax on gasoline, the amount of air pollution should

A) Increase as people begin to use public transportation more.
B) Increase as people begin to use alternative fuels instead of gasoline.
C) Decrease as people switch to larger cars to drive in the country where pollution is not a problem.
D) Decrease as people switch to more fuel-efficient cars.

Question 59

A completely successful emission charge would

A) Shift the private MC curve until the curve intersects with price at zero output and pollution is completely eliminated.
B) Shift the private MC curve to the same position as the social MC curve.
C) Shift the social MC curve to the same position as the private MC curve.
D) Not shift either the private or social MC curve.

Question 60

By implementing user fees, the government tries to shift

A) Private costs to society.
B) Social costs to the producer.
C) External costs to users.
D) External costs to the producer.

Question 61

Government intervention that fails to improve economic outcomes is known as

A) Social failure.
B) Government failure.
C) Market failure.
D) Public policy.

Question 62

Pollution control efforts

A) Are free of opportunity costs.
B) Change what and how much is produced.
C) Reduce private marginal costs.
D) Increase external costs.

Question 63

The Clean Air Acts of 1970 and 1990 reduced pollution through

A) Market incentives.
B) Command-and-control regulatory standards.
C) Privatization.
D) Emission charges.

Question 64

Which of the following is an example of bypassing the market through regulation to achieve environmental protection?

A) Privatization.
B) Command-and-control standards.
C) Pollution fines.
D) Green taxes.

Question 65

The optimal rate of pollution occurs where

A) MR = MC for the production of the good that produces pollution.
B) The marginal benefit equals the marginal cost of pollution abatement.
C) The marginal benefit of pollution abatement is zero.
D) Pollution is reduced to zero.

Question 66

The marginal benefit of reducing pollution

A) Rises as the environment gets cleaner.
B) Falls as the environment gets cleaner.
C) Is constant.
D) Is not an issue in determining the optimal rate of pollution.

Question 67

In cost-benefit analysis, the government should intervene as long as

A) The government corrects market failures without government cost.
B) The value of government failure exceeds the value of market failure.
C) The improvement in the environment exceeds the costs.
D) The government corrects market failures despite government failure.

Question 68

When environmental regulations continue long after they are obsolete, there is

A) Privatization.
B) Deregulation.
C) Government failure.
D) Market failure.

Question 69

All of the following can be costs of environmental cleanup except

A) Scarce resources being used that then cannot be used to produce other goods.
B) The replacement costs of polluting machinery.
C) Layoffs of workers in polluting industries.
D) Fewer hospital visits.

Question 70

When the government requires specific processes for reducing pollution, it is using

A) A command-and-control approach.
B) Green taxes.
C) A tradable permit program.
D) A user fee plan.

Question 71

The marginal cost to society of reducing pollution increases as the level of pollution reduction increases because of the law of

A) Demand.
B) Diminishing returns.
C) Diminishing marginal utility.
D) Increasing externalities.

Question 72

The costs of pollution control will

A) Always be borne entirely by the pollution producer.
B) Always be passed on completely to the consumer.
C) Be distributed between the producer and the consumer.
D) Be borne entirely by the taxpayers in the United States.

Question 73

Emission charges, user fees, and pollution fines increase the _______ of polluting.

A) opportunity cost
B) market failure
C) external costs
D) optimal rate

Question 74

The marginal cost of reducing pollution

A) Rises as the environment gets cleaner.
B) Falls as the environment gets cleaner.
C) Is constant.
D) Is not an issue in determining the optimal rate of pollution.

Question 75

When thinking about the real costs of environmental cleanup, we should take into consideration

A) The total costs of the cleanup as estimated by the Environmental Protection Agency.
B) A comparison of the costs of cleanup to the large size of the U.S. economy.
C) The marginal costs but not the marginal benefits.
D) A comparison of the size of China's economy to the United States.

Question 76

The costs of environmental protection can be measured by

A) The difference between social benefits and social costs.
B) The difference between marginal social benefits and marginal social costs.
C) The materials balance problem.
D) The opportunity cost of resources used to protect the environment.

Question 77

The command-and-control strategy for pollution reduction refers to

A) Material recycling.
B) Standards used to reduce pollution.
C) The use of tradable permits.
D) Gradual development of standards through close monitoring of environmental changes.

Question 78

The command-and-control approach to pollution reduction

A) May be less efficient than a market-based option.
B) Lowers private marginal costs.
C) Lowers market prices.
D) Stimulates production.

Question 79

Many economists would argue that

A) The optimal amount of pollution is greater than zero.
B) All pollution should be eliminated.
C) The market mechanism can handle pollution without any government intervention.
D) Central planning is the most efficient way to eliminate pollution.

Question 80

Excessive process regulation may

A) Raise the costs of environmental cleanup.
B) Encourage cost-saving innovation.
C) Cause market failure.
D) Reduce pollution most efficiently.