Deck 9: Economics of the Environment

Question 1

When external costs are present and the government imposes a tax equal to the marginal external cost, then

A) efficiency can be achieved.
B) property rights must have already been established.
C) transaction costs will be high.
D) the marginal benefit of the external cost will fall.

Answer 1

efficiency can be achieved.

Question 2

If the marginal private cost of producing one kilowatt of power in Sydney equals five cents and the marginal social cost of each kilowatt equals nine cents, then the marginal external cost equals _______ Per kilowatt.

A) fourteen cents
B) four cents
C) nine cents
D) five cents

Answer 2

four cents

Question 3

Based on the data in the above table, to assure that the efficient amount is produced the government can

A) subsidise the suppliers $8 per unit.
B) tax suppliers $8 per unit.
C) subsidise the suppliers $2 per unit.
D) tax suppliers $2 per unit.

Answer 3

tax suppliers $2 per unit.

Question 4

The tables above show the marginal costs and benefits from the production of paper. If the market is perfectly competitive and unregulated, the efficient amount of paper will be produced by setting a Pigovian tax of

A) $10 per tonne.
B) $5 per tonne.
C) $40 per tonne.
D) $20 per tonne.

Question 5

Both firm A and firm B emit 300 tonnes of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tonnes of pollution. If it costs $5,000 for firm A to eliminate 100 tonnes of pollution and it costs firm B $6,000 to eliminate 100 tonnes of pollution, then

A) firm B will sell its permits to firm A for a price below $6,000.
B) firm A will sell its permits to firm B for a price above $6,000.
C) firm B will sell its permits to firm A for a price above $6,000.
D) firm A will sell its permits to firm B for a price below $6,000.

Question 6

In the above figure, in order to achieve efficiency, a tax of _______ per unit is needed.

A) $0
B) $3
C) $2
D) $6

Question 7

The figure above shows the demand curve, the marginal private cost curve and the marginal social cost curve of good A. How many units of good A are produced in an unregulated market?

A) 5 units
B) 6 units
C) 0 units
D) 8 units

Question 8

A private cost is a cost of production that is

A) measured in marginal terms.
B) borne by the producer of a good.
C) borne by someone other than the producer of a good.
D) measured in total terms.

Question 9

The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium level of output,

A) resource allocation is efficient.
B) consumers must pay too high a price for fertiliser.
C) too few tonnes of fertiliser are produced.
D) resource allocation is inefficient.

Question 10

Generating electricity creates air pollution. This industry, if left unregulated, will produce

A) less than the efficient level of output.
B) sometimes more and sometimes less than the efficient level of output.
C) more than the efficient level of output.
D) the efficient level of output.

Question 11

The figure above illustrates the problem of overcrowding and external costs experienced during the summer months in a national park. An efficient allocation of resources occurs at

A) point G.
B) point F.
C) point I.
D) point H.

Question 12

A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the fishing club is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced

A) will stay the same.
B) will increase.
C) will decrease.
D) changes but the direction of the change is ambiguous.

Question 13

The Coase Theorem points out that externality problems can be eliminated if the number of parties involved is small and if property rights

A) are eliminated.
B) are granted to either consumers or producers and transactions costs are low.
C) are granted solely to producers.
D) are granted solely to consumers.

Question 14

The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. The efficient level of output is

A) 2,000 tonnes.
B) 4,000 tonnes.
C) 3,000 tonnes.
D) 5,000 tonnes.

Question 15

When the production of a good has an external cost, the

A) equilibrium quantity in an unregulated, competitive market has a marginal social cost less than the marginal social benefit.
B) equilibrium quantity in an unregulated, competitive market has a marginal social cost greater than the marginal social benefit.
C) marginal social cost curve lies below the marginal private cost curve.
D) marginal social benefit curve lies above the marginal private benefit curve.

Question 16

The figure above shows the private marginal cost curve, the social marginal cost curve and the market demand curve. If the market is unregulated, then at the equilibrium output the marginal social cost of production is

A) equal to the marginal private cost of production.
B) less than the marginal benefit to consumers.
C) less than the marginal private cost of production.
D) greater than the marginal benefit to consumers.

Question 17

If the government creates a system of pollution permits, firms with low marginal costs of reducing pollution will

A) hold on to the permits they have been issued and not attempt to buy more.
B) not be issued permits.
C) buy permits from other firms.
D) sell permits to other firms.

Question 18

When a production quota is used to remedy the problem of the commons, then

A) the market equilibrium, but not the efficient outcome, is achieved.
B) the production quota is set so that use of the resource is where marginal social benefit equals marginal private cost.
C) all users of the resource have an incentive to cheat on the quota quantity.
D) the production quota is set so that use of the resource is where marginal private benefit equals marginal private cost.

Question 19

The tragedy of the commons is the absence of incentives to

A) use commonly- owned resources.
B) have commonly- owned resources.
C) use privately- owned resources.
D) prevent the overuse of commonly- owned resources.

Question 20

Based on the data in the table above, the efficient level of output equals

A) 650 units.
B) 550 units.
C) 700 units.
D) 600 units.

Question 21

In the above figure, if the market is unregulated, the equilibrium quantity is

A) 100 units.
B) 80 units.
C) 70 units.
D) 0 units.

Question 22

Generating electricity creates air pollution. This industry, if left unregulated will produce at an inefficient market equilibrium where

A) marginal social cost equals marginal private cost.
B) marginal private cost equals marginal social benefit.
C) marginal social cost equals marginal social benefit.
D) marginal social benefit is greater than marginal social cost.

Question 23

When producing a good creates pollution, an external cost, and the government imposes a tax equal to the marginal external cost, then

A) transaction costs will be high.
B) the efficient amount of the good will be produced.
C) the amount of output moves farther away from the efficient amount.
D) property rights must have already been established.

Question 24

There are two industries that emit sulfur dioxide. The government decides to use a policy of marketable permits for pollution. If Harry's industry has a higher marginal cost of reducing sulfur dioxide than does Joe's industry,

A) Harry's industry will sell permits to Joe's industry.
B) Joe's industry will sell permits to Harry's industry.
C) Harry's industry and Joe's industry will emit the same quantity of sulfur dioxide.
D) the marketable permit policy will not make the amount of pollution efficient.

Question 25

A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the chemical factory is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced

A) will stay the same.
B) will decrease.
C) will increase.
D) will change but the direction of the change is ambiguous.

Question 26

If the government assigns private property rights to a common resource, then the

A) marginal private cost becomes equal to the marginal social cost.
B) government needs to set a quota to achieve efficiency.
C) resource is underutilised.
D) None of the above answers is correct.

Question 27

The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the quantity produced if the market for paper is unregulated?

A) 10 tonnes per week
B) 40 tonnes per week
C) 60 tonnes per week
D) 30 tonnes per week

Question 28

Based on the data in the above table, the table shows a market for a good with

A) no externalities.
B) a mixed externality.
C) an external benefit.
D) an external cost.

Question 29

One way to overcome the problem of the commons is to

A) take away property rights so that no one owns the resource.
B) assign property rights so that someone owns the resource.
C) leave the market alone because the market will reach an equilibrium in which the efficient amount of the resource is used.
D) None of the above answers is correct.

Question 30

In the above figure, if no government intervention occurs, at the unregulated competitive market equilibrium, the marginal cost of the externality is _______ per unit.

A) $3
B) $7
C) $4
D) $6

Question 31

The figure above illustrates the problem of overcrowding and external costs experienced during the summer months in a national park. If the market is unregulated, in equilibrium the external cost of visiting the national park is given by the distance between

A) points F and G.
B) points H and G.
C) points I and F.
D) points G and K.

Question 32

Property rights

A) are legally established titles of ownership that are enforceable in the courts.
B) can be part of a solution to the problems of an externality.
C) apply to factors of production and to goods and services.
D) All of the above answers are correct.

Question 33

The tables above show the marginal costs and benefits from the production of paper. The efficient level of output is _______ of paper.

A) 1,600 tonnes
B) 3,200 tonnes
C) 2,400 tonnes
D) 4,000 tonnes

Question 34

Consider a market in which there is an external cost. A tax can be used to arrive at the efficient market equilibrium because the tax will

A) increase demand for the good.
B) decrease demand for the good.
C) decrease supply of the good.
D) increase supply of the good.

Question 35

If a good has an external cost, then the marginal private cost curve

A) lies below the marginal social cost curve.
B) is negative.
C) lies above the marginal social cost curve.
D) is the same as the marginal external cost curve.

Question 36

The tables above show the marginal costs and benefits from the production of paper. If the market is perfectly competitive and unregulated, the

A) allocation of resources is efficient.
B) market equilibrium produces 800 tonnes less than the efficient amount.
C) market equilibrium produces 800 tonnes more than the efficient amount.
D) market equilibrium produces 1,600 tonnes more than the efficient amount.

Question 37

The Coase Theorem is the proposition that if the number of involved parties is low, if property rights _______ and transactions costs are _______, then private transactions are efficient.

A) exist; low
B) are nonexistent; low
C) exist; high
D) are nonexistent; high

Question 38

The cost of producing one more unit of a good or service that is paid by the producer

A) is equal to the cost borne by people other than the producer.
B) has to be equal to the benefit that the consumer derives from that good.
C) is the marginal external cost.
D) is the marginal private cost.

Question 39

The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium output, the

A) marginal private cost exceeds the marginal private benefit.
B) marginal social cost equals the marginal private benefit.
C) marginal private cost is less than the marginal private benefit.
D) marginal social cost is greater than the marginal private benefit.

Question 40

For a common resource, the marginal private cost curve slopes _______ and the marginal social cost curve slopes _______.

A) downward; upward
B) upward; downward
C) downward; downward
D) upward; upward

Question 41

For a good whose production creates pollution, when marginal social cost equals marginal social benefit, then
I. there is no pollution.
II. resources are utilised efficiently.

A) I only
B) II only
C) Neither I nor II
D) Both I and II

Question 42

The table above gives the number of cows and the milk they can produce on a common pasture. The marginal cost of allowing a cow to graze is $0 per cow. The efficient number of cows equals

A) 45.
B) 5.
C) 25.
D) 90.

Question 43

Legally established titles to the ownership, use and disposal of factors of production are referred to as

A) pollution rights.
B) property rights.
C) Coase rights.
D) emission rights.

Question 44

The Coase Theorem says that which of the following is necessary to lead to an efficient use of resources?

A) Government intervention
B) Presence of transaction costs
C) Existence of property rights
D) All of the above answers are correct.

Question 45

Which condition(s) must exist for the Coase Theorem to hold?
I. Property rights must exist.
II. Transactions costs must be measurable.
III. A small number of parties must be involved.

A) I, II and III
B) I and III only
C) II and III only
D) I and II only

Question 46

The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. If the market is perfectly competitive and unregulated, the equilibrium output will be

A) 2,000 tonnes.
B) 5,000 tonnes.
C) 4,000 tonnes.
D) 3,000 tonnes.

Question 47

Consider an industry that produces an output Q with marginal private cost (MC) and marginal social cost (MSC) as given in the table: The marginal external cost associated with the production of unit 3 is

A) 10.
B) 4.
C) 6.
D) 16.

Question 48

A key contribution of Ronald Coase is that he pointed out that private transactions are efficient when the number of parties involved is small

A) and that property rights are irrelevant to the existence of externalities.
B) and when corporations are not greedy.
C) and when property rights do not exist.
D) and when property rights are well- defined and transactions costs are low.

Question 49

If the production of a good creates pollution, then the

A) marginal social benefit curve lies below the marginal private benefit curve.
B) marginal social benefit curve lies above the marginal private benefit curve.
C) marginal social cost curve lies below the marginal private cost curve.
D) marginal social cost curve lies above the marginal private cost curve.

Question 50

The tables above show the marginal costs and benefits from the production of paper. If the market is perfectly competitive and unregulated, the efficient level of output

A) cannot be achieved.
B) can be achieved by giving paper producers a subsidy.
C) is achieved.
D) can be achieved by imposing a Pigovian tax on paper producers.

Question 51

The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. If the market is perfectly competitive and unregulated, the equilibrium price per tonne will be

A) $90.
B) $80.
C) $100.
D) $70.

Question 52

When the production of a good creates an external cost, by setting the tax rate equal to the _______ , firms can be made to behave in the same way as they would if they bore the cost of the externality directly.

A) marginal private benefit
B) marginal external cost
C) marginal social cost
D) marginal social benefit

Question 53

A large farming operation which uses a potent fertiliser is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be

A) inefficient if the farming operation owns the river.
B) efficient if either the farming operation or the trout farmer owns the river.
C) always inefficient.
D) efficient only if the trout farmer owns the river.

Question 54

If the government assigns private property rights to a common resource, then the

A) marginal private cost becomes equal to the marginal social cost.
B) resource is underutilised.
C) government needs to set a quota to achieve efficiency.
D) None of the above answers is correct.

Question 55

A private cost is a cost of production that is borne by the

A) producer of the good.
B) government.
C) consumer of the good.
D) consumer of the good and the government.

Question 56

The cost of producing an additional unit of a good or service that is borne by the producer of that good or service is the

A) marginal social cost.
B) marginal private cost.
C) marginal external cost.
D) None of the above answers is correct.

Question 57

The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. If the market is perfectly competitive and unregulated, the efficient level of output could be achieved by setting a per tonne tax of

A) $80.
B) $110.
C) zero.
D) $30.

Question 58

The demand for bus service is perfectly elastic at a price of $1.00 a ride. The table above shows the bus company's marginal cost and the marginal social cost of the bus service. The competitive quantity of bus rides per week is _______.

A) 200
B) 100
C) 500
D) 300

Question 59

Resources are efficiently utilised when production is such that marginal social benefit

A) exceeds marginal social cost by as much as possible.
B) is less than marginal social cost.
C) is equal to marginal social cost.
D) None of the above because efficiency has to do with property rights and has nothing to do with marginal social benefit or marginal social cost.

Question 60

The figure above shows the demand curve, the marginal private cost curve and the marginal social cost curve of good A. Production of the 6th unit of output generates a marginal external

A) cost of $3.
B) benefit of $1.50.
C) cost of $6.
D) benefit of $3.

Question 61

The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. The market is efficient when the quantity of steel produced is _______ tonnes per week.

A) 10
B) 25
C) 15
D) 5

Question 62

The tables above show the marginal costs and benefits from the production of paper. If the efficient level of output is achieved by imposing a tax on paper producers, the government collects tax revenue equal to

A) $72,000.
B) $64,000.
C) $56,000.
D) $48,000.

Question 63

Marginal social cost is equal to

A) marginal private cost plus the marginal external cost.
B) the marginal cost imposed on people other than the producer of the good.
C) the value of the tax that will make the market efficient.
D) the marginal external cost.

Question 64

The tables above show the marginal costs and benefits from the production and consumption of paper. From this information we can see that there are

A) no externalities in production of paper.
B) external costs of producing paper.
C) external benefits of producing paper.
D) external costs from consuming paper.

Question 65

A polluted river has 20 homes on it that rent for $1,000 each per month. Homes on a similar river that is not polluted rent for $2,000 each per month. The river is polluted because there are two factories on the river that dump polluted water into it. Each factory could install a filter that would cost $5,000 each and would reduce the pollution in the water to a negligible level. In this case

A) assigning property rights to the river to either party will result in an efficient outcome.
B) if property rights to the river are assigned to the home owners then the factories will be closed.
C) neither party is willing to bargain with the other.
D) if property rights to the river are assigned to the factory then all the homes will be abandoned.

Question 66

The _______ is the cost of production paid by the producer plus any cost paid by everyone else when another unit of a good or service is produced.

A) marginal social cost.
B) marginal external cost.
C) marginal private cost.
D) None of the above answers is correct.

Question 67

The table above shows information about the costs and benefits of a steel smelter that pollutes the air of a city. If the marginal external cost is $10 per tonne at every quantity of steel produced, the equilibrium quantity when the steel industry is unregulated is _______ tonnes per week.

A) 25
B) 15
C) 5
D) 20

Question 68

When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because

A) MSC < MSB
B) MSC = MC
C) MSC = MSB
D) MSC > MSB

Question 69

Left unregulated, the equilibrium amount produced in the market described in the table above is

A) 700 units.
B) 600 units.
C) 650 units.
D) 550 units.

Question 70

When property rights are assigned and transactions costs are low,

A) the marginal social cost curve shifts rightward.
B) the marginal social benefit curve shifts leftward.
C) all costs and benefits are taken into account by the transacting parties so the transaction is efficient.
D) externalities will lead to market failure.

Question 71

The Coase Theorem is the proposition that private economic transactions are efficient if the number of involved parties is small, if property rights _______, and transactions costs are _______.

A) exist; high
B) do not exist; high
C) do not exist; low
D) exist; low

Question 72

An emission charge is a

A) rebate given to consumers for suffering pollution.
B) limit set on the quantity of pollution a firm may generate.
C) price per unit of pollution paid by the firm.
D) penalty firms pay for polluting beyond the limit it is granted.

Question 73

When the production of a good creates an external cost, in order for taxes to be effective in achieving the efficient allocation of resources, the tax must be set equal to the

A) marginal external cost.
B) marginal social cost.
C) marginal benefit of polluting.
D) marginal private cost.

Question 74

According to the Coase theorem, part of what is needed for private transactions to be efficient is that property rights

A) need to be defined by the government to avoid producers exploiting high transactions costs.
B) must be defined, and it is crucial as to who owns the property.
C) need not be defined as long as there are no transactions costs present.
D) must be defined, but it does not matter who owns the property.

Question 75

If a good has an external cost, the

A) marginal private cost reflects the external cost.
B) competitive market outcome is inefficient.
C) competitive market outcome is efficient.
D) marginal private benefit is equal to the marginal social cost.

Question 76

The Coase Theorem is the proposition that private transactions are efficient if property rights exist, if only a _______ number of parties are involved, and if transactions costs are _______.

A) large; high
B) large; low
C) small; low
D) small; high

Question 77

The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium level of output, the marginal external cost per tonne is

A) $110.
B) $30.
C) $80.
D) zero.

Question 78

For a common resource, efficiency requires that the _______ equals the _______.

A) marginal social cost; marginal private cost
B) marginal social benefit; marginal social cost
C) marginal private benefit; marginal social benefit
D) marginal private benefit; marginal private cost

Question 79

An individual transferable quota can be used to achieve the

A) efficient use of a common resource.
B) equilibrium for a common resource.
C) equilibrium for a public good.
D) equilibrium for a private good.

Question 80

In the absence of property rights, factories will dump waste into a waterway up to the point where _______equals _______.

A) marginal social cost; marginal social benefit
B) marginal private cost; marginal private benefit
C) marginal social cost; marginal private cost
D) marginal private cost; marginal social cost