Deck 16: Externalities

Question 1

The socially optimal quantity of pollution is:

A)zero.
B)the quantity whose marginal social cost is equal to zero.
C)the quantity whose marginal social benefit is equal to zero.
D)the quantity whose marginal social cost is equal to the marginal social benefit.

Answer 1

D

Question 2

The marginal social cost of pollution rises as the quantity of pollution emissions:

A)remains constant.
B)falls.
C)rises.
D)rises but subsequently gradually falls.

Answer 2

C

Question 3

Pollution has ________ and _.

A)no benefits; only costs
B)benefits; costs
C)no opposition; only advocates
D)short-term impacts; very little long-term impact

Answer 3

B

Question 4

The marginal cost of pollution ________ as the quantity of pollution emissions _.

A)remains constant; increases
B)decreases; increases
C)decreases; decreases
D)remains constant; decreases

Question 5

The difference between the marginal social cost curve and the marginal cost of production curve is the:

A)additional cost of producing an additional good.
B)marginal external cost.
C).producer's supply curve.
D)marginal external benefit.

Question 6

Given the general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is:

A)zero.
B)the level that reduces the marginal social costs of pollution to zero.
C)the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution.
D)the level of pollution that minimizes the average total cost of producing the product that generates the pollution.

Question 7

The socially optimal amount of pollution occurs where:

A)the marginal social benefit of pollution is equal to the marginal social cost of pollution.
B)the marginal social benefit of pollution is greater than the marginal social cost of pollution.
C)the marginal social benefit of pollution is less than the marginal social cost of pollution.
D)there is no pollution.

Question 8

The efficient level of pollution is:

A)the quantity at which its total benefits exceed its total costs by the greatest possible amount.
B)the quantity at which its total benefits equal its total costs.
C)where the marginal social benefit of an additional unit of pollution emission is greater than the marginal social cost of the additional unit of pollution.
D)where the marginal social benefit of an additional unit of pollution emission is less than the marginal social cost of the additional unit of pollution.

Question 9

There are benefits resulting indirectly from pollution because:

A)we obtain goods and services we enjoy even though in the process we create pollution.
B)firms pollute the environment only if it allows them to provide people with goods and services they desire at a higher cost.
C)businesses and consumers receive a perverse satisfaction from polluting.
D)it can often be beneficial to wildlife.

Question 10

A negative externality:

A)is any cost above the economic cost.
B)equals the social cost plus the firm's private cost.
C)is an uncompensated cost imposed by an individual or firm on others.
D)equals the opportunity cost minus the social costs.

Question 11

The marginal benefit from pollution ________ as the quantity of pollution emissions _.

A)remains constant; increases
B)decreases; increases
C)increases; increases
D)remains constant; decreases

Question 12

The marginal cost of pollution emissions ________ as the quantity of pollution emissions _.

A)decreases; increases
B)increases; increases
C)increases; decreases
D)remains constant; decreases

Question 13

As the quantity of pollution emissions rises, the marginal social cost of pollution:

A)remains constant.
B)falls.
C)rises.
D)rises at first but eventually falls.

Question 14

(Table: The Marginal Social Cost of Batteries) The table The Marginal Social Cost of Batteries lists several price (P) and quantity (QS) values along the market supply curve for batteries.Because batteries generate toxic wastes, there is an external cost associated with their production.The marginal external cost is estimated to be $10.The marginal social cost would then be indicated by the values in the column labeled:

A)MSC1.
B)MSC2.
C)MSC3.
D)MSC4.

Question 15

The efficient quantity of pollution emissions occurs where:

A)there is absolutely no damage done to a pristine environment.
B)government forces zero pollution to occur, no matter what the cost.
C)the marginal social benefits of pollution exceed the marginal social costs of pollution.
D)the marginal social benefit of pollution is equal to the marginal social cost of pollution.

Question 16

A market economy will produce without any government regulation.

A)too little pollution
B)too much pollution
C)the socially optimal amount of pollution
D)the amount of pollution that maximizes total surplus

Question 17

The marginal social benefit of pollution:

A)is zero, since pollution is not beneficial.
B)can be measured as the additional gain to society from one additional unit of pollution.
C)is easy to estimate, since polluters are required to file this information in their tax returns.
D)is equal to the marginal social cost of pollution, since benefits to producers are equal to costs to consumers.

Question 18

The difference between the marginal social benefit curve and the market demand curve is the:

A)additional cost of producing an additional good.
B)marginal external cost.
C)marginal benefit to the consumers of the good.
D)marginal external benefit.

Question 19

The marginal benefit of pollution emissions ________ as the quantity of pollution emissions _.

A)decreases; increases
B)increases; increases
C)decreases; decreases
D)remains unchanged; goes up or down

Question 20

The efficient rate of emissions occurs when:

A)there is absolutely no damage done to a pristine environment.
B)government forces zero pollution to take place no matter what the cost.
C)the marginal benefits of pollution exceed the marginal costs of pollution.
D)the change in benefits and the change in costs due to an additional unit of emissions are equal.

Question 21

An industry with production that generates external costs produces a quantity of output that is:

A)socially optimal.
B)smaller than the socially optimal quantity.
C)larger than the socially optimal quantity.
D)socially optimal if a specific subsidy is given to buyers.

Question 22

Whenever human activity generates a concentration of a substance in the environment sufficient to cause harm to people, it is called:

A)a free good.
B)an external shock.
C)a result of human greed.
D)pollution.

Question 23

Which of the following is an example of an activity generating a negative externality?
A)You buy a new car, then discover it needs a new transmission.
B)Your next-door neighbor mows the lawn at 6

A)M.
C)The only two coffee shops in town conspire to raise prices.
D)After Jane bought health insurance, she began racing motorcycles on the weekends.

Question 24

If a coal-powered electrical generator discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town, then this electrical generation has a(n):

A)quasi-public good.
B)external cost.
C)external benefit.
D)specific tax.

Question 25

Suppose the production of DVDs generates sulfur dioxide, an air pollutant.The equilibrium market quantity of DVDs produced and consumed:

A)is less than the socially optimal quantity.
B)is more than the socially optimal quantity.
C)equals the socially optimal quantity.
D)may be more than, less than, or equal to the socially optimal quantity.

Question 26

In the absence of government action, polluters will pollute up to the point at which the marginal social benefit of pollution is:

A)equal to the marginal social cost of pollution.
B)zero.
C)maximized.
D)greater than the marginal social cost of pollution.

Question 27

Since the 1960s, power plants have taken actions, such as switching to low-sulfur coal and installing scrubbers in their smokestacks, which have significantly reduced the problem of acid rain.Power plants took these actions mainly because:

A)of concern about the environment.
B)large firms in the United States have a history of being "good citizens" and doing what is best for society, even if this reduces their profits somewhat.
C)government policies provided power companies with incentives to take these actions.
D)of concern about the environment and because government policies provided power companies with incentives to take these actions.

Question 28

Activities that generate external costs will likely be carried out at levels that those that would be efficient.

A)are equal to
B)are less than
C)exceed
D)compete with

Question 29

If an activity generates external costs, the decision makers generating the activity will:

A)be faced with its full costs.
B)be faced with no costs.
C)not be faced with its full costs.
D)be faced with excessive costs.

Question 30

Suppose the production of DVDs generates sulfur dioxide, an air pollutant.Then the market price for DVDs:

A)is less than the marginal cost to society of producing DVDs.
B)is more than the marginal cost to society of producing DVDs.
C)equals the marginal cost to society of producing DVDs.
D)may be more than, less than, or equal to the marginal cost to society of producing DVDs.

Question 31

All of the following are examples of an external cost except:

A)the smoke nuisance of a factory.
B)zoning restrictions on your property.
C)land defilement from strip mining.
D)weeds on your next-door neighbor's lawn.

Question 32

The marginal external cost of a good or activity equals the amount:

A)by which the marginal social benefit curve is higher than the demand curve.
B)by which the marginal social cost curve is lower than the supply curve.
C)by which the marginal social cost curve is higher than the supply curve.
D)at which the marginal social benefit curve intersects the demand curve.

Question 33

Which of the following is an example of a negative externality?

A)high prices for necessities such as drinking water in the aftermath of a natural disaster
B)the risks to nonsmokers from second-hand smoke
C)the increased risk of a traffic accident to an individual who uses a cell phone while driving
D)unemployment in the steel industry caused by low prices of imported (external) steel

Question 34

Damage to the environment occurs because:

A)most businesses just don't care about the environment.
B)consumers want goods and services at the lowest prices no matter what other costs may be involved.
C)in the process of producing the goods and services we enjoy, pollution occurs.
D)pollution reduces the social cost of production.

Question 35

Oscar owns a meat processing plant whose unpleasant odors waft across the city.Because the production of processed meat provides a negative externality to the community, the government should:

A)impose a tax on Oscar's production of processed meat, since the market quantity is less than the socially optimal quantity.
B)subsidize Oscar's production of processed meat, since the market quantity is greater than the socially optimal quantity.
C)subsidize Oscar's production of processed meat, since the market quantity is less than the socially optimal quantity.
D)impose a tax on Oscar's production of processed meat, since the market quantity is greater than the socially optimal quantity.

Question 36

(Table: The Socially Optimal Quantity of Flash Drives) The table The Socially Optimal Quantity of Flash Drives lists several values for price (P), quantity demanded (QD), and quantity supplied (QS) from the market demand and supply curves for flash drives.Suppose that the production of flash drives generates a marginal external cost equal to $10.The socially optimal number of flash drives will be:

A)5.
B)7.
C)9.
D)11.

Question 37

If drivers decide to make phone calls without considering the costs imposed on others, the:

A)number of phone calls made while driving will be more than the socially optimal quantity.
B)number of phone calls made while driving will be fewer than the socially optimal quantity.
C)marginal social cost curve will lie below the marginal cost of production curve.
D)marginal social benefit curve will lie below the marginal social cost curve.

Question 38

Which of the following is not an example of an activity that generates an externality?

A)Bob's Service Station dumps used oil in the river.
B)Bob renovates a run-down house in the neighborhood.
C)Bob occasionally drives while drunk.
D)Bob's Service Station donates a car to charity.

Question 39

An externality is said to exist when:

A)individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.
B)individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account.
C)individual actions are affected by external forces like the loss of U.S.jobs because of competition from abroad.
D)individual actions are affected by government policies (such as taxes) that are externally imposed on the market.

Question 40

Oscar owns a meat processing plant whose unpleasant odors waft across the city.Because the production of processed meat provides a negative externality to the community, at the market equilibrium quantity, the marginal social:

A)cost of processed meat exceeds the market price.
B)benefit of processed meat exceeds the market price.
C)cost of processed meat is lower than the market price.
D)benefit of processed meat is lower than the market price.

Question 41

An externality is said to be internalized:

A)when individuals take external costs and benefits into account in their decision making.
B)when the Coase theorem is irrelevant or cannot be applied.
C)when individuals successfully petition the government to ban or restrict activities that generate negative externalities.
D)when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.

Question 42

A plastics manufacturing plant emits pollution into the Big River.This leads to higher costs and disruption for fishermen on the river, for which they are not compensated.In this situation:

A)too little of society's resources is being used to produce plastic.
B)too much of society's resources is being used to produce plastic.
C)the ideal amount of society's resources is being used to produce plastic.
D)there is an external benefit to society from plastic production.

Question 43

A familiar example of a negative externality is traffic congestion.In principle, it should be possible to internalize this externality by permitting drivers to negotiate about rights to drive during particular time periods.The most likely reason that this does not happen is that:

A)most individuals are unfamiliar with the Coase theorem.
B)the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.
C)agreements arising from such negotiations could not be enforced, since the Constitution guarantees all individuals freedom of access to all public roads.
D)lawyers would find a way to prohibit such negotiations unless they were actively involved, and this would make transaction costs prohibitive.

Question 44

The proposition that if bargaining is costless, then the market can achieve an efficient outcome is the:

A)Coase theorem.
B)property rights paradigm.
C)market rights theorem.
D)efficient environment paradigm.

Question 45

According to the Coase theorem, a market will when negative externalities are present.

A)always reach an efficient solution
B)reach an efficient solution if transaction costs are low
C)reach an efficient solution only if the government intervenes in the market
D)reach an efficient solution only if the negative externalities are offset by positive externalities

Question 46

When farmers raise pigs, there are a number of external costs.In particular, raising pigs generates methane gas.Without government regulation, the equilibrium price and quantity of pigs raised means that:

A)too few pigs will be raised.
B)the price will be less than the marginal social cost.
C)the price will be less than the marginal benefit.
D)the price will be less than the marginal cost to pig farmers.

Question 47

The Coase theorem states that in the presence of externalities, a market economy will:

A)always reach an efficient solution.
B)never reach an efficient solution.
C)reach an efficient solution if transaction costs are sufficiently low.
D)reach an efficient solution only in the case of government regulation.

Question 48

Automobile emissions generate pollution and cause higher costs and discomfort to residents of a city.In this case:

A)too little of society's resources is being used to operate automobiles.
B)the externality can be internalized into the market by imposing a specific tax on drivers.
C)there is an external benefit to society from operating automobiles.
D)the externality can be internalized into the market by granting a specific subsidy to drivers.

Question 49

If the marginal benefit received from pollution is less than its marginal cost, then:

A)society's well-being can be improved if the quantity of pollution increases.
B)society's well-being can be improved if the quantity of pollution decreases.
C)society has achieved its socially optimal level of pollution.
D)the market is producing too little pollution.

Question 50

If the marginal benefit received from pollution is equal to its marginal cost, then:

A)society's well-being can be improved if the quantity of pollution increases.
B)society's well-being can be improved if the quantity of pollution decreases.
C)society has achieved its socially optimal level of pollution.
D)the market is producing too much pollution.

Question 51

If a good that involves external costs is priced to take these costs into account, then its price will:

A)fall, and output will go up.
B)rise, and output will fall.
C)not change, but output will fall.
D)rise, but output will stay the same.

Question 52

If external costs exist, the competitive free market:

A)allocates resources inefficiently.
B)allocates resources efficiently.
C)automatically corrects an overallocation of resources.
D)automatically corrects an underallocation of resources.

Question 53

Which of the following best describes a negative externality?

A)Your neighbor loves to bake bread and always brings you a loaf fresh and hot from the oven.
B)Your neighbor has an ornamental pond that breeds mosquitoes.
C)Your neighbor has invested in beautiful landscaping, increasing the value of all houses on the block.
D)Your neighbor has a pool and has given you an open invitation to come over and swim.

Question 54

When individuals take external costs and benefits into account:

A)there are no external costs.
B)they internalize the externality.
C)the government should intervene in the market.
D)the market will not reach an efficient solution.

Question 55

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated.In this case:

A)too little of society's resources is being used to produce copper.
B)too much of society's resources is being used to produce copper.
C)the optimal amount of society's resources is being used to produce copper.
D)there is an external benefit to society from copper production.

Question 56

The marginal benefit received from pollution is less than its marginal cost in the market for highly polished glass.In this situation:

A)firms in the market produce the socially optimal level of pollution.
B)society's well-being cannot be improved by changing the quantity of pollution.
C)firms in the market produce too much pollution.
D)firms in the market produce too little pollution.

Question 57

If the marginal benefit received from pollution is greater than its marginal cost in a market, then:

A)society's well-being can be improved if the quantity of pollution decreases.
B)firms in the market produce the socially optimal level of pollution.
C)firms in the market produce too much pollution.
D)firms in the market produce too little pollution.

Question 58

If at the current amount of pollution, the marginal social benefit of pollution is greater than its marginal social cost, then:

A)there is too little pollution.
B)there is too much pollution.
C)society is achieving the optimal amount of pollution.
D)the externality is minimized.

Question 59

When farmers raise pigs, there are a number of external costs.In particular, raising pigs generates methane gas.If the marginal external cost is $100 per pig and the government imposes a tax of $200 per pig, then at the equilibrium price and quantity of pigs:

A)too few pigs will be raised.
B)the price will be less than the marginal social cost.
C)the price will be less than the marginal social benefit.
D)the price will be less than the marginal cost to pig farmers.

Question 60

The marginal benefit received from pollution is equal to its marginal cost in the market for highly polished glass.In this situation:

A)society's well-being can be improved if the quantity of pollution decreases.
B)firms in the market produce too much pollution.
C)firms in the market produce too little pollution.
D)firms in the market produce the socially optimal level of pollution.

Question 61

Figure: Pollution and Efficiency (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency.If this market, where sulfur emissions are a result of production, produced ________ units of emissions, then _.

A)40; MSB = MSC
B)30; MSB < MSC
C)40; MSB < MSC
D)30; MSC < MSB

Question 62

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.The efficient quantity of pollution is tons.

A)0
B)2
C)4
D)8

Question 63

The proposition that if transaction costs are low enough, the private market can achieve an efficient outcome regardless of which of the affected parties hold the property rights is known as the:

A)Coase theorem.
B)property rights paradigm.C.market rights theorem.
D)green environment paradigm.

Question 64

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.If 5 tons of pollution is produced, the outcome is ________ because _.

A)efficient; MSB = MSC
B)efficient; MSB > MSC
C)inefficient; MSB > MSC
D)inefficient; MSB < MSC

Question 65

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.At the efficient quantity of pollution:

A)the marginal social cost of pollution is greater than the marginal social benefit of pollution.
B)the marginal social cost of pollution is equal to the marginal social benefit of pollution.
C)the marginal social cost of pollution is less than the marginal social benefit of pollution.
D)the marginal social cost of pollution and the marginal social benefit of pollution are unrelated.

Question 66

Figure: Pollution and Efficiency (Figure: Pollution and Efficiency) Point in the figure Pollution and Efficiency represents an efficient solution in this
Market, where sulfur emissions is a result of production.

A)A
B)B
C)E
D)F

Question 67

Figure: Pollution and Efficiency (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency.In this market, where sulfur emission is a result of production, an efficient solution is one in which:

A)MSB < MSC.
B)MSC < MSB.
C)total cost = total benefit.
D)MSC = MSB.

Question 68

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.If 5 tons of pollution is produced, the marginal social benefit is , and
The marginal social cost is _.

A)$0; $800
B)$500; $300
C)$400; $400
D)$800; $0

Question 69

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.If 5 tons of pollution is produced:

A)too much pollution is produced.
B)the efficient amount of pollution is produced.
C)not enough pollution is produced.
D)the socially optimum amount of pollution is produced.

Question 70

Figure: Pollution and Efficiency (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency.In this market, where sulfur emission is a result of production, too much pollution is found when the price is ________ and the quantity is _.

A)$5; 15
B)$5; 40
C)$25; 20
D)$5; 30

Question 71

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.At the market-determined quantity of pollution, the marginal social cost of pollution is:

A)$800.
B)$400.
C)$200.
D)$0.

Question 72

Figure: Pollution and Efficiency (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency.If this market, where sulfur emission is a result of production, produced ________ units of emissions, then _.

A)30; it would be efficient .B.30; MSB > MSC
C)45; total cost would equal total benefits
D)45; MSC = 0

Question 73

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.The market-determined quantity of pollution is tons.

A)0
B)2
C)4
D)8

Question 74

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.At the efficient quantity of pollution the marginal social cost of pollution is:

A)$0.
B)$100.
C)$200.
D)$400.

Question 75

The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low is known as:

A)a Pigouvian tax.
B)a network externality.
C)a technology spillover.
D)the Coase theorem.

Question 76

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.At the efficient quantity of pollution the marginal social benefit of pollution is:

A)$400.
B)$300.
C)$200.
D)$100.

Question 77

Figure: Pollution and Efficiency (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency.In this market, where sulfur emissions are a result of production, an efficient solution takes place at a price of ________ and a quantity of _.

A)$5; 40
B)$15; 30
C)$25; 30
D)$15; 15

Question 78

A familiar example of a negative externality is loud music on a college campus.In principle, it should be possible to internalize this externality by permitting students to negotiate about rights to play music during particular time periods.The most likely reason that this does not happen is that:

A)most students are unfamiliar with the Coase theorem.
B)the transaction costs associated with identifying and establishing communication with students would be high.
C)agreements arising from such negotiations could not be enforced.
D)most students don't view loud music as a negative externality.

Question 79

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and the marginal social cost of various amounts of pollution from a coal mine.At the market-determined quantity of pollution, the marginal social benefit of pollution is:

A)$800.
B)$400.
C)$200.
D)$0.

Question 80

According to the Coase theorem, the private market can achieve an efficient outcome:

A)as long as the enforcement of property rights costs less than the marginal benefit of emissions.
B)only if the property right to clean air is assigned to the polluter.
C)only if the property right to clean air is assigned to the party harmed by pollution.
D)if bargaining costs are low.