Deck 8: Externalities, the Environment, and Public Goods

Question 1

A situation in which free, unregulated markets do not maximize economic efficiency is called:

A) a government failure.
B) a market failure.
C) an economic failure.
D) a social failure.

Answer 1

B

Question 2

The Rainbow Paint Company has lowered its cost of doing business by illegally dumping waste materials into a nearby river in order to reduce the company's costs. This is an example of _____ failure.

A) a government
B) a market
C) an economic
D) a social

Answer 2

B

Question 3

When the private costs of production that are incurred by a business are different than the total cost to society, _____ failure has most likely occurred.

A) a government
B) a market
C) an economic
D) a social

Answer 3

B

Question 4

A side effect of a transaction that affects someone who is not involved in the transaction is called:

A) a market failure.
B) a government failure.
C) an equilibrium.
D) an externality.

Question 5

A _____ occurs when someone who is not involved in a transaction is harmed by it.

A) government failure
B) negative failure
C) government externality
D) negative externality

Question 6

A _____ occurs when someone who is not involved in a transaction benefits from it.

A) government failure
B) market failure
C) government externality
D) positive externality

Question 7

An example of a positive externality is:

A) education.
B) pollution.
C) second-hand smoke.
D) noise from jet engines.

Question 8

An example of a positive externality is:

A) vaccinations.
B) pollution.
C) second-hand smoke.
D) noise from jet engines.

Question 9

An example of a negative externality is:

A) vaccinations.
B) education.
C) clothing donations to a charity.
D) noise pollution from jet engines.

Question 10

An example of a negative externality is:

A) vaccinations.
B) education.
C) clothing donations to a charity.
D) cigarette smoking.

Question 11

_____ costs are marginal costs that are borne by sellers.

A) Supply
B) Marginal social
C) Demand
D) Marginal private

Question 12

_____ costs are marginal costs that are borne by sellers plus additional external costs.

A) Supply
B) Marginal social
C) Demand
D) Marginal private

Question 13

An example of a firm's marginal private cost is:

A) noise pollution generated by the production process.
B) wages paid to employees.
C) government regulations.
D) vaccinations.

Question 14

An example of a firm's marginal private cost is:

A) noise pollution generated by the production process.
B) raw material payments.
C) government regulations.
D) vaccinations.

Question 15

_____ costs are costs from society's perspective.

A) Marginal social
B) Marginal private
C) Government regulations
D) Pollution control

Question 16

The individual consumer gain received from buying an additional good is called:

A) marginal social benefits.
B) marginal private benefits.
C) social equilibrium.
D) marginal social equilibrium.

Question 17

_____ are marginal benefits that are received by buyers of a good.

A) Marginal social benefits
B) Marginal private benefits
C) Social equilibrium
D) Marginal social equilibrium

Question 18

_____ benefits are marginal benefits plus external benefits.

A) Marginal social
B) Marginal private
C) Social equilibrium
D) Marginal social equilibrium

Question 19

_____ benefits are marginal benefits excluding external benefits.

A) Marginal social
B) Marginal private
C) Social equilibrium
D) Marginal social equilibrium

Question 20

Economic efficiency occurs when:

A) marginal social benefits equal social benefits.
B) marginal private benefits equal private benefits.
C) marginal social costs equal marginal social benefits
D) marginal social benefits equal marginal private benefits.

Question 21

Social equilibrium is where:

A) marginal social benefits equal social benefits.
B) marginal private benefits equal private benefits.
C) marginal social costs equal marginal social benefits.
D) marginal social benefits equal marginal private benefits.

Question 22

Positive externalities result in _____ of a good.

A) increased production
B) overproduction
C) underproduction
D) efficient production

Question 23

Because of a _____ externality, marginal social cost is greater than marginal private cost.

A) production
B) social
C) positive
D) negative

Question 24

Because of a _____ externality, marginal social benefit is greater than marginal private benefit.

A) production
B) social
C) positive
D) negative

Question 25

(Figure: Externalities 0) In this figure, which point represents social equilibrium?

A) A
B) B
C) C
D) D

Question 26

(Figure: Externalities 0) In this figure, which point represents private equilibrium?

A) A
B) B
C) C
D) D

Question 27

(Figure: Externalities 0) In this figure, which point represents the equilibrium that is likely to occur absent government intervention?

A) A
B) B
C) C
D) D

Question 28

(Figure: Externalities and Social Equilibrium 2) In this figure, which point represents private equilibrium?

A) A
B) B
C) C
D) D

Question 29

(Figure: Externalities and Social Equilibrium 2) In this figure, which point represents social equilibrium?

A) A
B) B
C) C
D) D

Question 30

(Figure: Externalities and Social Equilibrium 2) In this figure, which point represents the equilibrium that is likely to occur absent government intervention?

A) A
B) B
C) C
D) D

Question 31

(Figure: Externalities A) In this figure, the distance between which two points represent the value of a positive externality?

A) A and B
B) C and D
C) A and C
D) B and D

Question 32

(Figure: Externalities A) In this figure, which two points include a positive externality?

A) A and B
B) C and D
C) A and C
D) B and D

Question 33

(Figure: Externalities I) In this figure, the distance between which two points represent the value of a negative externality?

A) A and B
B) C and D
C) A and C
D) B and D

Question 34

(Figure: Externalities I) In this figure, which point includes a negative externality?

A) A
B) B
C) C
D) D

Question 35

Firm XYZ produces paper products, which sells for $100,000. However, the production of the paper results in air pollution. The cost of this negative externality is $6,000. What is the marginal private benefit (MPB) if this externality is ignored?

A) $106,000
B) $6,000
C) $94,000
D) $100,000

Question 36

Firm XYZ produces paper products, which cost the company $100,000. However, the production of the paper results in air pollution. The cost of this negative externality is $6,000.What is the marginal social benefit (MSB) at the social equilibrium, which reflects higher social costs?

A) $106,000
B) $6,000
C) $94,000
D) $100,000

Question 37

Firm XYZ produces paper products, which cost the company $100,000. However, the production of the paper results in air pollution. The cost of this negative externality is $6,000. What is the marginal private cost (MPC)?

A) $106,000
B) $6,000
C) $94,000
D) $100,000

Question 38

With _____, the government directly regulates business by setting strict pollution limits or by requiring the use of pollution control devices.

A) environmental protection policies
B) command-communications policies
C) environmental communications regulations
D) command-and-control environmental regulations

Question 39

The _____ are rules to protect the environment through government regulations.

A) environmental protection policies
B) command-communication policies
C) environmental standards
D) environmental communications regulations

Question 40

When municipalities enact noise restrictions that prevent aircraft from flying between 11 p.m. and 6

A) environmental
B) Communication
C) control and communications
D) Control

Question 41

_____ is the act of altering private costs and benefits to account fully for external effects.

A) Setting environment standards
B) Communication
C) Internalizing an externality
D) Environmental communication

Question 42

When a paper mill pollutes the air as a result of its production process, the firm must pay a fine. This is an example of:

A) environment standards.
B) communication.
C) internalizing an externality.
D) environmental communication.

Question 43

_____ is a tax levied on activities that generate a negative externality so that the externality is considered in the decision making.

A) An environmental tax
B) A corrective tax
C) A sales tax
D) A property tax

Question 44

A _____ tax is an example of a corrective tax.

A) property
B) solar energy
C) wind
D) carbon emissions

Question 45

_____ may be applied to activities that generate a positive externality or a smaller negative externality on a comparable activity to encourage businesses to consider of the externality in decision making.

A) A property tax
B) A pollution subsidy
C) An environmental tax
D) A corrective subsidy

Question 46

A positive externality exists, which leads the government to issue a corrective subsidy. It is attempting to:

A) raise revenue.
B) ensure that the externality is considered in decision making.
C) decrease quantity demanded.
D) reduce competition in the market.

Question 47

When the government aids the solar power industry by issuing a corrective subsidy, it is effectively:

A) raising revenue for the government.
B) reducing the cost of the solar power.
C) decreasing quantity demanded.
D) reducing competition in the market.

Question 48

_____ energy subsidies help make electricity generated by wind and solar competitive with electricity generated by fossil fuels.

A) Green
B) Brown
C) Yellow
D) Red

Question 49

_____ allow firms the right to pollute for a strictly limited amount and type of pollution.

A) Corrective taxes
B) Corrective subsidies
C) Tradable pollution permits
D) Nontradable pollution permits

Question 50

A government program where permits are issued for a maximum allowable amount of pollution and those permits can be bought and sold is called:

A) a corrective tax.
B) a corrective subsidy.
C) cap and trade.
D) nontradable pollution permits.

Question 51

_____ is a type of tradable pollution permits program that allow firms to pollute up to a given limit.

A) A corrective tax
B) A corrective subsidy
C) Cap and trade
D) A nontradable pollution permit

Question 52

_____ are a form of property rights.

A) Government regulations
B) Corrective taxes
C) Tradable pollution permits
D) Green energies

Question 53

_____ suggests that private individuals are able to negotiate an efficient solution to the problem of external costs or benefits in the presence of clearly defined property rights and low transaction costs.

A) The availability of a government subsidy
B) The Coase theorem
C) Economic efficiency
D) Cap-and-trade

Question 54

The Coase theorem claims that many instances of externality problems can be solved by:

A) government regulations.
B) corrective taxes.
C) negotiations.
D) subsidies.

Question 55

Ronald Coase claimed that when many people are affected by negative externalities, it becomes difficult to negotiate a mutually beneficial outcome due to:

A) government regulations.
B) corrective taxes.
C) transaction costs.
D) subsidies.

Question 56

The expense of complex negotiated settlements in cases where many people are affected by negative externalities is known as:

A) government regulations.
B) corrective taxes.
C) transaction costs.
D) subsidies.

Question 57

The Coase theorem suggests that negative externalities occur, in part, because of a lack of clearly defined:

A) government regulations.
B) corrective taxes.
C) transaction costs.
D) property rights.

Question 58

_____ good is one that can be used or consumed by only one consumer.

A) A public
B) A nonprivate
C) An excludable
D) A non-rival

Question 59

One person's consumption of _____ good diminishes the ability of others to consume the same good.

A) a public
B) a nonprivate
C) an excludable
D) a rival

Question 60

_____ goods can be denied to individuals who do not pay.

A) Public
B) Nonprivate
C) Excludable
D) Rival

Question 61

_____ goods are those where it is impossible to exclude nonpayers.

A) Private
B) Nonprivate
C) Nonexcludable
D) Rival

Question 62

_____ goods are rival in consumption and excludable.

A) Private
B) Nonprivate
C) Nonrival private
D) Rival

Question 63

_____ goods are nonrival in consumption and excludable.

A) Private
B) Public
C) Nonrival private
D) Nonrival public

Question 64

_____ goods are nonrival in consumption and nonexcludable.

A) Private
B) Public
C) Nonrival private
D) Common resource

Question 65

_____ goods are rival in consumption and nonexcludable.

A) Private
B) Public
C) Common resource
D) Rival

Question 66

Which of the following is an example of a private good?

A) Netflix movie
B) concert
C) sandwich
D) dance club

Question 67

Which of the following is an example of a nonrival private good?

A) pizza
B) music streaming service
C) sandwich
D) national defense

Question 68

Which of the following is an example of a public good?

A) pizza
B) concert
C) sandwich
D) national defense

Question 69

Which of the following is an example of a common resource good?

A) fish in the ocean
B) concert
C) sandwich
D) national defense

Question 70

Over-the-air television service is generally a _____ good.

A) private
B) public
C) common resource
D) rival

Question 71

Timber on property not owned by any individual is an example of a _____ good.

A) private
B) public
C) common resource
D) rival

Question 72

Which of the following is a public good?

A) hamburger
B) cell phone
C) fireworks display
D) car

Question 73

In economics, the _____ occurs when people receive benefits from a public good without paying.

A) issue of minors
B) free-rider problem
C) distribution of goods
D) inequality issue

Question 74

_____ is a method used by the government to determine if a public good should be provided.

A) Consumer poll
B) Request for proposal
C) Cost-benefit analysis
D) Federal-local match

Question 75

The overuse of _____ goods is known as the tragedy of the commons.

A) private
B) nonrival private
C) common resource
D) public

Question 76

The overuse of public goods is known as:

A) entitlement.
B) self-sufficiency.
C) the tragedy of the commons.
D) government failure.

Question 77

(Figure: Common Resource Goods) This figure shows that MPC is relatively _____ and thus _____ the full cost of the common resource.

A) high; includes
B) high; excludes
C) low; includes
D) low; excludes

Question 78

(Figure: Common Resource Goods) This figure illustrates an _____ of a common resource.

A) efficient use
B) exclusion
C) overuse
D) underuse

Question 79

(Figure: Common Resource Goods) In this figure, _____ equilibrium is not achieved because _____ equilibrium is greater than the optimum quantity.

A) social; social
B) social; private
C) private; social
D) private; private

Question 80

(Figure: Common Resource Goods 2) In this figure, which point depicts social equilibrium?

A) A
B) B
C) C
D) D