Deck 17: Externalities and the Environment

Question 1

A negative externality is likely to arise if _____

A)the government sets up more schools.
B)a company introduces a research and development unit.
C)factories install devices to reduce the amount of chemicals released.
D)the government introduces a measles vaccine.
E)car owners refuse to pay for devices that reduce the emission of carbon monoxide.

Answer 1

E

Question 2

Which of the following is not an exhaustible resource?

A)coal
B)oil
C)air
D)iron ore
E)uranium

Answer 2

C

Question 3

Private property rights are defined and enforced _____

A)only in a capitalist economy.
B)only in a command economy.
C)by the largest firm in an economy.
D)by the market forces of demand and supply.
E)by the government, by informal social actions, and by ethical norms.

Answer 3

E

Question 4

When the consumption of a good or service imposes costs to society that are not reflected in the market price of the good,_____

A)a negative externality arises.
B)it implies that a renewable resource has been used in the production of the good.
C)a positive externality arises.
D)it implies that the good is a public good.
E)it implies that a nonrenewable resource has been used in the production of the good.

Question 5

Which of the following is a source of a positive externality?

A)a factory that pollutes a river
B)a person who litters a street
C)a car that emits carbon monoxide
D)a company that engages in research and development
E)a product that contributes to the greenhouse effect

Question 6

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

A)water pollution
B)the installation of a streetlight
C)second-hand smoke
D)a loud conversation in the workplace
E)the emission of harmful gases by a factory

Question 7

Which of the following is true of renewable resources?

A)Additional units of these resources can be purchased in the market.
B)Additional units of these resources are provided by the government.
C)Worn-out units cannot be repaired for further use.
D)They can be drawn on indefinitely if used conservatively.
E)They are available in finite amounts.

Question 8

An externality is _____

A)a cost of a transaction that is borne by the government.
B)a benefit of a transaction that is enjoyed by the firms.
C)a cost or benefit that arises when market price changes.
D)any cost or benefit of a transaction that is not accounted for in the market price.
E)the revenue generated by a firm.

Question 9

What can cause externalities?

A)a cost of a transaction that is borne by the government
B)a benefit of a transaction that is enjoyed by firms
C)lack of property rights to some resources
D)a cost or benefit that arises when market price changes
E)the revenue generated by a firm

Question 10

A(n)_____ resource does not renew itself,and so is available in a finite amount.

A)open-access
B)renewable
C)cyclical
D)recyclable
E)exhaustible

Question 11

Pollution arises because _____

A)the atmosphere is a nonrenewable resource.
B)the atmosphere is a finite resource.
C)private property rights can be enforced on the atmosphere.
D)the atmosphere is an open-access resource.
E)the atmosphere is a private property.

Question 12

_____ resources,if used conservatively,can be used indefinitely over time.

A)Open-access
B)Renewable
C)Cyclical
D)Recyclable
E)Exhaustible

Question 13

The byproducts of production or consumption that impose costs on other consumers or firms are known as _____

A)negative externalities.
B)transaction costs.
C)sunk costs.
D)positive externalities.
E)moral hazards.

Question 14

Which of the following is an exhaustible resource?

A)timber
B)oil
C)fish
D)grasslands
E)rivers

Question 15

A person can cause a negative externality by _____

A)being immunized.
B)having a loud conversation in an office.
C)landscaping her lawn.
D)paying taxes.
E)attending school.

Question 16

Fish in the ocean are _____

A)exhaustible and also open-access resources.
B)renewable and also open-access resources.
C)private goods.
D)merit goods.
E)renewable resources whenever property rights are well defined.

Question 17

Negative externalities of open resources arise because _____

A)there are no enforceable property rights to open-access resources.
B)these are private goods and government enforces property rights.
C)consumers have to pay for each unit of production.
D)the government undertakes the distribution of these resources.
E)these are available in finite amounts.

Question 18

Which of the following is a renewable resource?

A)oil
B)air
C)coal
D)iron ore
E)uranium

Question 19

Markets can allocate resources efficiently only as long as _____

A)property rights are well defined and can be easily enforced.
B)property rights are well defined but not easily enforced.
C)property rights are not defined but can be easily enforced.
D)property rights are not defined and not easily enforced.
E)a nonrenewable resource has been used in the production of the good.

Question 20

An individual who listens to loud music late in the night is creating _____

A)a positive externality.
B)a common-pool problem.
C)a negative externality.
D)a free-rider problem.
E)asymmetric information.

Question 21

To solve the common-pool problem in fishing,governments can _____

A)restrict production to the socially optimal level.
B)restrict output.
C)prohibit resource use entirely.
D)make property rights flexible.
E)shutdown all firms in this industry.

Question 22

Which of the following is an exhaustible resource?

A)geothermal power
B)solar energy
C)coal deposit
D)biomass
E)wind energy

Question 23

Which of the following is not an example of an open-access resource?

A)deer in a forest
B)fish in the ocean
C)food in a restaurant
D)wildflowers
E)trees in a forest

Question 24

Fish in the sea can be harvested until _____

A)the marginal benefit of catching more fish is less than the marginal cost.
B)the marginal benefit of catching more fish is greater than the marginal cost.
C)the marginal benefit of catching more fish becomes negative.
D)the marginal benefit of catching more fish becomes infinity.
E)the marginal benefit of catching more fish becomes zero.

Question 25

Which of the following is an example of an open-access resource?

A)a city subway system
B)college education
C)the healthcare system in a city
D)whales in the ocean
E)pandas in a zoo

Question 26

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.If producers base their output on marginal private cost,how much electricity is produced per month?

A)0 kilowatt-hours
B)50 million kilowatt-hours
C)75 million kilowatt-hours
D)between 0 and 50 million kilowatt-hours
E)between 50 and 75 million kilowatt-hours

Question 27

The deforestation of rainforests due to human activities has increased because _____

A)long-run economic considerations outweigh short-run considerations.
B)global economic considerations outweigh domestic considerations.
C)private property rights can be enforced on rainforests.
D)the value of the jobs created by deforestation exceeds the cost to society.
E)there are no property rights on rainforests.

Question 28

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.The equilibrium level of output for the firm is _____

A)0 kilowatt-hours.
B)50 million kilowatt-hours.
C)75 million kilowatt-hours.
D)between 0 and 50 million kilowatt-hours.
E)between 50 and 75 million kilowatt-hours.

Question 29

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.The marginal social cost curve includes _____

A)the marginal private cost.
B)the marginal external cost.
C)both the marginal private cost and the marginal external cost.
D)the marginal private cost minus the marginal external cost.
E)the marginal external cost minus the marginal private cost.

Question 30

Suppose a city builds a new park that is advertised as being "open to the public," and the grass in the park is ruined by overuse within two months.This would be an example of _____.

A)adverse selection
B)moral hazard
C)the common-pool problem
D)a positive externality
E)arbitrage

Question 31

To solve the common-pool problem in fishing,governments can _____

A)provide a subsidy.
B)impose a tax.
C)impose property rights.
D)remove property rights.
E)impound all fishing fleets.

Question 32

Open-access resources tend to be ______

A)conserved.
B)taxed.
C)overused.
D)efficiently used.
E)underutilized.

Question 33

The United Nations reports that at least 11 of the world's 15 primary fishing grounds are seriously depleted.This is an example of a(n)_____

A)negative externality.
B)transaction cost.
C)sunk cost.
D)positive externality.
E)moral hazard.

Question 34

Output restrictions or taxes could force people to _____

A)use the resource at a rate that is socially optimal.
B)use the resource at a rate that supports an unsustainable yield.
C)be more competitive.
D)overuse exhaustible resources.
E)overuse renewable resources.

Question 35

Establishing property rights to cattle on the Great Plains is possible because _____

A)long-run economic considerations outweigh short-run considerations.
B)global economic considerations outweigh domestic considerations.
C)private property rights can be enforced by using barbed wire to fence the range.
D)the value of the jobs created by cattle ranching exceeds the cost to society.
E)there are no property rights on the Great Plains.

Question 36

Output restrictions or taxes could force people to _____

A)use the resource at a rate that is not socially optimal.
B)use the resource at a rate that supports a sustainable yield.
C)be more competitive.
D)overuse exhaustible resources.
E)overuse renewable resources.

Question 37

The common-pool problem arises _____

A)when goods are not rival in consumption.
B)in the presence of asymmetric information.
C)when property rights are well defined.
D)when exhaustible resources are overused.
E)when renewable resources are overused.

Question 38

The depletion of rainforests due to human activities like logging or cattle ranching is an example of _____

A)a negative externality.
B)a positive externality.
C)adverse selection.
D)moral hazard.
E)arbitrage.

Question 39

Which of the following is true of open-access wildlife resources?

A)They are likely to be used efficiently.
B)They are not likely to be used at all.
C)It is unprofitable to use them.
D)They are likely to be used but unlikely to generate profit.
E)They are likely to be used until they become extinct.

Question 40

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.What is the marginal external cost of electricity?

A)The marginal external cost is negative.
B)The marginal external cost equals the marginal social benefit.
C)The marginal external cost equals the marginal private cost.
D)The marginal external cost equals the cost of pollution imposed on society.
E)The marginal external cost exceeds the marginal private cost of production.

Question 41

Exhibit 17.2

Refer to Exhibit 17.2,which shows equilibrium in a market in the presence of an externality.The amount by which the total social cost of producing the private equilibrium level of output exceeds the total social benefit is _____

A)$3,000.
B)$1,000.
C)$5,000.
D)$1,600.
E)$1,400.

Question 42

Exhibit 17.3

Refer to Exhibit 17.3,which shows market equilibrium in the presence of an externality.The total social gain from producing the socially efficient output is _____

A)$60.
B)$30.
C)$6.
D)$480.
E)$300.

Question 43

The socially optimal level of output of a good that generates an externality occurs when _____

A)the marginal private cost of production equals marginal private revenue.
B)the firm maximizes its profits.
C)the marginal private cost of production exceeds the marginal social cost of production.
D)the marginal social cost of production equals the marginal social benefit of production.
E)the marginal private cost of the good equals the marginal social benefit of the good.

Question 44

Exhibit 17.3

Refer to Exhibit 17.3,which shows market equilibrium in the presence of externality in an economy.The equilibrium price and output (determined exclusively by private decisions)are _____

A)$6 and 50 units, respectively.
B)$12 and 50 units, respectively.
C)$12 and 40 units, respectively.
D)$6 and 40 units, respectively.
E)less than $6 and more than 50 units, respectively.

Question 45

If the marginal social cost of producing a good exceeds the marginal private cost,then _____

A)the quantity of the good being produced is too less.
B)the price charged for the good is too high.
C)the good produces a positive externality.
D)the good produces a negative externality.
E)social welfare is likely to increase by producing more of the good.

Question 46

At the market output and price for a good whose production causes pollution,_____

A)the marginal social cost of production is negative.
B)the marginal social cost of production exceeds the marginal social benefit of production.
C)the marginal private cost of production equals the marginal private benefit of production.
D)the marginal social benefit of production equals the marginal social cost of production.
E)the marginal social benefit of production exceeds the marginal private cost of production.

Question 47

Exhibit 17.3

Refer to Exhibit 17.3,which shows equilibrium in a market in the presence of an externality.If technology is fixed,the discrepancy between the market output and the efficient level of output is eliminated by _____

A)subsidizing production of the good by $10 per unit.
B)imposing a tax of $10 per unit on the firm producing the good.
C)using a quota system to restrict production to 160 units.
D)subsidizing production of the good by $5 per unit.
E)letting the private market operate freely.

Question 48

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.The marginal social cost of production equals the marginal benefit at _____

A) point a.
B) point b.
C) point c.
D) point d.
E) demand curve D.

Question 49

Exhibit 17.2

Refer to Exhibit 17.2,which shows market equilibrium in the presence of an externality in an economy.The socially efficient level of output is _____

A)0 units.
B)100 units.
C)between 0 and 100 units.
D)160 units.
E)between 100 and 160 units.

Question 50

Economists view pollution as an economic problem that arises because _____

A)private enterprises always minimize the amount of pollution produced.
B)profitable firms rarely pollute.
C)the level of pollution declines as the economy grows.
D)firms that pollute do not pay the full social cost of producing their output.
E)pollution costs are always borne by the government.

Question 51

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.The total social gain from basing production on marginal social cost is reflected by _____

A)triangle area abc.
B)rectangle area abcd.
C)50 million kilowatt-hours.
D)75 million kilowatt-hours.
E)demand curve D.

Question 52

Exhibit 17.3

Refer to Exhibit 17.3,which shows equilibrium in a market in the presence of externality in an economy.The total social gain from producing the socially efficient output rather than the private equilibrium output is shown by the area ______

A)abdf.
B)bed.
C)bcd.
D)acdf.
E)bcde.

Question 53

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.If technology is fixed,the discrepancy between the market output and the efficient level of output is eliminated by _____

A)subsidizing production by $0.05 per kilowatt hour.
B)imposing a tax of $0.05 per kilowatt hour on the utility.
C)using a quota system to restrict production to 75 million kilowatt hours.
D)subsidizing production of the good by $0.10 kilowatt hours.
E)letting the utility operate freely.

Question 54

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.The equilibrium price and output (determined exclusively by private decisions)are _____

A)$0.10 and 75 million kilowatt hours, respectively.
B)$0.15 and 75 million kilowatt hours, respectively.
C)$0.10 and 50 million kilowatt hours, respectively.
D)$0.15 and 50 million kilowatt hours, respectively.
E)less than $0.10 and more than 50 million kilowatt hours, respectively.

Question 55

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.The marginal social cost exceeds society's marginal benefit of electricity at _____

A) point a.
B) point b.
C) point c.
D) point d.
E) demand curve D.

Question 56

Exhibit 17.1

Refer to Exhibit 17.1 which shows a market for electricity.The socially efficient price and level of output are _____

A)$0.10 and 75 million kilowatt hours, respectively.
B)$0.15 and 75 million kilowatt hours, respectively.
C)$0.10 and 50 million kilowatt hours, respectively.
D)$0.15 and 50 million kilowatt hours, respectively.
E)less than $0.10 and more than 50 million kilowatt hours, respectively.

Question 57

Exhibit 17.1

Refer to Exhibit 17.1,which shows a market for electricity.The marginal private cost of production just equals the marginal benefit enjoyed by consumers of electricity at _____

A) point a.
B) point b.
C) point c.
D) point d.
E) demand curve D.

Question 58

Exhibit 17.2

Refer to Exhibit 17.2,which shows market equilibrium in the presence of an externality in an economy.The equilibrium level of output for the firm is _____

A)0 units.
B)100 units.
C)between 0 and 100 units.
D)160 units.
E)between 100 and 160 units.

Question 59

Exhibit 17.1

Refer to Exhibit 17.1 which shows a market for electricity.If producers base their output decisions on marginal social cost,the optimal output is _____

A)0 kilowatt-hours.
B)50 million kilowatt-hours.
C)75 million kilowatt-hours.
D)between 0 and 50 million kilowatt-hours.
E)between 50 and 75 million kilowatt-hours.

Question 60

Exhibit 17.3

Refer to Exhibit 17.3,which shows market equilibrium in the presence of an externality.The socially efficient price and level of output are _____

A)$6 and 50 units, respectively.
B)$12 and 50 units, respectively.
C)$12 and 40 units, respectively.
D)$6 and 40 units, respectively.
E)less than $6 and more than 50 units, respectively.

Question 61

Suppose the production of electricity generates pollution.In this case,the optimal level of electricity is produced when the marginal social benefit from electricity production equals the _____

A)marginal private cost of electricity production.
B)marginal social cost of electricity production.
C)marginal external cost of electricity production.
D)marginal cost of labor used in electricity production.
E)marginal cost of capital used in electricity production.

Question 62

The optimal level of air pollution by a firm is _____

A)the level at which the marginal private cost of improving air quality equals zero.
B)the level at which the marginal social cost of improving air quality equals the marginal social benefit.
C)the level at which the average social cost of improving air quality equals the average social benefit.
D)the level at which the total social cost of improving air quality equals the total social benefit.
E)the level at which the marginal social cost of improving air quality is minimized.

Question 63

If the marginal social benefit of consuming a product exceeds the marginal social cost,social welfare _____

A)increases when output decreases.
B)decreases when output increases.
C)remains unchanged when output increases.
D)increases when output increases.
E)is at its maximum.

Question 64

The socially efficient level of output is determined where _____

A)marginal social cost equals marginal social benefit.
B)marginal private cost equals marginal social benefit.
C)average social cost equals average private cost.
D)average private cost equals average social benefit.
E)total social cost equals total social benefit.

Question 65

In a free market,a firm's equilibrium output is determined _____

A)where marginal social cost equals marginal social benefit.
B)where marginal private benefit equals marginal social benefit.
C)where marginal social cost equals marginal private cost.
D)where marginal private cost equals marginal private benefit.
E)by government.

Question 66

Exhibit 17.4

Refer to Exhibit 17.4,which shows the market for pollution rights in an economy.The social welfare loss that results from 70 units of air quality is shown by area _____

A)edcb.
B)eda.
C)bac.
D)adc.
E)eab.

Question 67

The marginal social benefit of good air _____

A)declines as air quality improves.
B)rises as air quality improves.
C)remains constant as air quality improves.
D)initially falls but rises with higher improvement.
E)initially rises but becomes negative with greater improvement.

Question 68

To maximize social welfare in the presence of a negative externality,marginal _____ must equal marginal _____.

A)social cost; private benefit
B)private cost; external cost
C)social cost; social benefit
D)private cost; social benefit
E)social cost; external cost

Question 69

The imposition of a tax on an open-access resource increases the marginal private cost of using the resource by _____

A)zero.
B)the amount of the tax.
C)the marginal cost of the resource.
D)the average private cost of using the resource.
E)the average social cost of using the resource.

Question 70

Marginal social cost is equal to _____

A)the total private cost of production.
B)marginal private cost.
C)marginal external cost.
D)marginal private cost plus marginal external cost.
E)marginal private cost divided by marginal external cost.

Question 71

Marginal external cost is _____

A)the additional cost imposed on society by producing an extra unit of a good.
B)the cost of producing an extra unit of damaged goods.
C)the additional cost of importing extra units of a good.
D)the total cost to society of producing a good.
E)the marginal social cost divided by the marginal private cost.

Question 72

When using the economic efficiency approach to control air and water pollution,the government _____

A)forces each firm to produce emissions in the most cost-efficient manner irrespective of its cost structure.
B)offers each firm the flexibility to reduce emissions in the most cost-effective manner, given its unique cost structure.
C)offers each firm the option of choosing between the cost-minimizing emission level and the profit-maximizing emission level.
D)provides each firm with fixed rules for reducing pollution.
E)offers each firm the option of using either total cost pricing or average cost pricing when determining the optimum emission level.

Question 73

Exhibit 17.5

Refer to Exhibit 17.5,which shows greenhouse gas emissions for a given rate of electricity production.The marginal social cost is found at _____

A) point c.
B) point a.
C) point b.
D) A
E) A'

Question 74

Society's total cost of producing a good _____

A)includes only the private cost to a firm.
B)includes only the external cost.
C)includes all private and external costs.
D)includes the sunk cost and the total variable cost of a firm.
E)includes only the average variable cost of production.

Question 75

Exhibit 17.5

Refer to Exhibit 17.5,which shows greenhouse gas emissions for a given rate of electricity production.The optimal level of air quality for a given rate of electricity production is found at _____

A) point c.
B) point a.
C) point b.
D) A
E) A'

Question 76

Exhibit 17.5

Refer to Exhibit 17.5,which shows greenhouse gas emissions for a given rate of electricity production.The social welfare loss that results at A' is shown by area _____

A)edcb.
B)eade.
C)abc.
D)acd.
E)abe.

Question 77

In order to increase a society's total welfare,a production process that produces a negative externality should be _____

A)taxed.
B)encouraged to produce goods in excess of the socially optimum level.
C)encouraged to produce in excess of the private optimum level.
D)subsidized if the good is produced for foreign markets.
E)subsidized if the good is produced for the domestic market.

Question 78

When using the traditional command-and-control approach to environmental regulation,the government attempts to _____

A)set a minimum requirement and then allows the firm to determine the most efficient method for achieving this requirement.
B)determine the most efficient method for different industries.
C)make allowances for differences across industries and between firms.
D)set engineering standards that are applicable to all situations and do not recognize unique circumstances.
E)set a maximum requirement and then allows the individual firm the latitude of choosing the most efficient method.

Question 79

Exhibit 17.4

Refer to Exhibit 17.4,which shows the market for pollution rights in an economy.The optimal level of air quality is ______

A)0.
B)40.
C)50.
D)70.
E)greater than 70.

Question 80

A tannery discovers a technology that makes it cheaper to reduce the air pollution it generates.On a graph of the optimal level of air quality,the use of the new technology would be represented by _____

A)a leftward shift of the marginal social cost curve.
B)a rightward shift of the marginal social cost curve.
C)movement to the right along the marginal social cost curve.
D)movement to the left along the marginal social cost curve.
E)a downward shift of the marginal social benefit curve.