Question 1

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. At the socially optimal output level, what are internal costs equal to?
A) OG
B) AC
C) OH
D) OF

Accepted Answer

Internal costs refer to the costs incurred by the producers of a good as a result of production. At the socially optimal output level, internal costs are equal to the height of the supply curve at that level, which is represented by OH in this diagram. Therefore, the correct answer is C.

Question 2

Which of the following is NOT an externality associated with the production of steel?
A) soot that is deposited on the cars of nearby homeowners
B) dead fish as a result of chemical discharge into river systems
C) respiratory disease caused by air pollution
D) higher wages as a result of the increase in demand for labour

Accepted Answer

Higher wages as a result of the increase in demand for labour is not an externality, but rather a direct consequence of the steel production industry. Externalities are unintended consequences of economic activity, such as pollution or damage to people's health.

Question 3

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. What represents the socially optimal price and output combination?
A) OG; OD
B) OG; OE
C) OH; OD
D) OF; OD

Accepted Answer

The socially optimal price and output combination is where the marginal social cost (MSC) equals the marginal social benefit (MSB), which is represented by point H for price and point D for quantity in typical economic models of supply and demand with externalities.

Question 4

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. To internalize the externality, what is the total amount that the firms have to pay society equal to?
A) AC
B) ACB
C) OHAD
D) FHAC

Accepted Answer

To internalize the externality, firms need to compensate for the societal costs that are not accounted for in the market price. This is represented by the area under the social cost curve and above the supply curve, up to the socially optimal quantity, which is the area FHAC.

Question 5

FIGURE 12-2
 
-Refer to Figure 12-2, which represents the costs and benefits of pollution control. In the absence of pollution control legislation, at what point will firms spend on pollution-control measures?
A) P1Q1
B) P3Q1
C) P3Q3
D) P1Q3

Accepted Answer

Firms will spend on pollution-control measures where the marginal cost of pollution control equals the marginal benefit of pollution control without legislation, which is at point P1Q1.

Question 6

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. What represents the price and output combination that the industry would produce?
A) OG; OE
B) OH; OD
C) OG; OD
D) OF; OD

Accepted Answer

The answer of FIGURE 12-1
 
-Refer to Figure 12-1, which...

Question 7

At what point does the optimal level of pollution abatement in the steel industry occur?
A) where the total cost of abatement is equal to the total benefit from abatement
B) where the marginal social cost of producing steel is equal to the demand for steel
C) where the marginal social cost of abatement is equal to the marginal social benefit from abatement
D) where the marginal private cost of abatement is equal to the marginal social benefit from abatement

Accepted Answer

The optimal level of pollution abatement occurs where the marginal social cost of abatement is equal to the marginal social benefit from abatement. This means that society is benefiting the most from the resources used in pollution abatement at this point, as the cost of achieving each additional unit of pollution reduction is equal to the benefit gained from that reduction. Therefore, C is the correct answer.

Question 8

Which of the following is an externality associated with owning a dog?
A) the noise your neighbours hear when your dog barks
B) protection from burglars
C) time spent walking the dog
D) dog hair in the carpet

Accepted Answer

The noise your dog makes can be heard by your neighbours, affecting their quality of life, which is an example of a negative externality associated with owning a dog. Option B is not an externality, as it only benefits the dog owner. Option C is a cost borne by the dog owner, so it is not an externality. Option D is also a cost borne by the dog owner and does not affect others, so it is not an externality either.

Question 9

When does a negative externality exist?
A) whenever marginal social cost exceed marginal private costs
B) whenever marginal social costs exceed marginal social benefits
C) whenever marginal social benefits exceed marginal private benefits
D) whenever marginal private costs exceed marginal private benefits

Accepted Answer

A negative externality exists when the marginal social cost exceeds the marginal private cost. This means that the cost to society as a whole is greater than the cost to the individual who is causing the negative externality. For example, pollution from a factory imposes costs on society, such as health problems and environmental damage, that are not borne by the factory owner.

Question 10

In the last 30 years, what has happened to environmental legislation and pollution levels?
A) Legislation has been getting weaker, and pollution levels have been getting higher.
B) Legislation has been getting tougher, and pollution levels have been getting lower.
C) Legislation has been getting tougher, and pollution levels have been getting higher.
D) Legislation has been getting weaker, and pollution levels have been getting lower.

Accepted Answer

In the last 30 years, there have been significant improvements in environmental legislation, particularly related to air and water pollution. Stricter regulations and enforcement have led to decreased levels of pollution in many areas. However, there are still challenges and areas where pollution remains a problem, particularly in developing countries or industries with weaker regulations. Overall, though, the trend has been towards stronger legislation and lower pollution levels.

Question 11

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. What is the marginal external cost equal to?
A) FG
B) FH
C) GH
D) OF

Accepted Answer

Marginal external cost is equal to the difference between the marginal social cost (MSC) and the marginal private cost (MPC) of a good. In this diagram, FH represents the difference between the MPC and MSC. Therefore, the marginal external cost is equal to FH. To correct for this externality, the optimal level of output should be where the marginal private cost (MPC) intersects the marginal social cost (MSC), which is at point E. Therefore, the optimal choice is to produce Q1 units of steel.

Question 12

Why are negative externalities difficult to measure in practice?
A) because most external costs are nonpecuniary in nature
B) because the marginal value of cleaner air is close to zero
C) because the effects of pollution are subjective in nature
D) because some resources are owned by society and therefore have no opportunity cost

Accepted Answer

Negative externalities are difficult to measure in practice because many of the costs associated with them are nonpecuniary in nature, meaning that they cannot be easily quantified in monetary terms. For example, the cost of decreased air quality due to pollution cannot be measured solely in terms of dollars and cents, as the effects on human health and the environment are also important considerations.

Question 13

Which of the following best describes the impact of increased concerns regarding the environment and climate change?
A) It has likely caused the marginal social cost curve to shift to the right.
B) It has likely caused the marginal social benefit curve to shift to the right.
C) It has likely caused the marginal social cost curve to shift to the left.
D) It has likely caused the marginal social benefit curve to shift to the left.

Accepted Answer

Increased concerns regarding the environment and climate change have likely led to greater awareness and demand for goods and services that have lower environmental impact or mitigate climate change. This would shift the marginal social benefit curve to the right, reflecting the increased social benefits from consuming such goods and services.

Question 14

People that choose to live near airports must put up with the noise associated with aircrafts arriving and departing. Which of the following best describes how those people are compensated for the negative externality that they face?
A) They have been compensated for the externality by the airlines.
B) They have been compensated for the externality with easier access to the airport.
C) They have been compensated for the externality with lower housing costs.
D) They have been compensated for the externality by the government.

Accepted Answer

People living near airports generally face a negative externality in the form of aircraft noise. However, they may choose to do so because of lower housing costs. Therefore, they are compensated for the externality with lower housing costs. The airlines, government or easier access to the airport may not necessarily compensate them for the externality in monetary terms.

Question 15

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. At the private market output level, what is the deadweight loss associated with the overallocation of resources equal to?
A) ABGH
B) FHAC
C) ACB
D) OHAD

Accepted Answer

The deadweight loss associated with the overallocation of resources in a market is represented by the area between the supply and demand curves from the socially optimal quantity to the quantity produced by the market. This area is typically triangular, and in this case, it is represented by ACB, indicating the loss in social welfare due to the market producing either more or less than the socially optimal quantity.

Question 16

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. To internalize the externality, what is the per unit amount that the firms would have to pay society equal to?
A) OH
B) ACB
C) FHAC
D) HF

Accepted Answer

The answer of FIGURE 12-1
 
-Refer to Figure 12-1, which...

Question 17

Which of the following is NOT a policy option for dealing with environmental pollution?
A) requiring that firms that pollute locate away from populated areas
B) prohibiting activities that generate pollution
C) requiring firms to adopt pollution-control technology
D) dictating maximum permissible levels of output

Accepted Answer

Requiring firms that pollute to locate away from populated areas does not directly address the reduction or management of pollution itself but rather attempts to mitigate its impact on populated areas. This approach does not deal with the root cause of environmental pollution or enforce any direct measures to control or reduce pollution levels.

Question 18

Why are negative externalities difficult to internalize in practice?
A) because the cost of cleaning up the effects of pollution is overstated
B) because the marginal cost of socially owned resources is zero
C) because no markets exist to measure the cost of the externality
D) because the deadweight loss is subjective in nature

Accepted Answer

Negative externalities are difficult to internalize in practice because no markets exist to measure the cost of the externality. This means that the parties responsible for the negative externality do not pay for the full cost of their actions, leading to an inefficient allocation of resources. The lack of a market also makes it difficult to determine the optimal level of the externality, which further complicates the internalization process.

Question 19

Why might zero pollution NOT be the optimal objective?
A) It is difficult to determine which firms are doing the polluting.
B) There is no marginal benefit to a clean environment.
C) A clean environment comes with an opportunity cost.
D) Some people may not be affected by the pollution.

Accepted Answer

Achieving zero pollution may require sacrificing some level of economic activity, which can have opportunity costs such as potential job losses or reduced economic growth. A balance needs to be struck between economic growth and environmental protection.

Question 20

What is the most likely outcome when trying to eliminate pollution?
A) Abatement will exhibit diminishing returns.
B) Abatement will be subject to diminishing average cost.
C) Firms will increase output in the short run.
D) Public opinion will matter more to firms than profit maximization.

Accepted Answer

When trying to eliminate pollution, the most likely outcome is that abatement will exhibit diminishing returns. This means that as more effort is put into eliminating pollution, the cost of reducing it further will increasingly outweigh the benefits, resulting in diminishing returns. It becomes harder and harder to reduce pollution as we approach zero emissions.

Quiz 12: The Environment

FIGURE 12-1 -Refer to Figure 12-1, which represents a hypothetical market for steel. At the socially optimal output level, what are internal costs equal to?

Which of the following is NOT an externality associated with the production of steel?

FIGURE 12-1 -Refer to Figure 12-1, which represents a hypothetical market for steel. What represents the socially optimal price and output combination?

FIGURE 12-1 -Refer to Figure 12-1, which represents a hypothetical market for steel. To internalize the externality, what is the total amount that the firms have to pay society equal to?

FIGURE 12-2 -Refer to Figure 12-2, which represents the costs and benefits of pollution control. In the absence of pollution control legislation, at what point will firms spend on pollution-control measures?

FIGURE 12-1 -Refer to Figure 12-1, which represents a hypothetical market for steel. What represents the price and output combination that the industry would produce?

At what point does the optimal level of pollution abatement in the steel industry occur?

Which of the following is an externality associated with owning a dog?

When does a negative externality exist?

In the last 30 years, what has happened to environmental legislation and pollution levels?

FIGURE 12-1 -Refer to Figure 12-1, which represents a hypothetical market for steel. What is the marginal external cost equal to?

Why are negative externalities difficult to measure in practice?

Which of the following best describes the impact of increased concerns regarding the environment and climate change?

People that choose to live near airports must put up with the noise associated with aircrafts arriving and departing. Which of the following best describes how those people are compensated for the negative externality that they face?

FIGURE 12-1 -Refer to Figure 12-1, which represents a hypothetical market for steel. At the private market output level, what is the deadweight loss associated with the overallocation of resources equal to?

FIGURE 12-1 -Refer to Figure 12-1, which represents a hypothetical market for steel. To internalize the externality, what is the per unit amount that the firms would have to pay society equal to?

Which of the following is NOT a policy option for dealing with environmental pollution?

Why are negative externalities difficult to internalize in practice?

Why might zero pollution NOT be the optimal objective?

What is the most likely outcome when trying to eliminate pollution?