Question 1

The proposition that if transaction costs are low enough and property rights are well-defined, 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.

Accepted Answer

The proposition described is known as the Coase theorem, which suggests that regardless of initial property rights allocation, an efficient outcome can be achieved through private bargaining if transaction costs are low enough and property rights are well-defined.

Question 2

According to the Coase theorem, when negative externalities are present, a market will:
A) always reach an efficient solution.
B) reach an efficient solution if transaction costs are low and property rights are well-defined.
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.

Accepted Answer

The Coase theorem states that if transaction costs are low and property rights are well-defined, parties can negotiate to reach an efficient solution to the problem of externalities without government intervention.

Question 3

Use the following to answer questions: 
-(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and 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

Accepted Answer

The efficient quantity of pollution is where the marginal social benefit equals the marginal social cost.

Question 4

Use the following to answer questions:
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 are a result of production.
A) A
B) B
C) E
D) F

Accepted Answer

The answer of Use the following to answer questions:
Figure: Pollution...

Question 5

When farmers raise hogs, there are a number of external costs. In particular, hogs generate methane gas. If the marginal external cost is $100 per hog and the government imposes a tax of $200 per hog, then at the equilibrium price and quantity of hogs:
A) too few hogs 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 hog farmers.

Accepted Answer

The tax of $200 per hog exceeds the marginal external cost of $100 per hog, which will increase the total cost borne by hog farmers. This will result in lower profits for hog farmers and fewer hogs being produced since it is now more expensive to raise hogs. Therefore, the equilibrium quantity of hogs will decrease, and there will be a shortage of hogs. This shortage of hogs is consistent with option A.

Question 6

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 and property rights are well-defined.
D) reach an efficient solution only in the case of government regulation.

Accepted Answer

The Coase theorem states that in the presence of externalities, a market economy can reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined. This means that if the parties involved in the externality can negotiate and come to an agreement over the appropriate level of output, the market can achieve an efficient outcome without the need for government intervention. However, if transaction costs are high or property rights are not well-defined, the market may not be able to reach an efficient outcome. Therefore, option C is the correct choice.

Question 7

The proposition that if bargaining is costless, the market can achieve an efficient outcome is the:
A) Coase theorem.
B) property rights paradigm.
C) market rights theorem.
D) efficient environment paradigm.

Accepted Answer

The Coase theorem states that if transaction costs are negligible and property rights are well-defined, parties can negotiate to reach an efficient allocation of resources regardless of the initial distribution of rights.

Question 8

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 and property rights are well-defined is known as:
A) a Pigouvian tax.
B) a network externality.
C) a technology spillover.
D) the Coase theorem.

Accepted Answer

The Coase theorem proposes that externalities can be efficiently resolved through private bargaining between parties if transaction costs are low and property rights are clearly defined. This means that if the cost of negotiating and enforcing a resolution is less than the cost of the externality itself, private solutions can be reached without government intervention. Therefore, the Coase theorem suggests that externalities can be resolved if the right conditions are met, contrary to the idea that externalities require government intervention, such as through Pigouvian taxes or regulations.

Question 9

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 and property rights are well-defined.

Accepted Answer

The Coase theorem states that private negotiations can achieve an efficient outcome if transaction costs are low and property rights are well-defined. This means that if bargaining costs are low and the property rights of the parties involved are clearly defined, they can negotiate a solution that is efficient and mutually beneficial, regardless of how the property rights are initially assigned. Therefore, choice D is correct. Choice A is incorrect because it only takes into account the enforcement costs of property rights and ignores the importance of well-defined rights and low negotiation costs. Choice B and C are incorrect because they assume that one party must have exclusive property rights to the clean air, while the Coase theorem argues that mutual negotiation can achieve an efficient outcome regardless of initial property rights assignment.

Question 10

Use the following to answer questions:
Figure: Pollution and Efficiency 
-(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose 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

Accepted Answer

When the price is $5 and the quantity is 40, it indicates that the market is producing beyond the socially optimal level, leading to excessive pollution.

Question 11

Use the following to answer questions:
Figure: Pollution and Efficiency 
-(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose 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.

Accepted Answer

An efficient solution in a market with externalities like pollution is achieved when the marginal social cost (MSC) equals the marginal social benefit (MSB), ensuring that the cost of pollution is balanced by the benefits of production.

Question 12

Use the following to answer questions:
Figure: Pollution and Efficiency 
-(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose 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

Accepted Answer

At 30 units of emissions, the market is efficient because the marginal social benefit (MSB) equals the marginal social cost (MSC), indicating an optimal level of pollution where the benefits of production are balanced by the costs of pollution.

Question 13

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.

Accepted Answer

When individuals take external costs and benefits into account, they are said to internalize the externality. This means that they adjust their behavior to reflect the true social cost or benefit of their actions, rather than relying solely on the private cost or benefit. This can lead to a more efficient allocation of resources, as individuals will now consider the full social cost or benefit when making decisions. Therefore, choice B is the correct answer.

Question 14

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.

Accepted Answer

When individuals take external costs and benefits into account in their decision making, they are said to internalize the externality. This means that they are considering the full impact of their actions, including any costs or benefits that affect others, and are making a decision that takes those impacts into account. This can help to mitigate negative externalities or enhance positive externalities.

Question 15

Use the following to answer questions:
Figure: Pollution and Efficiency 
-(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose 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

Accepted Answer

The answer of Use the following to answer questions:
Figure: Pollution...

Question 16

When farmers raise hogs, there are a number of external costs. In particular, hogs generate methane gas. Without government regulation, the equilibrium price and quantity of pigs raised means that:
A) too few hogs 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 hog farmers.

Accepted Answer

Without regulation, the price reflects only private costs, not external costs like methane emissions, making it less than the marginal social cost.

Question 17

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 rights to play music during particular times. 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.

Accepted Answer

The transaction costs associated with identifying and establishing communication with students would be high, making it impractical to negotiate rights effectively.

Question 18

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 rights to drive during particular times. 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.

Accepted Answer

The transaction costs of organizing and negotiating among all drivers would be too high, making it impractical to internalize the externality through individual negotiations.

Question 19

Use the following to answer questions:
Figure: Pollution and Efficiency 
-(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose 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

Accepted Answer

The efficient solution occurs where the marginal social cost equals the marginal social benefit, which is at a price of $15 and a quantity of 30.

Question 20

Use the following to answer questions: 
-(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. At the efficient quantity of pollution the marginal social cost of pollution is _____ the marginal social benefit of pollution.
A) greater than
B) equal to
C) less than
D) unrelated to

Accepted Answer

At the efficient quantity of pollution, the marginal social cost of pollution is equal to the marginal social benefit of pollution.

Quiz 16: Externalities

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

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

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

Use the following to answer questions: 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 are a result of production.

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

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

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

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 and property rights are well-defined is known as:

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

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose sulfur emission is a result of production, too much pollution is found when the price is _ and the quantity is _.

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose sulfur emission is a result of production, an efficient solution is one in which:

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose sulfur emission is a result of production, produced _ units of emissions, then _.

When individuals take external costs and benefits into account:

An externality is said to be internalized:

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. If this market, whose sulfur emissions are a result of production, produced _ units of emissions, then _.

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

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 rights to play music during particular times. The most likely reason that this does NOT happen is that:

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 rights to drive during particular times. The most likely reason that this does NOT happen is that:

Use the following to answer questions: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose sulfur emissions are a result of production, an efficient solution takes place at a price of _ and a quantity of _.