Question 1

Which of the following statements about the economically efficient level of air pollution is correct?

Accepted Answer

The economically efficient level of pollution occurs where the marginal cost of pollution reduction equals the marginal social benefit of reduction. This is because at this point, any further reduction in pollution would result in a higher cost than the social benefit gained from the reduction, and any less reduction in pollution would result in a lower social benefit than the cost saved from not reducing it. Therefore, the marginal cost of pollution reduction should equal the marginal social benefit for economic efficiency.

Question 2

Applying Coase's theorem, if the cost to you from having the airplane seat in front of you reclined is ________ the benefit to the reclining passenger, you should ________.

Accepted Answer

The answer of Applying Coase's theorem, if the cost to...

Question 3

In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed.Many residents are pushing for a change in policy.Canine lover Sara Northridge observed, "There are 800 or more homes here.There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks.Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group?

Accepted Answer

Dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park. This option assigns property rights to a particular group (dog owners) and allows them to use the park exclusively with their dogs. It also addresses the concerns of non-dog owners who may not want to be around dogs while using the park. Option A and B create a discriminatory fee system, which is not a fair solution. Option D does not assign property rights to a particular group and may not be practical or enforceable.

Question 4

If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost

Accepted Answer

When the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost, it means that the cost of reducing the pollutant further outweighs the benefits society would receive from the reduction. Therefore, further reductions would make society worse off by imposing additional costs without significant benefits. It would be more economically efficient to allocate resources to other areas where the marginal benefits outweigh the costs.

Question 5

Consider the following characteristics:
A.low transactions costs
B.small levels of pollution
C.high levels of pollution
D.clear assignment of property rights
Which of the above are assumptions behind the Coase Theorem?

Accepted Answer

The Coase Theorem assumes low transaction costs and clear assignment of property rights, but it does not assume any particular level of pollution. Option B is incorrect because high levels of pollution are not an assumption behind the Coase Theorem. Option A is incorrect because it leaves out the assumption of clear property rights. Therefore, option C (a and d) is the best choice.

Question 6

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities.Which of the following describes Coase's work?

Accepted Answer

Coase argued that under certain conditions, private solutions to the problems of externalities can emerge. He believed that if property rights were well-defined and transaction costs were low, individuals could negotiate and reach mutually beneficial agreements to internalize externalities, even without government intervention. Coase's work emphasized the importance of considering the distribution of property rights and the costs of negotiation when addressing externalities. His insights have influenced the development of law and economics as a field of study.

Question 7

Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of

Accepted Answer

Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of a Coasian solution to an externality situation. This is because, in a Coasian solution, the involved parties negotiate with each other to find a mutually beneficial outcome without any government intervention. In this scenario, the two passengers negotiate with each other to find a resolution, with the one in the back offering to pay the one in front to keep her seat upright, avoiding any discomfort for both parties.

Question 8

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.

Accepted Answer

The Coase theorem suggests that in the absence of transaction costs, private actors can negotiate and find the most efficient outcome regardless of who has initial property rights. Therefore, if the utility company is not liable for the damages its pollution causes, private individuals or groups affected by the pollution can negotiate with the company to reduce the pollution to an efficient level. Government action is not necessary in this case, but private negotiation can achieve an efficient amount of pollution. The Coase theorem does not consider the equity or fairness of the outcome.

Question 9

Kenneth Chay and Michael Greenstone examined the impact of reductions in air pollution since the passage of the Clean Air Act of 1970.Which of the following statements summarizes their findings?

Accepted Answer

The answer of Kenneth Chay and Michael Greenstone examined the...

Question 10

Private solutions to the problem of externalities are most likely when

Accepted Answer

Private solutions to externalities are most likely to occur when transactions costs are low and the number of bargaining parties is small. In such cases, it is easier for parties to negotiate and agree on a solution that benefits all parties involved. When transactions costs are high, bargaining becomes more difficult, and parties may struggle to reach a mutually beneficial agreement. Additionally, when the number of parties involved is large, it becomes harder to coordinate and reach an agreement that satisfies everyone. Therefore, B is the best choice.

Question 11

If electric utilities continually reduce their emissions of sulfur dioxide

Accepted Answer

The marginal cost of further emissions will rise because as emissions are reduced, the equipment and technology required to further reduce emissions become increasingly expensive. This means that it will cost more to reduce emissions further, thus increasing the marginal cost of further emissions.

Question 12

Economists Kenneth Chay and Michael Greenstone found that in the two years following the passage of the Clean Air Act of 1970, the sharp reduction in air pollution also led to a decline in infant deaths.Although this and other studies provide compelling evidence of the link between pollution and infant health, it is not clear that reductions from the much lower levels of ambient pollution today would have the same effect.Which of the following reasons could explain this?

Accepted Answer

When pollution levels are high, the marginal benefit of reducing pollution is high. Thus, the reduction of pollution in 1970 would have had a higher proportional benefit than a reduction of pollution today, when pollution levels are much lower.

Question 13

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost

Accepted Answer

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost, then society will be better off with further reductions since the benefits will outweigh the costs. This is because marginal benefit measures the additional gain society receives from a small reduction in emissions while the marginal cost measures the cost of producing that marginal benefit. Thus, as the marginal benefit is larger than the marginal cost, society will gain from further reductions.

Question 14

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Accepted Answer

Transactions costs refer to the costs incurred by parties in the process of exchanging goods and services, including the costs of searching for information, negotiating terms, and enforcing contracts. Enforcement costs refer specifically to the costs of enforcing contracts, and implicit and explicit costs are broader concepts that refer to the opportunity costs of using resources in particular ways.

Question 15

Which of the following must be present to reach a private solution to an externality problem?

Accepted Answer

To reach a private solution to an externality problem, the transactions costs to negotiate a solution must be relatively low. This means that the costs of reaching an agreement between the parties must not be too high, otherwise, they may not find it worthwhile to negotiate a solution. The other choices are not necessarily required for a private solution to an externality problem.

Question 16

Compare two situations.(A)A firm is not legally responsible for damages that result from air pollution caused by its production of steel.(B)A firm is legally responsible for damages that result from its production of steel.Ronald Coase argued that if the property rights are assigned and transactions costs are low,

Accepted Answer

The answer of Compare two situations.(A)A firm is not legally...

Question 17

Congress passed the Clean Air Act in 1970.Since this act was passed, emissions of the six main air pollutants

Accepted Answer

According to the Environmental Protection Agency (EPA), emissions of the six main air pollutants (carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide) have fallen by more than one-half since the Clean Air Act was passed in 1970. This is largely due to regulations and technologies implemented to reduce emissions.

Question 18

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

Accepted Answer

The legal fees incurred to sue the polluting firm would be considered transaction costs, as they are costs associated with bringing about a transaction (in this case, legal action) to address the pollution. External costs refer to costs incurred by individuals or society due to a firm's actions (in this case, the pollution), while marginal benefits refer to the additional benefits gained from consuming or producing one more unit of a good or service. The social costs of the pollution would encompass both external costs and transaction costs.

Question 19

According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention.

Accepted Answer

The Coase Theorem states that if property rights are well-defined and transaction costs are low, private parties will negotiate to reach an efficient outcome in the presence of an externality, without the need for government intervention. This view is contrary to the ideas of Pigou, who argued that government intervention was needed to resolve externalities, and Keynes, who focused on the role of government in stabilizing the economy. Adam Smith's views are more generally associated with the invisible hand of the market, rather than with specific ideas about externalities.

Question 20

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter.If the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

Accepted Answer

The answer of Assume that air pollution from a copper...

Quiz 5: Externalities, Environmental Policy, and Public Goods