Question 1

Which of the following creates a positive externality?

Accepted Answer

A)   a paper mill polluting a river
B)   a stock market crash
C)   a neighbor that beautifies her lawn
D)   taxes and subsidies
E)   the greenhouse effectF) A) and E)
G) C) and D)

Question 2

The destruction of tropical rain forests results in

Accepted Answer

A)   a possible decrease in the greenhouse effect
B)   a decrease in gases in the atmosphere
C)   a decrease in the recycling of carbon dioxide
D)   reduced erosion
E)   better long-term growth prospects in the local economyF) C) and E)
G) A) and D)

Question 3

In order to increase society's well-being, a process that produces a positive externality might be

Accepted Answer

A)   taxed to discourage production
B)   subsidized to encourage production
C)   taxed to encourage production
D)   subsidized to discourage production
E)   provided without government interventionF) A) and E)
G) C) and E)

Question 4

Which of the following is a positive externality of consumption?

Accepted Answer

A)   inoculations against a disease reduce the likelihood of transmitting it to others
B)   phosphates from laundry detergents
C)   litter from fast-food containers
D)   ozone depletion from the production of fast-food containers
E)   the greenhouse effectF) A) and C)
G) A) and B)

Question 5

Other things equal, if the government increased the quantity of pollution rights to be sold,

Accepted Answer

A)   pollution would not be affected
B)   the price of pollution rights would rise, and the amount of pollution would decrease
C)   the price of pollution rights would fall, and the amount of pollution would decrease
D)   the price of pollution rights would fall, and the amount of pollution would increase
E)   the price of pollution rights would rise, and the amount of pollution would increaseF) A) and D)
G) B) and C)

Question 6

To enhance social welfare, the government should encourage the production of

Accepted Answer

A)   all goods
B)   no goods
C)   goods that provide positive externalities
D)   goods whose social cost exceeds their private cost
E)   goods that provide negative externalitiesF) None of the above
G) A) and B)

Question 7

The Coase solution to the problem of externalities

Accepted Answer

A)   applies in every situation where externalities are present
B)   only applies to activities that generate positive externalities
C)   only works under perfect competition
D)   only works when bargaining costs are low
E)   can lead to an increase in the common pool problemF) A) and E)
G) A) and C)

Question 8

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

Accepted Answer

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 some fixed rules and then requires them to maximize profits given these fixed rules
E)   offers each firm the option of using marginal cost pricing and average cost pricing when determining the optimum emissions levelsF) B) and D)
G) A) and D)

Question 9

Among the 25 most developed countries in the world where does the United States rank in terms of recycling?

Accepted Answer

A)   5th
B)   10th
C)   18th
D)   20th
E)   25thF) D) and E)
G) B) and E)

Question 10

When the benefits to society of using a product exceed benefits to the user,

Accepted Answer

A)   the product should be strictly regulated
B)   the product should be taxed
C)   the product provides a positive externality
D)   the product is overproduced at the privately determined equilibrium
E)   in time the product will not be producedF) C) and D)
G) A) and B)

Question 11

The Coase theorem argues that the assignment of property rights will generate an efficient solution to the problem of

Accepted Answer

A)   positive externalities as long as bargaining costs are small
B)   negative externalities as long as bargaining costs are small
C)   negative externalities as long as bargaining costs are great
D)   any type of market failure
E)   any type of market failure that involves high transaction costsF) A) and E)
G) C) and D)

Question 12

Exhibit 17-9 
-In Exhibit 17-9, the optimal water quality level is

Accepted Answer

A)   4
B)   5
C)   6
D)   7
E)   8F) A) and B)
G) B) and E)

Question 13

A person can cause a negative externality by

Accepted Answer

A)   becoming immunized
B)   talking loudly in a restaurant
C)   landscaping her lawn
D)   paying taxes
E)   attending schoolF) B) and D)
G) C) and D)

Question 14

When a citizens' group opposes expansion of the prison located in town, the basis of the opposition is that the larger prison will produce

Accepted Answer

A)   a negative externality for the community
B)   a positive externality for the community
C)   more jobs in the community
D)   tax revenue for the community
E)   improved criminal justice optionsF) B) and E)
G) None of the above

Question 15

The optimal level of air quality

Accepted Answer

A)   is 100 percent, which creates a pollution-free environment
B)   is smaller the lower the marginal social cost of air quality
C)   is greater the lower the marginal social benefit of air quality
D)   is greater the lower the marginal social cost of air quality
E)   is smaller the greater the marginal social benefit of air qualityF) A) and B)
G) A) and C)

Question 16

According to the Coase theorem, if bargaining costs are small, then there will be an efficient solution to the problem of toxic waste

Accepted Answer

A)   if the creator of the toxic waste is assigned the property rights
B)   if the victim of toxic waste is assigned the property rights
C)   regardless of which party is assigned the property rights
D)   if the property rights are shared equally between the creator and the victim of toxic waste
E)   in the form of a pollution taxF) B) and D)
G) B) and E)

Question 17

According to the Coase theorem, externality problems may be solved if the parties involved can negotiate. Which of the following is also needed?

Accepted Answer

A)   clearly defined bargaining costs
B)   enforceable bargaining costs
C)   clearly defined, enforceable property rights and low bargaining costs
D)   a property right that cannot be bought or sold
E)   government regulationF) B) and E)
G) All of the above

Question 18

Untreated raw sewage is dumped directly into rivers and oceans

Accepted Answer

A)   only in less-developed economies
B)   only in rural areas
C)   only in urban areas
D)   in every large city in the United States
E)   in some of the largest U.S. citiesF) B) and E)
G) A) and B)

Question 19

The socially efficient level of output is determined where

Accepted Answer

A)   marginal social cost equals marginal social benefit
B)   marginal private cost equals marginal social benefit
C)   average social cost equals average social benefit
D)   average private cost equals average social benefit
E)   total social cost equals total social benefitF) A) and B)
G) A) and C)

Question 20

Most water pollution in the United States comes from manufacturing sites.

Accepted Answer

A) True 
 B)False

Exam 17: Externalities and the Environment

When the benefits to society of using a product exceed benefits to the user,

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In order to increase society's well-being, a process that produces a positive externality might be

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

Correct AnswerverifiedShow Answer

According to the Coase theorem, if bargaining costs are small, then there will be an efficient solution to the problem of toxic waste

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The optimal level of air quality

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According to the Coase theorem, externality problems may be solved if the parties involved can negotiate. Which of the following is also needed?

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Among the 25 most developed countries in the world where does the United States rank in terms of recycling?

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When a citizens' group opposes expansion of the prison located in town, the basis of the opposition is that the larger prison will produce

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Most water pollution in the United States comes from manufacturing sites.

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The Coase solution to the problem of externalities

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The destruction of tropical rain forests results in

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The socially efficient level of output is determined where

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A person can cause a negative externality by

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To enhance social welfare, the government should encourage the production of

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Untreated raw sewage is dumped directly into rivers and oceans

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The Coase theorem argues that the assignment of property rights will generate an efficient solution to the problem of

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Which of the following creates a positive externality?

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Which of the following is a positive externality of consumption?

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Exhibit 17-9 -In Exhibit 17-9, the optimal water quality level is

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Other things equal, if the government increased the quantity of pollution rights to be sold,

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