Question 1

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Accepted Answer

A)  The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost.
B)  A deadweight loss occurs; at equilibrium the additional social cost of production is greater than the additional benefit to consumers.
C)  The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced.
D)  The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus.

Question 2

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Accepted Answer

Command-and-control is an approach that ...

Question 3

Figure 5-3
 
-Refer to Figure 5-3.At the competitive market equilibrium, for the last unit produced

Accepted Answer

A)  the size of the external cost is Pm - Pₒ.
B)  the size of the external benefit is Pm - Pₒ.
C)  the size of the external cost is Pn - Pₒ.
D)  the size of the external benefit is Pn - Pₒ.

Question 4

Suppose the government mandates the installation of a certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

Accepted Answer

A) True 
 B)False

Question 5

A major problem with using a tradable emission allowances system to control pollution is

Accepted Answer

A)  that it grants firms a license to pollute.
B)  the difficulty in determining the emissions target.
C)  it discourages firms from implementing cost-effective pollution control technology.
D)  that it does not eliminate pollution completely.

Question 6

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

Accepted Answer

A)  the marginal private benefit of harvesting tuna is higher than the marginal social benefit of harvesting it.
B)  the marginal private benefit of harvesting tuna is lower than the marginal social benefit of harvesting it.
C)  the marginal social cost of harvesting the fish is lower than the marginal private cost.
D)  the marginal private cost of harvesting the fish is lower than the marginal social cost.

Question 7

What is the rationale behind a marketable emission allowance scheme?

Accepted Answer

A)  to create a market for externalities: the scheme brings together buyers and sellers of marketable permits
B)  to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance
C)  to raise revenue for the government through the sale of emission permits and at the same time set an emissions target
D)  to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

Question 8

Figure 5-7
 
-Refer to Figure 5-7.The marginal benefit of reducing pollution curve is the same curve as

Accepted Answer

A)  the supply of pollution reduction curve.
B)  the demand for pollution reduction curve.
C)  the positive externality curve.
D)  the external benefit curve.

Question 9

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

Accepted Answer

A)  further reductions will make society better off.
B)  further reduction will make society worse off.
C)  pollution taxes should be imposed on producers to pay for further reductions.
D)  economic efficiency will be increased if further reductions are made.

Question 10

Because producers do not bear the external cost of pollution,

Accepted Answer

A)  the economically efficient level of production is achieved.
B)  private production is below the economically efficient level.
C)  private production exceeds the economically efficient level.
D)  the market price is too high.

Question 11

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

Accepted Answer

A)  It conducts public surveys to determine if consumers want the product.
B)  It hires economists to estimate the market demand for the product.
C)  It takes a vote in Congress.
D)  It evaluates the costs and benefits of producing the good.

Question 12

When there is a negative externality, the competitive output is greater than the economically efficient output level.

Accepted Answer

A) True 
 B)False

Question 13

Economists generally favor the use of tradable emission allowances to reduce pollution.However, the use of these allowances has been criticized by some environmentalists.Which of the following describes this criticism?

Accepted Answer

A)  Some environmentalists believe the allowances give firms a license to pollute.
B)  Some environmentalists believe that the price of allowances is often too high for consumers to afford.
C)  Some environmentalists believe that Pigovian taxes are a more efficient way to reduce pollution.
D)  Some environmentalists oppose allowances on legal grounds; they believe the use of allowances is unconstitutional.

Question 14

Figure 5-14
  
Figure 5-14 shows the market for aviation security.Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security.
-Refer to Figure 5-14 to answer the following questions.
a.In the absence of any government intervention what is the equilibrium level of security that airlines will supply? Using the diagram, denote this level, Q*.Briefly explain why this quantity is not the economically efficient level of aviation security.
b.In the diagram, illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw.
c.On your diagram identify the economically efficient level of aviation security.Denote this level Qe.
d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy.

Accepted Answer

a.See the figure above.Q* is not the o...

Question 15

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Accepted Answer

A)  the private cost of production
B)  the social cost of production
C)  the external cost of production
D)  the explicit cost of production

Question 17

Conceptually, the efficient level of carbon emissions is the level for which

Accepted Answer

A)  the marginal benefit of reducing carbon emissions is maximized.
B)  the marginal cost of reducing carbon emissions is minimized.
C)  the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.
D)  the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized.

Question 18

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Accepted Answer

A)  it does not lead to significant reductions in pollution.
B)  they believe a market-based approach will reduce pollution more efficiently.
C)  the "command-and-control" approach is designed to help firms at the expense of consumers.
D)  the "command-and-control" approach leads to negative externalities.

Question 19

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms "rivalry" and "excludability" as they are used to define goods.List the four categories of goods, and define these categories in terms of rivalry and excludability.

Accepted Answer

Rivalry occurs when one person's consumi...

Question 20

How does a negative externality in production reduce economic efficiency?

Accepted Answer

If there is a negative externality in pr...

Exam 5: Externalities, Environmental Policy, and Public Goods

When there is a negative externality, the competitive output is greater than the economically efficient output level.

Correct Answer
verified

Figure 5-7 -Refer to Figure 5-7.The marginal benefit of reducing pollution curve is the same curve as

Correct Answer
verified

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Correct Answer
verified

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

Correct Answer
verified

Economists generally favor the use of tradable emission allowances to reduce pollution.However, the use of these allowances has been criticized by some environmentalists.Which of the following describes this criticism?

Correct Answer
verified

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Correct Answer
verified

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms "rivalry" and "excludability" as they are used to define goods.List the four categories of goods, and define these categories in terms of rivalry and excludability.

Correct Answer
verified
Rivalry occurs when one person's consumi...
View Answer

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

Correct Answer
verified

Suppose the government mandates the installation of a certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

Correct Answer
verified

A major problem with using a tradable emission allowances system to control pollution is

Correct Answer
verified

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Correct Answer
verified
Command-and-control is an approach that ...
View Answer

Figure 5-3 -Refer to Figure 5-3.At the competitive market equilibrium, for the last unit produced

Correct Answer
verified

What is the rationale behind a marketable emission allowance scheme?

Correct Answer
verified

How does a negative externality in production reduce economic efficiency?

Correct Answer
verified
If there is a negative externality in pr...
View Answer

Because producers do not bear the external cost of pollution,

Correct Answer
verified

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Correct Answer
verified

Conceptually, the efficient level of carbon emissions is the level for which

Correct Answer
verified

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Correct Answer
verified

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

Correct Answer
verified

Correct Answer
verified

a.See the figure above.Q* is not the o...
View Answer

Exam 5: Externalities, Environmental Policy, and Public Goods

When there is a negative externality, the competitive output is greater than the economically efficient output level.

Correct AnswerverifiedShow Answer

Figure 5-7 -Refer to Figure 5-7.The marginal benefit of reducing pollution curve is the same curve as

Correct AnswerverifiedShow Answer

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Economists generally favor the use of tradable emission allowances to reduce pollution.However, the use of these allowances has been criticized by some environmentalists.Which of the following describes this criticism?

Correct AnswerverifiedShow Answer

In the past the federal government often employed what is called a "command-and-control" approach to the reduction of pollution emissions.Many economists are critical of this approach because

Correct AnswerverifiedShow Answer

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms "rivalry" and "excludability" as they are used to define goods.List the four categories of goods, and define these categories in terms of rivalry and excludability.

Correct AnswerverifiedRivalry occurs when one person's consumi...View AnswerShow Answer

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

Correct AnswerverifiedShow Answer

Suppose the government mandates the installation of a certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

Correct AnswerverifiedShow Answer

A major problem with using a tradable emission allowances system to control pollution is

Correct AnswerverifiedShow Answer

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Correct AnswerverifiedCommand-and-control is an approach that ...View AnswerShow Answer

Figure 5-3 -Refer to Figure 5-3.At the competitive market equilibrium, for the last unit produced

Correct AnswerverifiedShow Answer

What is the rationale behind a marketable emission allowance scheme?

Correct AnswerverifiedShow Answer

How does a negative externality in production reduce economic efficiency?

Correct AnswerverifiedIf there is a negative externality in pr...View AnswerShow Answer

Because producers do not bear the external cost of pollution,

Correct AnswerverifiedShow Answer

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Correct AnswerverifiedShow Answer

Conceptually, the efficient level of carbon emissions is the level for which

Correct AnswerverifiedShow Answer

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Correct AnswerverifiedShow Answer

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

Correct AnswerverifiedShow Answer

Correct Answerverified a.See the figure above.Q* is not the o...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Rivalry occurs when one person's consumi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Command-and-control is an approach that ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If there is a negative externality in pr...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a.See the figure above.Q* is not the o...
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