Chapter 16 Econ FINAL

A plastics manufacturing plant dumps pollution into the Big River. This leads to higher costs and disruption for fishermen on the river, for which they are not compensated. In this situation: A.) too much of society's resources are being used to produce plastic. B.) there is an external benefit to society from plastic production. C.) too little of society's resources are being used to produce plastic. D.) the ideal amount of society's resources is being used to produce plastic.

A

Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to buy and sell the rights to this total discharge level with other cities. This is an: A.) tradable emissions permit. B.) Pigouvian tax. C.) environmental standard. D.) emissions tax.

A

If external costs exist, the competitive free market: A.) allocates resources inefficiently. B.) automatically corrects an overallocation of resources. C.) allocates resources efficiently. D.) automatically corrects an underallocation of resources.

A

Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $500 but government officials have set the tax at $900. At the equilibrium with the $900 tax: A.) the marginal social benefit of pollution will be $900. B.) there will be too much pollution. C.) the marginal social cost of pollution will be less than $900. D.) the marginal social benefit of pollution will be more than $900.

A

The government has adopted an emissions tax if it: A.) charges automobile drivers $0.10 for each unit of automobile emissions. B.) pays automobile drivers $0.10 for each 10% reduction in automobile emissions. C.) specifies the type of catalytic converter that must be used to reduce automobile emissions. D.) transfers the ownership of city air to a private firm that charges automobile drivers a profit-maximizing price, based in part on the pollution capacity of the atmosphere.

A

The marginal social benefit of pollution: A.) can be measured as the additional gain to society from one additional unit of pollution. B.) is easy to estimate, since polluters are required to file this information in their tax returns. C.) is equal to the marginal social cost of pollution, since benefits to producers are equal to costs to consumers. D.) is zero, since pollution is not beneficial.

A

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

A

Tony has a cell phone, and his service provider is Verizon. When he calls his wife, Meleah, another Verizon customer, he does not have to pay for those minutes. The more Verizon customers there are in the market, the more benefit Tony receives. This is: A.) a network externality. B.) the Coase theorem. C.) a Pigouvian subsidy. D.) a technology spillover.

A

An industry with production that generates external costs produces a quantity of output that is: A.) smaller than the socially optimal quantity. B.) larger than the socially optimal quantity. C.) socially optimal. D.) socially optimal if a specific subsidy is given to buyers.

B

Automobile emissions generate pollution, have costs, and cause discomfort to residents of a city. In this case: A.) too little of society's resources are being used to operate automobiles. B.) the externality can be internalized by imposing a specific tax on drivers. C.) there is an external benefit to society from operating automobiles. D.) the externality can be internalized by granting a specific subsidy to drivers.

B

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost. This is not the case for environmental standards, since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so. A.) False B.) True

B

If drivers decide to make phone calls without considering the costs imposed on others, the: A.) number of phone calls made while driving will be fewer than the socially optimal quantity. B.) number of phone calls made while driving will be more than the socially optimal quantity. C.) marginal social benefit curve will lie below the marginal social cost curve. D.) marginal social cost curve will lie below the marginal cost of production curve.

B

If the number of available tradable emissions permits is decreased, the equilibrium price of the permits _____ and the equilibrium quantity of emissions _____. A.) decreases; increases B.) increases; decreases C.) increases; increases D.) decreases; decreases

B

The economically efficient level of an externality is zero. A.) True B.) False

B

The total external cost of air pollution in Tennessee affects the final price of goods in Tennessee, assuming that the government does not intervene in the marketplace. A.) True B.) False

B

There are benefits resulting indirectly from pollution because: A.) firms pollute the environment only if it allows them to provide people with goods and services they desire at a higher cost. B.) we obtain goods and services we enjoy even though in the process we pollute. C.) businesses and consumers receive a perverse satisfaction from polluting. D.) it can often be beneficial to wildlife.

B

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 cost to hog farmers. D.) the price will be less than the marginal benefit.

B

Which of the following generates a positive externality? A.) You buy a new car and find $5,000 in the door panel. B.) Your next-door neighbor installs a bat house and the bats eat mosquitoes. C.) Your next-door neighbor mows the lawn at 6 A.M. D.) Joe buys health insurance but decides not to take the time to get a flu shot.

B

Which of the following is a positive externality? A.) Sam has dozens of cats, and they come into your yard to hunt the birds that come to your birdbath. B.) Sam buys a dilapidated house, renovates it, and increases the property values of all houses in the neighborhood. C.) Sam dug a pond so he could go fishing, but the pond has contributed to an explosion of mosquitoes in your neighborhood. D.) Liquid waste from Sam's chicken farm flows into a neighbor's well water.

B

With tradable emissions permits, the main problem is to determine the _____, while with emissions taxes the main problem is to determine the _____. A.) marginal social cost of pollution; optimal tax rate B.) optimal quantity of pollution; optimal tax rate C.) optimal quantity of pollution; marginal social benefit of pollution D.) optimal price of the permits; optimal level of pollution

B

A coal-powered electrical generator that discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town has a(n): A.) quasi-public good. B.) external benefit. C.) external cost. D.) specific tax.

C

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.) lawyers would find a way to prohibit such negotiations unless they were actively involved, and this would make transaction costs prohibitive. C.) the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive. D.) agreements arising from such negotiations could not be enforced, since the Constitution guarantees all individuals freedom of access to all public roads.

C

Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood. Because her consumption of rosebushes provides a positive externality to the community, the government should _____ because the market quantity of rosebushes is _____ than the socially optimal quantity. A.) provide a subsidy; greater B.) impose a tax; greater C.) provide a subsidy; lower D.) impose a tax; lower

C

Both emissions taxes and tradable emissions permits: A.) encourage more pollution. B.) are usually less effective than environmental standards. C.) are efficient cost-minimizing methods of pollution reduction. D.) work only if they are coupled with environmental standards.

C

Suppose an emissions tax is imposed on all dairy farms in Wisconsin. This tax would: A.) increase the supply of milk in Wisconsin. B.) encourage the dairy farmers to lower prices. C.) reduce the supply of milk in Wisconsin. D.) increase the level of emissions.

C

Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $1,500 but government officials have set the tax at $500. At the equilibrium with the $500 tax: A.) the marginal social cost of pollution will be less than $500. B.) the marginal social benefit of pollution will be less than $500. C.) there will be too much pollution. D.) the marginal social benefit of pollution will be more than $500.

C

Taxes are a more effective method of controlling pollution than environmental standards because: A.) standards never require the efficient level of output. B.) standards require less information. C.) taxes encourage reducing pollution at the lowest possible cost. D.) standards allow greater flexibility.

C

The marginal social benefit from pollution _____ as the quantity of pollution emissions _____. A.) remains constant; increases B.) remains constant; decreases C.) decreases; increases D.) increases; increases

C

To encourage consumption of a good that generates positive externalities, the best option for policymakers would be to: A.) mandate consumption of the good at the socially optimal level. B.) impose a tax on the amount consumed to achieve the socially optimal level. C.) provide a subsidy per unit of the good consumed to achieve the socially optimal level. D.) do nothing, since the market will achieve the socially optimal level without government intervention.

C

Which of the following best describes a negative externality? A.) Your neighbor loves to bake bread and always brings you a loaf fresh and hot from the oven. B.) Your neighbor has invested in beautiful landscaping, increasing the value of all of the houses on the block. C.) Your neighbor has an ornamental pond that breeds mosquitoes. D.) Your neighbor has a pool and has given you an open invitation to come over and swim.

C

Which of the following is NOT an activity that generates an externality? A.) Bob renovates a run-down house in the neighborhood. B.) Bob's Service Station dumps used oil in the river. C.) Bob's Service Station donates a car to charity. D.) Bob occasionally drives while drunk.

C

Which of the following is an environmental policy based on tradable emission permits? A.) paying companies $1 for each 10% reduction in emissions B.) a charge to companies of $1 for every 100 units of pollutants emitted C.) allowing companies to buy and sell the right to a certain level of emissions D.) ignoring pollution and letting private markets operate without government interference

C

A Pigouvian subsidy is: A.) appropriate when the marginal social cost curve is above the marginal cost of production curve. B.) designed to discourage activities generating externalities. C.) appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level. D.) designed to encourage activities generating external benefits.

D

Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient. A.) are less than B.) compete with C.) are equal to D.) exceed

D

As the quantity of pollution rises, its marginal social cost: A.) falls. B.) rises at first but eventually falls. C.) remains constant. D.) rises.

D

Flu vaccines often provide both private benefits to individuals and positive external benefits to other members of society. As a result, without government intervention one would find: A.) too many doses of flu vaccine being produced, since external benefits would not be considered. B.) a shortage of doses of flu vaccine, because their marginal social benefit is overestimated. C.) the optimal amount of doses of flu vaccines being produced, since external benefits would not be considered. D.) too few doses of flu vaccine being produced, since external benefits would not be considered.

D

If government officials set an emissions tax too high: A.) pollution will be unabated. B.) the marginal social cost of pollution will exceed the marginal social benefit of pollution. C.) there will be too much pollution. D.) there will be too little pollution.

D

Markets for the right to pollute are: A.) likely to result in fewer incentives to develop and implement technology that reduces pollution. B.) established by individual firms when they reduce emissions. C.) a means by which more pollution is encouraged. D.) established by government when it issues tradable pollution permits.

D

Suppose the federal government determines the total level of municipal sewage that can be discharged by cities along a river. If the cities are able to buy and sell rights to the total discharge level among themselves, then the government's environmental policy includes: A.) command and control. B.) emissions taxes. C.) regulations. D.) tradable pollution permits.

D

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

D

Your community requires the sewage treatment plant to process raw sewage so that it is safe to return the water to the environment. This is: A.) an emissions tax. B.) a tradable emissions permit. C.) the Coase theorem. D.) an environmental standard.

D