Econ 103 Midterm

The World Health Organization estimates that air pollution is responsible for about:

10% of all deaths.

Every different good in the world:

has its own unique demand curve

In the presence of an external cost, a free market will:

maximize the sum of producer and consumer surplus but will not maximize social surplus.

A study of chess tournaments showed that:

players made more mistakes on days with higher pollution.

Currie and Walker's study of infant health outcomes before and after the EZ-Pass showed that:

the introduction of EZ-Pass reduced the prevalence of low-birthweight babies and of premature births.

The government can ensure the same amount of pollution reduction from command and control and from tradable pollution permits by controlling:

the number of permits issued.

Under tradable pollution permits, those polluters who buy permits and continue to pollute would do so because:

the permit price is lower than their pollution reduction cost.

A free market maximizes:

the sum of producer & consumer surplus

At quantities lower than the equilibrium quantity, what is true?

there are unexploited gains from trade because buyers are willing to pay more than sellers require for another unit

Tradable pollution permits are better than command and control for reducing pollution because:

they harness the knowledge and energy of entrepreneurs.

Professor Tabarrok's guess is that few people, if they were able to choose how they reduced their electricity consumption, would choose to purchase a more expensive washer that did not clean as well. This illustrates that when the government chose to reduce energy consumption by requiring washers to use less electricity:

this was a high-cost way to reduce energy consumption.

When the price at which sellers are willing to sell another unit exceeds the price at which buyers are willing to buy another unit, there must be ____________, and the quantity is too _______________.

waste; high

Economists believe that in free markets, potential gains from trade:

will eventually be found by buyers & sellers in a market

A demand curve shows:

How much of a good people will want at different prices

What correctly describes the appearance of a demand curve?

It is a line or curve that slopes down and to the right

Which of the following economic concepts is best demonstrated by the example of the unintended consequence of the washing machine energy mandate?

Tradeoffs

What happened when the government mandated that washing machines use less energy?

Washing machines stopped being able to clean clothes as well as they had previously.

The flu shots that don't happen in a free market but should happen have:

a social value that exceeds their private cost.

Another way to describe a "high value" use of oil is:

a use of oil for which oil has few substitutes

The fact that bees don't fly very far is important in the market for pollination services because it:

allows farmers and beekeepers to internalize all externalities.

Professor Tabarrok summarizes several economic studies on pollution by saying that pollution is:

an attack on human capital.

In the presence of an external cost, the social cost curve will:

be above the supply curve.

If there is no waste & all potential gains from trade have been exploited, then a market must:

be in equilibrium

An external benefit from a transaction is a benefit to:

bystanders.

Under the SO2 trading program, firms that generate electricity from:

clean sources can make money by selling permits.

The reason the fewer barrels of oil are demanded at higher prices that:

consumers would rather forgo some low value uses for oil rather than pay high prices

Professor Tabarrok refers to the "overuse" of antibiotics because:

decisions about our use of antibiotics fail to consider the external cost of using antibiotics.

What does incentives mean?

Rewards and penalties that motivate behavior

Professor Tabarrok said in the video that there is a "problem" with the fact that flu shots create external benefits. What's the problem?

The person getting the flu shot bears all of the cost.

Because flu shots provide external benefits, the _______ curve for flu shots _______.

demand; fails to capture all of the value of flu shots

External costs and external benefits are known as:

externalities.

In response to James Meade's claim that the market would underprovide pollination, Steven Cheung's work showed that:

farmers pay beekeepers for pollination, so the benefits are not external.

The presence of an external cost in a free market leads to a deadweight loss because:

for some units of the good, the social cost of the good exceeds the private value.

What happens at any price other than the equilibrium price?

forces are put into play that move the price toward the equilibrium price

One of the problems that prevents the market for pollution control from working well is the fact that:

it is not obvious what the costs of pollution are or on whom they fall.

Which of the following is not true about the free market equilibrium?

there are opportunities for further gains from trade between buyers & sellers

A very low price of oil sends the signal to consumers that:

there is enough oil available even for low-value uses of oil, like making rubber duckies

Kristen opened a charming bookstore in a shopping plaza. Business in other shops in the plaza has increased because of the customers whom Kristen's bookshop has attracted. Given the external benefits that her bookshop generates, if Kristen is selling her books at the market equilibrium price for books, she:

would eliminate a deadweight loss in the market for her books if she sold books at the efficient equilibrium price and quantity.

How did economists Currie and Walker conduct research to decide whether pollution or poverty was responsible for worse outcomes among babies born in high-pollution areas?

By comparing the health of infants born near toll booths before and after the introduction of EZ-Pass.

What makes the implementation of a system of tradable permits aimed at combating global CO2 emissions more difficult than for SO2 emissions?

CO2 emissions are a global problem, whereas SO2 emissions are generally a national problem.

Which of the following, if true, would address the problem of unclear property rights with respect to pollution control? -The government places a tax on polluters for every ton of pollution they produce. -The government makes all polluting completely illegal. -The government passes a law stating that all factories can pollute as much as they want. -The market for equipment that can mitigate the impact of pollution on one's health grows significantly.

The government passes a law stating that all factories can pollute as much as they want.

The eradication of smallpox is presented as an example of:

a very successful application of a command-and-control approach.

One common complaint against tradable permits that Professor Tabarrok mentions but eventually dismisses is the claim that:

tradable permits contain an element of corporate welfare.

Flu shots have the potential to be _______ by the market because their social value is _______ their private value.

underprovided; greater than

When Professor Tabarrok suggests that we may "be on the wrong side of the pollution Laffer curve," he means that:

we've allowed pollution to increase past the point where it correlates positively with economic growth.

How did economists Currie and Walker control for other factors that may have changed at the same time as the introduction of EZ-Pass and might have been responsible for changing health outcomes for babies?

By also collecting data on babies born further away from toll booths both before and after the introduction of EZ-Pass.

Which of the following summarizes the outcome in the market for SO2 permits? -Clean energy has a price ceiling and dirty energy has a price floor. -Clean energy is taxed and dirty energy is subsidized. -Clean energy has a price floor and dirty energy has a price ceiling. -Clean energy is subsidized and dirty energy is taxed.

Clean energy is subsidized and dirty energy is taxed.

Which of the following is NOT mentioned by Professor Cowen as one of the benefits of trade? -Trade increases productivity through specialization and the division of knowledge. -Trade makes people better off when preferences differ. -Trade universally improves the quality of life. -Trade increases productivity through specialization according to comparative advantage.

Trade universally improves the quality of life.

An economic study that compares the change in an outcome for a treatment group to the change in that outcome for a control group is called:

a difference-in-difference study.

If the use of a good imposes an external cost on bystanders, the efficient equilibrium will have:

a higher price and a lower quantity than the free market equilibrium.

A Pigouvian tax can address the problems of external costs by:

internalizing the external cost.

Professor Cowen's point that trade makes people better off when preferences differ is:

intuitive but fundamental.

Which of the following is true of a Pigouvian subsidy?

A Pigouvian subsidy can eliminate the underuse of a good with external benefits.

Which of the following is an example of a command-and-control approach to reducing electricity consumption? -Separate electricity meter rates for appliances that use more than a specified amount of electricity. -A law that forbids the sale of appliances that use more than a specified amount of electricity. -A tax on appliances that use more than a specified amount of electricity. -A subsidy on appliances that use less than a specified amount of electricity.

A law that forbids the sale of appliances that use more than a specified amount of electricity.

What are transaction costs?

All costs necessary to reach an agreement

For which group did an economic study fail to show that pollution has negative effects on productivity?

All of the studies showed a negative impact from pollution.

Why would a tax on electricity be more efficient than a command-and-control approach that achieves the same energy reduction?

Different consumers can respond differently to a tax, ensuring that the reduction is done in the least costly way.

To whom is a system of tradable permits generally more politically acceptable relative to Pigouvian taxes?

Energy firms to whom tradable permits are given

To an economist, reducing electricity consumption in the least-cost way implies which of the following?

Giving up the least valuable uses of electricity.

Would the Clean Air Act of 1990 been considered a success if both SO2 emissions and electricity generation had fallen?

It would be hard to say, since we would have simply been making a tradeoff.

Mobs on Black Friday are primarily caused by:

Lower prices

In the market for antibiotics, what is represented by the supply curve?

Only the private costs of producing antibiotics

On the graph of a demand curve,____________ is shown on the vertical axis, & _______________ is shown on the horizontal axis.

Price; quantity demanded

The Coase Theorem:

Private solutions to externality problems

Which of the following is true for vaccines?

The social value is higher than the private value, and the efficient quantity is higher than the market quantity.

Why did Professor Tabarrok and Professor Cowen buy the right to emit 30 pounds of sulfur dioxide?

To reduce the total amount of pollution.

Which of the following equations is correct? External cost = private cost − social cost Social cost = private cost − external cost External cost = private cost + social cost Social cost = private cost + external cost

social cost= private cost + external cost

Flu shots and other goods with external benefits generate a deadweight loss because:

some units for which the value exceeds the cost are not produced.

Another advantage of Pigouvian taxes over command-and-control energy consumption mandates is that:

taxes can be targeted directly at pollution, rather than indirectly at energy consumption.

A person who gets a flu shot is willing to pay for:

the benefits she receives but not the benefits someone else receives.

The market equilibrium separates the demand curve into two parts:

the buyers; non-buyers

"Command and control," as it is used in the video, refers to:

the government ordering all factories to reduce pollution and telling them how to do it.

The leftmost points on the demand curve for oil represent:

the highest-value uses of oil

The "dose response" effect demonstrated by the Currie and Walker study of EZ-Pass is that:

the improvement in health outcomes was greatest for those babies born closest to the toll booths.

The demand curve demonstrates that, keeping all other factors constant, people respond to a lower price of a good by:

Buying more of a given product

From an economic perspective, under what conditions would a Pigouvian tax on electricity and a system of tradable permits achieve the exact same outcome?

If the tax is set equal to the external cost of pollution, and the permit quantity is set equal to the efficient quantity.

Which of these is NOT mentioned in the video as a benefit of using tradable pollution permits to reduce pollution instead of command and control? -Increased federal government tax revenue -A lower price for pollution reduction -More money left over to buy other things -Incentives to find the lowest-cost ways to reduce pollution

Increased federal government tax revenue

How does a system of tradable pollution permits empower groups who advocate for pollution reduction?

It allows them to buy permits, tear them up, and reduce pollution directly.

How did the government determine that increasing the energy efficiency of washing machines was the best way to achieve the goal of reducing energy consumption?

It did not determine the best way to achieve this goal, because to do so is impossible.

Which of the following is NOT among the externality problems pointed out in Coase's paper?

That they are external

Which of the following best demonstrates that in the case of pollination services, the property rights are clear?

The beekeeper gets the honey and the farmer gets the crops that the bees pollinate.

Under tradable pollution permits, polluters who face the lowest costs for reducing pollution would:

choose to sell their permits and reduce their pollution.

Tradable allowances are a specific kind of:

command-and-control approach.

If the goal of environmental policy is to reduce sulfur dioxide and nitrogen oxide emissions that result from electricity production, there are at least three possible policies: Option 1: Tax the use of electricity. Option 2: Tax sulfur dioxide and nitrogen oxide emissions. Option 3: Require appliances to use less electricity .Rank these three policies from least to most costly.

option 2, option 1, option 3

Nobel laureate James Meade argued that the market would underprovide:

pollination.

The Coase theorem says that if transaction costs are low and property rights are clearly defined, then _______ will ensure that the market equilibrium is efficient _______.

private bargains; even if there are externalities

The equilibrium price in a market is the price at which:

quantity demanded equals quantity supplied

The success of the Clean Air Act of 1990 can be demonstrated by:

the reduction in SO2 emissions and the increase in electricity generation.

In a market equilibrium, what differentiates suppliers who actually sell a good from suppliers who do NOT sell a good?

the suppliers who sell have lower costs than sellers who don't sell

The buying and selling of goods on eBay provides a great example of the Professor Cowen's point that:

trade makes people better off when preferences differ.

The surplus of bystanders is included in which of the following?

Social surplus

Each of the following conditions might cause a command-and-control approach to be a desirable solution to an externality problem EXCEPT:

when different consumers are likely to respond in different ways.

In practice, tradable pollution permits:

worked even better than any expert had predicted.

How does a vaccine, such as a flu shot, create an external benefit?

Someone who gets a flu shot is less likely to spread the flu to other people.

Which approach may solve the externality problem if the conditions of the Coase theorem are not met?

The creation of new markets

Which of these is NOT mentioned in the video as a possible reason that one polluter might face lower costs for reducing pollution?

The factory faces lower pollution-related fines.

If the cost of reducing pollution at factory A is lower than the cost of reducing pollution at factory B, then:

it is better to have factory A do more pollution reduction than factory B, since it would use fewer other resources.

If private bargains are to solve problems of externalities, property rights must be clearly defined so that:

it is clear who should pay whom.

Transaction costs can be high when:

it is hard to identify the bystanders who are affected by external costs or benefits.

If the government wants to reduce pollution at least cost, it must overcome:

its lack of information about which factories are face low costs for pollution reduction.