chapter 5

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be? (P2- P1) per unit of output P1 per unit of output (P2- P0) per unit of output (P1- P0) per unit of output

(P2- P0) per unit of output

Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-8. What is the economically efficient level of pollution reduction? 12.5 million tons 9 million tons 8 million tons 0 tons

9 million tons

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. Let's suppose the government imposes a tax of $50 per unit of toilet paper to bring about the efficient level of production. What happens to the market price of toilet paper? It rises by $50 per unit. It rises by more than $50 per unit. It rises by less than $50 per unit. It remains the same because the tax is imposed on producers who create the externality.

It rises by less than $50 per unit.

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. The efficient output is: Q1. Q2. Q3. Q4.

Q2.

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. The private profit-maximizing output level is: Q1. Q2. Q3. Q4.

Q3.

Figure 5-2 shows a market with a negative externality. Refer to Figure 5-2. The efficient output level is: Qb - Qd. Qd. Qb. Qa.

Qa.

Figure 5-2 shows a market with a negative externality. Refer to Figure 5-2. The private profit-maximizing quantity for the firm is: Qb. Qb - Qd. Qd. Qa.

Qb.

An externality is: a benefit or cost experienced by someone who is not a producer or consumer of a good or service. anything that is external or not relevant to the production of a good or service. a cost paid for by the producer of a good or service. a benefit realized by the purchaser of a good or service.

a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

A private good is: a good that is nonrival and excludable. a good that is nonrival and nonexcludable. a good that is rival and nonexcludable. a good that is rival and excludable.

a good that is rival and excludable.

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using: market based policies command-and-control policies. strong-arm tactics. global initiatives.

command-and-control policies.

Which of the following is an example of a common resource? elephants in the wild a college education public transportation lions in a zoo

elephants in the wild

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set: equal to the marginal external cost at the economically efficient level of pollution. equal to the amount of the deadweight loss created in the absence of a pollution tax. equal to the marginal private cost of production at the economically efficient level of pollution. at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

equal to the marginal external cost at the economically efficient level of pollution.

The Coase theorem states that: if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. a free-market equilibrium is the best solution to address externalities. assigning property rights is the only thing the government should do in a market economy. government intervention is always needed if externalities are present.

if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

An advantage of imposing a tax on the producer that generates pollution is that: a producer can pass the cost of the pollution to consumers. the government can keep tabs on exactly what is produced in an industry. it will eliminate pollution. it forces the polluting producer to internalize the external cost of the pollution.

it forces the polluting producer to internalize the external cost of the pollution.

A market demand curve reflects the: external benefits of consuming a product. sum of private and social benefits of consuming a product. marginal private benefits of consuming a product. marginal social benefits of consuming a product.

marginal private benefits of consuming a product.

A market supply curve reflects the: marginal social costs of producing a good or service. external costs of producing a good or service. marginal private costs of producing a good or service. external benefits of producing a good or service.

marginal private costs of producing a good or service.

A carbon tax which is designed to reduce pollution is an example of a: command-and-control policy. noneffective incentive. government administrative rule. market-based policy.

market-based policy.

Private producers have no incentive to provide public goods because once produced, it will not be possible to exclude those who do not pay for the good. they cannot avoid the tragedy of the commons. production of huge quantities of public goods entails huge fixed costs. the government subsidy granted is usually insufficient to enable private producers to make a profit.

once produced, it will not be possible to exclude those who do not pay for the good.

In economics, the term "free rider" refers to: a supervisor who delegates menial time-consuming activities to others. one who waits for others to produce a good and then enjoys its benefits without paying for it. one who volunteers her services. a person who evades taxes.

one who waits for others to produce a good and then enjoys its benefits without paying for it.

Which of the following is an example of a positive externality? a police department stops enforcing DUI laws. planting trees along a sidewalk which add beauty and create shade. raising the speed limit to 60 mph in school zones. permitting smoking on commercial airplanes.

planting trees along a sidewalk which add beauty and create shade

Classifying a good as excludable means that someone can be barred from consuming the good based on race, creed, or some other irrelevant characteristic. that consumption of the good causes no externalities. that a producer with patent or copyright protection can exclude any other producer from selling his product. that anyone who does not pay for the good cannot consume it.

that anyone who does not pay for the good cannot consume it.

Figure 5-1 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Refer to Figure 5-1. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows: the effect of a negative externality in the production of a good. the effect of a positive externality in the production of a good. the effect of an external cost imposed on a producer. the effect of an external benefit such as a subsidy granted to consumers of a good.

the effect of a negative externality in the production of a good.

Conceptually, the efficient level of carbon emissions is the level for which: the marginal cost of reducing carbon emissions is minimized. the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions. the marginal benefit of reducing carbon emissions is maximized. the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized.

the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. An efficient way to get the firm to produce the socially optimal output level is: to assign property rights to the firms in the industry. for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. to grant a subsidy to enable the industry to internalize the external costs of production. to impose a tax to make the industry bear the external costs it creates.

to impose a tax to make the industry bear the external costs it creates.

Common resources differ from public goods in that: common resources are resources that cannot be renewed but the production of public goods can be increased any time. common resources are collectively owned by a group of people while public goods are government owned. common resources are non-excludable while public goods are excludable to those who do not pay for the good. unlike public goods, common resources are rival in consumption.

unlike public goods, common resources are rival in consumption.