Environmental Exam Final Questions

If the market price of an orange is $1.20, then consumer surplus amounts to

$1.40

a) Suppose the government wants to reduce pollution from 16 units to 9 units and auctions off 9 pollution permits to achieve this goal. What will the auction price of the permits be?

$57 (or you could also have answered: $57.01

b)If the government wanted to reduce pollution from 16 units to 9 units (i.e., reducing 7 units of pollution). What is the minimum value that the fee (i.e., pigouvian tax) per unit of pollution would need to be in order to achieve that goal?

$57 (or you could also have answered: $57.01).a) Firm A will eliminate off until unit 3 , Firm B is eliminate until 3rd Unit, Firm 3 will eliminate until 3rd Unit and Firm d will only eliminate unit 1.

Suppose that a firm in a competitive market faces the following revenues and costs:

) The firm will not produce an output level beyond a. 4 units. b. 5 units. c. 6 units. d. 7 units.

iv) The socially optimal quantity of output is:

120.

4. For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges. If the market price of an orange is $1.20, then the market quantity of oranges demanded per day is

3

If the firm is maximizing profits, how many units of output will the firm produce?

6 units of output because marginal revenue equals marginal cost.

The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $42, and for Firm A to eliminate a second unit of pollution it would cost an additional $56. If the government charged a fee of $60 per unit of pollution, how many units of pollution would the firms eliminate altogether?

8 units because they will eliminate pollution if the marginal cost is less that $60.

c) How large would a corrective Pigouvian tax and a corrective Pigouvian subsidy need to be to move this market from the equilibrium outcome to the socially-optimal outcome? How should the government distribute the Pigouvian tax and the Pigouvian subsidy?

Ans: t=$4 and s=$1 per ton of paper. How should the government distribute the pigouvian tax and the pigouvian subsidy? The net change in the paper mill company's profits is: s-t = $1-$4 = -$3 per ton of paper. However, the government should make sure to apply a mechanism that links the pigouvian tax to the level of pollution generated by the company and the pigouvian subsidy to the firm's level of investment in R&D. The firm should know that if it is able to reduce pollution, it will pay a lower pollution tax and that if it increases its R&D investment, it will receive a higher subsidy. Finally, if we as a society decide that it is not fair for the fish farm to pay the external cost, we should compensate the farm with the revenue from the pigouvian tax.

ii) Increasing the number of street cleanings per month from _____ would yield a marginal social benefit (for Peter and Wendy together) equal to $12. A) one to two B) two to three C) three to four D) four to five

B) two to three

27. If the government wanted to reduce pollution from 16 units to 10 units (i.e., reducing 6 units of pollution). What is the minimum value that the fee (i.e., pigouvian tax) per unit of pollution would need to be in order to achieve that goal? a.$45 b.$46 c.$48 d. $65 e.$67

B. $46

Suppose the government wants to reduce pollution from 16 units to 10 units and auctions off 10 pollution permits to achieve this goal. What will the auction price of the permits be? a.$45 b.$46 c.$48 d.$65 e. $67

B. $46

i) Look at the table Street Cleanings. What is the marginal social benefit for Peter and Wendy together when the number of street cleanings per month increases from 4 to 5? A) $30 B) $60 C) $6 D) $15

C) $6

iii) Suppose that the marginal cost of each street cleaning is $18. Which statement is TRUE? A) If the city decided to clean the streets only once per month, Peter would be willing to pay the entire cost of the cleaning. B) If the city decided to clean the streets only once per month, Wendy would be willing to pay the entire cost of the cleaning. C) If Wendy and Peter were the only people in society, the efficient number of street cleanings would be one per month. D) If Wendy and Peter were the only people in society, the efficient number of street cleanings would be at least two per month.

C) If Wendy and Peter were the only people in society, the efficient number of street cleanings would be one per month.

Use the following table to answer the following 3 questions. The table shows the private value, private cost, and external cost for various quantities of output in a market. 6. What is the equilibrium quantity of output in the market?

C) 3

7. Suppose a farmer produces apples and has the following profit function: p = 2000q - 500q2 Where q is the quantity in tons, of apples produced. If the farmer is maximizing profits, how many tons of apples will the farmer produce?

In order to find the optimum solution we have to take the derivative of p with respect to q and obtain the FOC (i.e., the first order condition): dn/dq = 2000-1000q = 0 from this equation we obtain the condition of optimality: Marginal Private Benefit = Marginal Private Cost thus: 2000 = 1000q → q* = 2 (tons of apples produced)

b) What is the socially-optimal quantity of output in this market?

MC + MEB = MPB+MEC 42+1 = 4 = 39+4 43=43 q = 3 including all externalties

. Suppose there is a paper mill company called "Papel" located somewhere on the upstream reaches of a river. "Papel" discharges a large amount of wastewater into the river. Downstream, there is a fish farm that has experienced a decrease in the weight of its fish due to the pollution in the river generated by the paper mill. However, "Papel" invests part of its profits in R&D to develop a more efficient use of energy to produce paper. This investment generates positive technological externalities to the entire paper industry in the country. The following table shows the marginal private benefit, the marginal external benefit, the marginal private cost and the marginal external cost generated by different quantities of paper produced by "Papel". a)What is the equilibrium quantity of output in the market?

MC=MB 40 = 40 The equilibrium is 4 since we are only looking at the initial market (aka private costs and benefits).

v) Taking into account private and external costs, the maximum total surplus that can be achieved in this market is:

Total surplus is ½ x (24-6)(120) ->1/2x18x120-> 1080

What is the marginal cost of the 8th unit? $120 ii) In order to maximize profits, how many units should Diana's Dress Emporium produce? 8 iii) What is Diana's profit at the profit maximizing point? $278

What is the marginal cost of the 8th unit? $120 ii) In order to maximize profits, how many units should Diana's Dress Emporium produce? 8 iii) What is Diana's profit at the profit maximizing point? $278

23. For a pollutant like lead, which causes health effects to local residents even at very low levels, which regulatory approach would be most effective for eliminating any health threats? a) Emissions standards b) Tradable permits c) Pollution taxes d) Pollution subsidies e) Ecolabeling

a) Emissions standards

10. An economist estimates the value of a nature preserve by calculating the price premium people pay for houses located adjacent to the preserve. This is an example of what type of economic valuation? a) Hedonic pricing b) Production function valuation c) Contingent valuation d) Travel cost method e) Engineering cost valuation

a) Hedonic pricing

25. Transferable permits are likely to result in less inefficiency, relative to a pollution tax, when ... a) The marginal costs of damages are steep and the marginal costs of pollution reduction are relatively stable b) The marginal costs of damages are steep and the marginal costs of pollution reduction are steep c) The marginal costs of damages are relatively stable and the marginal costs of pollution reduction are relatively stable d) The marginal costs of damages are relatively stable and the marginal costs of pollution reduction are steep e) The marginal costs of damage are elastic and the marginal costs of pollution reduction are also elastic

a) The marginal costs of damages are steep and the marginal costs of pollution reduction are relatively stable

. Suppose a farmer produces apples and has the following profit function: p1 = 2000q - 400q2 Where q is the quantity in tons, of apples produced. Thus, Marginal private benefit=P=2000 Marginal private cost= 800q The farmer uses pesticides in the production of his apples, polluting the river that runs beside his trees causing a negative externality to a fisherman further down the river. The cost caused by the pesticide in the reduction of fish caught by this fisherman = -25q Thus, Marginal external costs=25 a) Find the market (private) optimum solution. b.a) Find the social optimum solution. c. Determine the Pigouvian tax, t, that would induce the farmer to produce the social optimum quantity of apples.

a)MPB= MPC 2000 = 800q 2000/800 2.5 b) Marginal Social Benefit = 2000 Marginal Social Cost = 800p +(25) 2000= 800q+25 1975=800Q Q = 2.468 -> 79/32(tons of apples produced) c) The Pigouvian tax= t= Marginal External Costs = 25 (per ton of apples produced) .Note that after applying the pigouvian tax, t=25, the farmer's profit function is now given by: p1 = 2000q - 400q2 - 25q And given this profit function, the farmer will supply the socially optimal quantity of output.

11. What price and quantity combination represents the private market equilibrium? a. P1, Q1 b. P2, Q0 c. P2, Q1 d. None of the above is correct.

a. P1, Q1

14. Which of the following statements is correct? a. To induce firms to internalize the externality in this market, the government should impose a tax measured by P1 - P0. b. To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. c. To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1. d. There is no externality in this market.

a. To induce firms to internalize the externality in this market, the government should impose a tax measured by P1 - P0.

b) To meet the 15 tons total emissions and satisfy the equimarginal rule we reduce Firm 1 to 8 tons, Firm 2 to 5 tons, and Firm 3 to 2 tons. Total emissions would be 15 tons, and each firm would have marginal abatement costs of $8. Aggregate costs would be $69, calculated from:

a. Equi-marginal principal = reduce at the point where all the firms marginal coast is equal at 8 tons. Firm A will reduce to 2 tons. Firm B will reduce to 5 tons. Firms c will reduce to 8 tons. Firm A = Cost unit 9+ cost unit 8 = 4 +8 = $12 Firm B = Cost unit 9+ cost unit 8 + cost unit 7 + cost unit 6 + cost unit 5 = = 1+2+4+6+8 = $21 Firm C = Cost unit 9+ cost unit 8 + cost unit 7 + cost unit 6 + cost unit 5 + Cost unit 4 + Cost unit 3 + cost unit 2 = 1+2+3+4+5+6+7+8 = $36 Total Abatement Cost = Firm 1 Abatement Cost + Firm 2 Abatement Cost + Firm 3 Abatement Cost = $12 + $21 + $36 =$69 The difference in cost is $96-69 =27.

a) With an equiproportionate reduction, each firm would be reduced to 5 tons of emissions. The total costs of doing this for each firm would be:

a. Equi-proportionate decrease in emission. 5 units per firm. Firm a = Cost unit 9+ cost unit 8 + cost unit 7 + cost unit 6 + cost unit 5 = 4 +8+12+16+20 = $60 Firm b = Cost unit 9+ cost unit 8 + cost unit 7 + cost unit 6 + cost unit 5 = 1+2+4+6+8 = $21 Firm C = Cost unit 9+ cost unit 8 + cost unit 7 + cost unit 6 + cost unit 5 = 1+2+3+4+5 = $15 Total Abatement Cost = Firm 1 Abatement Cost + Firm 2 Abatement Cost + Firm 3 Abatement Cost = $60 + $21 + $15 = $96

Inflation increases the prices of all good by 20% Ina's income increases from $50,00 to 55,000 a. After these changes, has Ina's budget line become steeper, less steep, or equally as steep compared to before? b. After these changes, has Ina's budget line shifted outward, inward, or not at all, compared to before?

a. Ina's budget is equally steep. The slope of the budget line is minus the relative price of one good in terms of another. The estimated prices of good have changed: all goods just cost 20% more B. The prices of all goods have increased by 20%, but ina's income has increased by only 10%. Fewer bundles are now Ina's consumption possibilities: the budget line has shifted inward.

. The following table shows the private value, private cost, and social value for a market with a positive externality. a) What is the equilibrium quantity of output in the market? b) What is the socially-optimal quantity of output in this market? How large would a corrective pigouvian subsidy need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

a. MPB = MPC 8 = 8 The equilibrium quantity of output in the market is 4. b. MPB = MPC + MEC 11 = 6+5 The social optimal quantity of output is 5 c.The Pigouvian tax needs to be 3 to get this market from the equilibrium outcome to the socially-optimal outcome.

. Suppose a bee keeper produces honey and has the following profit function: p1 = 500h - 100h2 Where h is the quantity in tons, of honey produced. Thus, Marginal private benefit=P=500 Marginal private cost= 200h The bee keeper's neighbour is a farmer that produces apples. The bees help to pollinize his apple trees. More production of honey means more bees and more pollination. The external benefit to the farmer's profit function = 4h Thus, Marginal external Benefit = 4 a.Find the (market) private optimum solution. b. Find the social optimum solution. c. Determine the Pigouvian subsidy, s, that would induce the bee keeper to produce the social optimum quantity of honey

a. MPB= MPC 500 = 200h 500/200 H= 2.5 b.MSB = p= 500 + (4) MSC = 200h 500 +4 = 200h 504 = 200h 504/200h h= 2.51 c. The Pigouvian subsidy= s = Marginal External Benefits = 4 (per ton of honey produced) Note that after applying the pigouvian subsidy, s=4, the bee keeper's profit function is now given by: p1 = 500h + 4h - 100h2 And given this profit function, the bee keeper will supply the socially optimal quantity of output.

16. What is the equilibrium price and quantity in this market? That is, what is the (market) private optimum solution? a. P=$8, Q=8 b. P=$12, Q=8 c. P=$10, Q=10 d. P=$10, Q=8

a. P=$8, Q=8

19. After learning about maximization of utility, Mary realizes that her marginal rate of substitution of bread for cheese is 2. Since the price of cheese is $4 and the price of bread is $1, Mary should: a. buy less cheese and more bread b. buy more cheese and less bread c. buy less cheese and less bread d. buy more cheese and more bread

a. buy less cheese and more bread

) Assume that the consumer has an income of $40. Based on the information available in the graph, which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips were $4? a. P=$2, Q=3 b. P=$2, Q=9 c. P=$4, Q=3 d. P=$4, Q=9

b. P=$2, Q=9

9. The social cost curve is above the supply curve because a. it takes into account the external costs imposed on society by the concert. b. it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. c. concert tickets are likely to cost more than the concert actually costs the organizers. d. residents in the surrounding neighborhoods get to listen to the concert for free. 10. The difference between the social cost curve and the supply curve reflects the

a. it takes into account the external costs imposed on society by the concert.

Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three residents are trying to determine how large, in acres, they should build the public park. Suppose the cost to build the park is $33 per acre. The table below shows each resident's willingness to pay for each acre of the park. 6. How much of the public good will be provided by the private market? a.0 acres b.1 acre c.2 acres d.3 acres e.4 acres

a.0 acres

The following table shows the private value, private cost, and external cost for various quantities of output in a market. a) What is the equilibrium quantity of output in the market? b) What is the socially-optimal quantity of output in this market? c) How large would a corrective pigouvian tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

a.MPB = MPC 24= 24. 5 is the equilibrium quantity. b. MPB = MPC + MEC 26 = 22+4 The social optimal quantity of output is 3. c. MEC= The Pigouvian The Pigouvian tax needs to be 4 to get this market from the equilibrium outcome to the socially-optimal outcome.

13. Consider a new environmental regulation that would decrease the risk of premature death by one in a million for each person in a community of one million people. How many lives would this regulation be expected to save? a)0.1 b) 1 c) 10 d) 100 e) 1000

b) 1

7. . What is the socially-optimal quantity of output in this market? a) 1 b) 2 c) 3 d) 4

b) 2

4. A system of individual transferable quotas in a fishery ... a) Will result in the open-access equilibrium b) Can result in economic efficiency and ecological sustainability c) Can result in economic efficiency but not ecological sustainability d) Will result in the maximum sustained yield e) Can not result in economic efficiency

b) Can result in economic efficiency and ecological sustainability

12. Asking people to indicate their economic values in a survey is an example of what type of economic valuation? a) Travel cost method b) Contingent valuation c) Hedonic pricing d) Production function valuation e) Avoided cost valuation

b) Contingent valuation

15. Healthy forests store carbon dioxide, helping to mitigate the negative effects of climate change. This is an example of what type of economic benefit? a) Direct use value b) Indirect use value c) Existence value d) Option value e) Bequest value

b) Indirect use value

21. The optimal level of pollution occurs where ... a) Total benefits equal total costs b) Marginal benefits equal marginal costs c) Private costs are minimized d) Private benefits are maximized e) Average revenue equals average cost

b) Marginal benefits equal marginal costs

The relationship between the marginal utility that David gets from eating ice cream sundaes and the number of ice cream cones he eats per week is as follows: David receives 3 units of utility from the last dollar spent on each of the other goods he consumes. If ice cream sundaes cost $4 each, how many ice cream sundaes will he consume per month if he maximizes utility? a. 2 b. 3 c. 4 d. 5

b. 3

12. What price and quantity combination best represents the social optimum price and number of concerts that should be organized? a. P1, Q1 b. P2, Q0 c. P2, Q1 d. The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.

b. P2, Q0

) Assume that the consumer depicted the figure has an income of $50. Based on the information available in the graph, which of the following price-quantity combinations would be on her demand curve for chocolate chips if the price of marshmallows is $2.50? a. P=$2.50, Q=6 b. P=$2.50, Q=10 c. P=$5.00, Q=3 d. P=$5.00, Q=5

b. P=$2.50, Q=10

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? a. The railroad will continue to operate but will pay the farmer $1,500 in damages. b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. c. The farmer will incur $1,500 in damages to his crops. d. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.

10. The difference between the social cost curve and the supply curve reflects the a. profit margin of each concert. b. cost of spillover effects from the concert (e.g., noise and traffic). c. value of concerts to society as a whole. d. amount by which the city should subsidize the concert organizers.

b. cost of spillover effects from the concert (e.g., noise and traffic).

If the market price of an orange increases from $0.60 to $1.05, then consumer surplus a. increases by $2.90. b. decreases by $2.25. c. decreases by $2.70. d. decreases by $3.85.

b. decreases by $2.25.

The Coase theorem suggests that private markets may not be able to solve the problem of externalities a. if the government does not become involved in the process. b. when the number of interested parties is large and bargaining and transaction costs are high. c. if the firm in the market is a monopoly. d. if some people benefit from the externality.

b. when the number of interested parties is large and bargaining and transaction costs are high.

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

b. Dick will pay to keep his dog if his benefit exceeds Jane's cost.

13. Taking into account private and external costs, the social maximum total surplus that can be achieved in this market is: a. a+b+c+d+e+f b. a+b c. d+f d. c+d+e+f

b. a+b

15. The graph represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d. the answer cannot be determined from inspection of the graph.

b. there is a positive externality.

) Assume that the consumer has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips? a.A b.B c.C d.D

b.B

14. Refer to the previous question. If each person in the population is willing to pay $10 for the decreased risk, then what is value of one statistical life for this community? a) $100,000 b) $1,000,000 c) $10,000,000 d) $100,000,000 e) $1,000,000,000

c) $10,000,000

8. How large would a corrective pigouvian tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome? a) $1 b) $1.5 c) $2 d) $2.5

c) $2

24. A preference for either taxes or permits to regulate pollution is dependent on the relative shape of what two curves? a) Total cost of damage curve and total cost of pollution reduction curve b) Marginal revenue of pollution control curve and marginal cost of damage curve c) Marginal cost of pollution reduction curve and marginal cost of damage curve d) Marginal benefit of pollution curve and marginal revenue of pollution curve e) Marginal utility of pollution curve and marginal cost of regulation

c) Marginal cost of pollution reduction curve and marginal cost of damage curve

3. Charging a license fee for access to a fishery will ... a) Result in no change in total harvest levels b) Result in harvest levels equal to the maximum sustained yield c) Reduce harvest levels towards the economic optimum d) Result in harvest levels at the open-access equilibrium e) Result in increased entry into the fishery

c) Reduce harvest levels towards the economic optimum

20. Suppose a factory pollutes a river that a downstream city relies on for drinking water. The current level of pollution is not economically efficient. Which one of the following is not a possible means to increase economic efficiency in this case? a) Government regulation requiring a reduction in pollution levels b) The factory is taxed for each unit of pollution c) The factory's business taxes are reduced d) Property rights in pollution are clearly assigned to the city e) Property rights in pollution are clearly assigned to the factory

c) The factory's business taxes are reduced

In graph (b), if income is equal to $420, the price of good X is a. $1. b. $3. c. $10. d. $30.

c. $10.

Which of the following is true of markets characterized by positive externalities? a. Social value exceeds private value, and market quantity exceeds the socially optimal quantity. b. Social value is less than private value, and market quantity exceeds the socially optimal quantity. c. Social value exceeds private value, and market quantity is less than the socially optimal quantity. d. Social value seldom exceeds private value; therefore, social quantity is less than private quantity.

c. Social value exceeds private value, and market quantity is less than the socially optimal quantity.

Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, what has happened to prices between January and February? a. The price of X has fallen, but there could not have been a change in the price of Y. b. The price of Y has fallen, but there could not have been a change in the price of X. c. The price of X has fallen, and the price of Y has risen. d. The price of Y has fallen, and the price of X has risen.

c. The price of X has fallen, and the price of Y has risen.

17. What is the socially-optimal quantity and price in this market? That is, what is the social optimum solution? a. P=$8, Q=8 b. P=$12, Q=8 c. P=$10, Q=10 d. P=$10, Q=8

c. P=$10, Q=10

i) The graph represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d.The answer cannot be determined from inspection of the graph

c. there is a negative externality.

8. Suppose that the residents have agreed to split the cost of building the park equally (i.e., each resident would pay $11 per acre). If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?" a.0 acres b.1 acre c.2 acres d.3 acres e. 4 acres

c.2 acres

5. Consider an economy with just two citizens. If Sanjay's marginal benefit from mosquito control is $10 and Anjuli's marginal benefit is $25, then the optimal level of a public good like mosquito control occurs when the marginal cost of mosquito control is: A) $25.00. B) $17.50. C) $10.00. D) $35.00.

d) $35.00.

2. The open-access equilibrium is a fishery will occur where ... a) Total revenue equals marginal cost b) Maximum sustained yield is reached c) Average revenue equals marginal cost d) Average revenue equals average cost e) Marginal revenue equals marginal cost

d) Average revenue equals average cost

11. Which one of the following valuation techniques is not based on the value of marketed goods or services? a) Hedonic pricing b) Avoided cost valuation c) Production function valuation d) Contingent valuation e) Engineering cost valuation

d) Contingent valuation

22. Which one of the following statements is false regarding a transferable pollution permit system? a) Each firm will operate in an economically efficient manner b) Total pollution levels in a region can be set by the government c) The price of a permit will vary with changes in technology d) The system is preferable to a pollution tax in all situations e) Social benefits can be maximized

d) The system is preferable to a pollution tax in all situations

The market quantity of oranges demanded per day is exactly 5 if the price of an orange, P, satisfies a. $1.00 < P < $1.50. b. $0.80 < P < $1.50. c. $0.80 < P < $1.00. d. $0.75 < P < $0.80.

d. $0.75 < P < $0.80.

) In graph (a), if income is equal to $120, the price of good X is a. $3. b. $4. c. $10. d. $12.

d. $12.

In graph (a), what is the price of good X relative to good Y (i.e., PX/PY)? a. ¼ b. 1/3 c. 3 d. 4

d. 4

1. Which of the following statements is not correct? a. Private markets tend to over-produce products with negative externalities. b. Private markets tend to under-produce products with positive externalities. c. Private parties can bargain to efficient outcomes even in the presence of externalities. d. Private parties are always more successful in achieving efficient outcomes than government policies.

d. Private parties are always more successful in achieving efficient outcomes than government policies.

Consider the information provided in the previous question, but now suppose that the railroad is not liable for any damage caused to the crops. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? a. The railroad will continue to operate but will pay the farmer $1,500 in damages. b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. c. The farmer will incur $1,500 in damages to his crops. d. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

d. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

ii) Which of the following statements is correct? a. The private cost of producing the 160th unit of output is $16. b. The social cost of producing the 160th unit of output is $22. c. The external cost of producing the 160th unit of output is $6. d. All of the above are correct.

d. All of the above are correct.

iii) "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output? a. 120 units b. 140 units c. 160 units d. The statement is true at all quantities of output.

d. The statement is true at all quantities of output.

18. If the government wanted to subsidize this market to achieve the socially-optimal level of output, how large would the subsidy need to be? a. s=$10 b. s=$2 c. s=$1 d. s=$4

d. s=$4

26. If the government charged a fee of $63.10 per unit of pollution, how many units of pollution would the firms eliminate altogether? a.7 b.8 c.9 d.10 .e.11

d.10

7. How many acres should the park be to maximize total surplus from the park in Anywhere? That is, what is the level of this public good that would maximize society's welfare? a.0 acres b.1 acre c.2 acres d.3 acres e.4 Acres

d.3 acres

16. A wildlife preserve provides what type of economic benefits? a) Use values only b) Non-use values only c) Existence values only d) Direct and indirect use values only e) Both use and non-use values

e) Both use and non-use values

1. The economically optimal level of a fishery harvest occurs where ... a) Total revenue equals total cost b) Maximum sustained yield is reached c) Average revenue equals marginal cost d) Average revenue equals average cost e) Marginal revenue equals marginal cost

e) Marginal revenue equals marginal cost

9. Which one of the following statements is false? a) Bequest value is the value of environmental services to future generations b) Willingness-to-pay tends to be smaller than willingness-to-accept for the same service c) The production function approach to valuation considers the cost of constructing facilities to provide environmental services d) Contingent valuation can be used to estimate existence values e) The value of just knowing a wild species exists is called indirect use value

e) The value of just knowing a wild species exists is called indirect use value

i) The equilibrium price is: ii) At the equilibrium price, consumer surplus is: iii) At the equilibrium price, producer surplus is: i) At the equilibrium price, total surplus is:

i) The equilibrium price is: $45 ii) At the equilibrium price, consumer surplus is: $150 iii) At the equilibrium price, producer surplus is: $100 i) At the equilibrium price, total surplus is: $250

a) If the marginal cost of the good is $24, how much of the public good will be provided by the private market? What is the level of this public good that would maximize society's welfare?

orange line How much: 0 What is the level: 8

a) If the marginal cost of the good is $12, how much of the public good will be provided by the private market? What is the level of this public good that would maximize society's welfare?

red line How much: 8 What is the level: 14

To induce firms to internalize the externality in this market, the government should impose a pigouvian tax equal to

social cost curve- private cost curve 22-16 = 6

vi) To induce firms to internalize the externality in this market, the government should impose a pigouvian tax equal to:

social cost curve- private cost curve 22-16 = 6