Chapter 14

1. The socially efficient level of output is determined where: a.marginal social cost equals marginal social benefit. b.marginal private cost equals marginal social benefit. c.average social cost equals average social benefit. d.average private cost equals average social benefit.

a

11. Which of the following is the environmental approach found in the Clean Air Act of 1990? a.Marketable pollution permits. b.Price caps. c.Command-and-control regulation. d.EPA marginal social permits.

a

14. If a good is produced up to the point where marginal social benefit equals marginal social cost, then: a.social welfare is maximized. b.the good is overproduced and the market is inefficient. c.firms are earning zero profits. d.all externalities have been eliminated.

a

2. The optimal level of pollution is: a.the level at which the marginal social cost of air quality equals the marginal social benefit. b.the level at which the average social cost of air quality equals the average social benefit. c.the level at which the total social cost of air quality equals the total social benefit. d.zero.

a

29. Incentive-based regulatory approaches: a.are viewed favorably by most economists as a way to control pollution. b.provide less flexibility than the command-and-control approach. c.tend to hurt wealthier people more than poor people. d.require that the government specify certain types of pollution control technology that firms must adopt.

a

31. To increase society's total welfare (social efficiency), a production process that produces a negative externality should be: a.taxed. b.provided by the government. c.ignored. d.subsidized.

a

32. To achieve social efficiency, the size of an effluent tax should be based on: a.the external cost created by the pollutant. b.people's willingness to pay for a cleaner environment. c.the expense of installing new "green" equipment. d.the number of free riders in the industry.

a

33. Which of the following is not a reason why marketable permits may fail to achieve efficiency? a.Some firms can reduce emissions at a lower cost than other firms. b.A market has a small number of buyers and sellers. c.Imperfect information exists on the value of a permit. d.There are concerns about the value of permits in the future.

a

35. Which of the following statements is true? a.Emissions-trading is trading that allows firms to buy and sell the right to pollute. b.The Coase Theorem is the proposition that private markets can rarely ever achieve social efficiency. c.The free-rider problem refers to those who ride on public transit systems without paying. d.Government failure has never occurred in the United States.

a

41. Factors that prevent the Coase Theorem from working include all of the following, except: a.private property rights. b.transaction costs. c.income effects. d.more than two individuals affected.

a

8. When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n): a.externality. b.common pool problem. c.nonexcludable resource. d.public good.

a

10. All of the following are examples of negative externalities except one. Which is the exception? a.Water pollution. b.Your roommate going on a diet. c.Second-hand smoke. d.Loud conversation in the workplace.

b

12. If government taxes a firm which pollutes this will: a.increase the demand for the good produced. b.decrease the supply of the good produced. c.increase the equilibrium quantity of the good produced in the market. d.decrease the equilibrium price of the good produced in the market.

b

24. An example of the command-and-control approach to environmental policy is: a.placing a tax on freon to reduce its use and the corresponding CFC emissions (which contribute to the ozone hole). b.requiring car producers to install new air conditioners that do not use freon. c.allowing coal producers to buy and sell permits to allow CFC emissions. d.allowing individuals to sue freon producers if CFC emissions exceed a government-set standard.

b

27. Which of the following statements is true? a.Competitive markets result in the socially efficient price and quantity when externalities exist. b.Command-and-control regulations set an environmental goal and dictate how the goal will be achieved. c.Economists prefer command-and-control regulations to incentive-based pollution programs. d.An effluent tax is a tax imposed on rich people.

b

28. A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true? a.The pollution will be created by those least willing and able to pay the damages. b.The pollution will be created by those most willing and able to pay for the right to pollute. c.The funds collected by the government will be enough to compensate any individuals harmed by the pollution. d.Pollution will increase from zero to 1,000 units per day.

b

3. Firms that emit toxins into the air: a.underproduce because the private cost of production exceeds the social cost. b.overproduce because the social cost of production exceeds the private cost. c.produce the same as nonpolluting firms. d.produce at the socially optimal amount.

b

30. A pollution tax is: a.a positive externality used to offset a negative one. b.a price per unit of discharge of pollution. c.a tax on pollution control equipment. d.itself a form of negative externality.

b

37. The hot spot problem is: a.the U.S. obtains the majority of its oil supplies from politically unfriendly countries. b.some air pollutants such as sulfur dioxide have a greater effect nearby than further away. c.some air pollutants such as carbon dioxide have an equal effect nearby and further away. d.nuclear plants heat up nearby water, causing a decline in the native fish population.

b

5. People are unlikely to choose to pay extra for a low-emissions automobile, because they: a.do not fully understand the environmental benefits of lower emissions. b.are better off "free-riding" on others' attempts to reduce emissions. c.would have to sacrifice fuel efficiency and automotive performance. d.cannot afford the extra expense of "green" technology.

b

7. If some firms internalize their external costs by being a cleaner and more "environmentally friendly" producers than other firms that do not, then which of the following best describes this situation? a.The environmentally friendly firm will be operating at a lower marginal and average cost than those firms that shift some costs to society in the form of external costs. b.In a long-run competitive equilibrium in which consumers do not distinguish between environmentally friendly and standard producers, the environmentally producers will receive negative economic profits and be forced to change or exit. c.Without regulations requiring firms to internalize their external costs, environmentally friendly producers will earn positive economic profits even without consumers paying them a higher price than standard producers. d.Standard firms will have an incentive to shift their production to an environmentally friendly process.

b

Exhibit 14-1 Private and social cost 17. Use Exhibit 14-1 to answer the following question. To maximize social welfare, the firm should produce at the output rate: a.zero. b.Q2. c.Q3. d.Q4.

b

Exhibit 14-2 Cigarette smoking dataJack enjoys smoking, while Jill fears that second-hand smoke will shorten her life. The following table shows the value Jack places on each cigarette he smokes, and the value Jill places on her shortened life. Use the table to answer the following question(s): 38. As shown in Exhibit 14-2, if smokers have the right to smoke as many cigarettes as they wish, and non-smokers have the right to negotiate, how many cigarettes will Jack smoke? a.1. b.3. c.5. d.more than 5.

b

Exhibit 14-3 Impact of flights on house valueEach time Orville flies over Wilber's house, the noise reduces the value of Wilbur's house. The table shows the profits to Orville of each flight, and the value of Wilbur's house. 42. As shown in Exhibit 14-3, if Orville has the property right to fly over Wilbur's house, but Wilbur is allowed to negotiate with Orville on the number of flights, what will be the number of flights? a.2. b.3. c.4. d.5.

b

20. Which of the following provides an example of command-and-control regulation? a.Taxing producers based on the external costs created by their pollution, thus internalizing external costs. b.Requiring firms to reduce their pollution by 50 percent, thus allowing them to emit 50 percent of their historical emissions, and allowing them to freely buy and sell allowances. c.Requiring firms to use a particular type of pollution-control technology, such as smokestack scrubbers or catalytic converters. d.Subsidizing firms that exceed their pollution-control targets.​

c

26. Which of the following is the best example of a command-and-control regulation? a.Effluent taxes on pollutants. b.Emissions trading. c.Requiring automobiles to have catalytic converters. d.Offset programs.

c

34. Suppose a firm wants to build a new factory that would add pollution to an already polluted area. Under an offset program, the firm must: a.install scrubbers and other government-mandated equipment. b.purchase pollution permits from the government. c.reduce or eliminate an old pollution source in the area. d.pay a tax which depends on the amount of pollution created.

c

45. According to Elinor Ostrom's view of The Tragedy of the Commons: a.The only way to prevent the collapse of the commons is government intervention. b.The only way to prevent the collapse of the commons is to privatize the commons so that it is owned by a single individual. c.Individuals will create institutions to prevent the collapse of the commons. d.Individuals will use the commons beyond the socially efficient point.

c

6. Suppose a state discovered chemical compounds in their water. The source of these chemicals is the waste discharges of industrial plants in another state. This is an example of a(n): a.market failure where the market price of the output of these industrial plants exceeds the social cost of producing these goods. b.private cost imposed by the industrial plants of another state. c.externality where the marginal social costs of producing these industrial goods differ from the marginal private costs. d.negative externality that could be corrected with a subsidy to the plants discharging the waste.

c

9. Which of the following is an example of a positive externality? ​ a.A firm emits pollution into the air, harming members of society. b.An auto body shop makes a lot of noise, reducing the property values of nearby homes. c.A coastal dairy farmer's undeveloped land offers unimpeded views of the ocean for a nearby neighborhood. d.You go to a store and pay $0.65 for a candy bar that you then eat.

c

Exhibit 14-2 Cigarette smoking dataJack enjoys smoking, while Jill fears that second-hand smoke will shorten her life. The following table shows the value Jack places on each cigarette he smokes, and the value Jill places on her shortened life. Use the table to answer the following question(s): 39. As shown in Exhibit 14-2, if non-smokers have a right to a smoke-free environment, and smokers have the right to negotiate, how many days of life will Jill lose? a.0. b.1. c.3. d.5.

c

Exhibit 14-2 Cigarette smoking dataJack enjoys smoking, while Jill fears that second-hand smoke will shorten her life. The following table shows the value Jack places on each cigarette he smokes, and the value Jill places on her shortened life. Use the table to answer the following question(s): 40. As shown in Exhibit 14-2, what is the socially efficient number of cigarettes? a.0. b.1. c.3. d.5.

c

Exhibit 14-3 Impact of flights on house valueEach time Orville flies over Wilber's house, the noise reduces the value of Wilbur's house. The table shows the profits to Orville of each flight, and the value of Wilbur's house. 43. As shown in Exhibit 14-3, at the socially efficient number of flights, what will be the market value of Orville's house? a.$100,000. b.$95,000. c.$90,000. d.$85,000.

c

13. The pig farm industry is perfectly competitive and causes pollution to the surrounding air and water. Which of the following is true? a.Since the industry is perfectly competitive, price and quantity are at the socially efficient levels. b.The competitive price is higher and quantity lower than the socially efficient point. c.The competitive price is higher and quantity higher than the socially efficient point. d.The competitive price is lower and quantity higher than the socially efficient point.

d

15. Which of the following is not an obstacle to achieving environmental efficiency through markets? a.Transactions costs. b.Income effects. c.Free-rider problems. d.Private negotiations.

d

21. Command-and-control regulation, as compared to incentive-based regulation, is: a.efficient in the short run and in the long run. b.efficient in the short run, but not in the long run. c.inefficient in the short run, but efficient in the long run. d.inefficient in the short run and long run.

d

22. Command-and-control legislation, as compared to incentive-based regulation: a.encourages the use of comparative advantage in the short run, and the development of new technology in the long run. b.encourages the use of comparative advantage in the short run, but discourages the development of new technology in the long run. c.discourages the use of comparative advantage in the short run, but encourages the development of new technology in the long run. d.discourages the use of comparative advantage in the short run, and discourages the development of new technology in the long run.

d

23. When using the traditional command-and-control approach to environmental regulation, the government attempts to: a.set a minimum requirement and then allows the firm to determine the most efficient method for achieving this requirement. b.determine the most efficient method for different industries. c.make allowances for differences across industries and between firms. d.set standards that are applicable to all situations and does not recognize unique circumstances.

d

25. Government regulations that set an environmental goal and dictate how the goal will be achieved are called: a.effluent-offset regulations. b.incentive-based regulations. c.Coasian regulations. d.command-and-control-regulations.

d

36. Tennessee emits sulfur dioxide that flows into North Carolina. In meeting sulfur emissions regulations, the Tennessee Valley Authority (TVA), which produces electricity, buys sulfur emission permits from Wyoming. The resulting hot spot problem is: a.The citizens of Wyoming will experience higher sulfur emissions as a result of the emissions trading program. b.The citizens of Wyoming will experience lower sulfur emissions as a result of the emissions trading program. c.The citizens of Tennessee will pay more to reduce sulfur emissions than if the government used a command-and-control approach. d.The citizens of North Carolina will suffer higher emissions as a result of the emissions trading program.

d

4. When negative externalities like pollution exist, competition leads to: a.a socially efficient outcome. b.too few goods being bought and sold. c.a market equilibrium price that is too high. d.more production than would be efficient.

d

44. According to Garrett Hardin's view of The Tragedy of the Commons: a.Externalities will be internalized by the market. b.Individuals will use the commons up to the point where marginal benefits equal marginal social costs. c.Individuals will create institutions to prevent the collapse of the commons. d.Individual will use the commons beyond the socially efficient point.

d

Exhibit 14-1 Private and social cost 16. The perfectly competitive profit-maximizing firm in Exhibit 14-1 creates water and air pollution as a consequence of producing its output of pigs. If pollution costs are borne by third parties, the firm will maximize economic profit by choosing to: a.voluntarily incur costs to reduce its pollution. b.produce at output rate Q3. c.produce at output rate Q2. d.produce at output rate Q4.

d