Question 1

The socially optimal level of output of a good with an externality occurs when

Accepted Answer

A)   the marginal private costs of production are equal to marginal private revenues
B)   the firm maximizes its profits
C)   the consumer maximizes his or her utility
D)   the marginal social cost of production equals the marginal social benefit of the good
E)   the firm is making a normal profitF) A) and B)
G) A) and C)

Question 2

If a government regulation states that fluorocarbon emissions should be abated by 75 percent but the optimal level of pollution abatement is 85 percent, which of the following must be true?

Accepted Answer

A)   The free market will not reduce pollution by less than 85 percent.
B)   The free market will accomplish 85 percent abatement, but it will be inefficient.
C)   If only 75 percent of the pollution is abated, the society will be better off than if 85 percent had been abated.
D)   If only 75 percent of the pollution is abated, the society will be worse off than if 85 percent had been abated.
E)   If 75 percent of the pollution is abated, then in the next period the government should set the abatement level at 95 percent.F) B) and D)
G) B) and E)

Question 3

Marginal social cost is equal to

Accepted Answer

A)   total private cost
B)   marginal private cost
C)   marginal external cost
D)   marginal private cost plus marginal external cost
E)   marginal private cost divided by marginal external costF) B) and E)
G) A) and D)

Question 4

Which of the following helps explain why pesticides account for much of the water pollution in the United States?

Accepted Answer

A)   Pesticide regulations were repealed during the Reagan administration.
B)   Pesticide regulations are often administered by state environmental protection agencies, not the federal Environmental Protection Agency.
C)   Pesticide regulations are administered by the federal Environmental Protection Agency, not by state agencies.
D)   Pesticide regulations are often administered by state agricultural departments rather than environmental protection agencies.
E)   Pesticide regulations are often administered by state environmental protection agencies rather than agricultural departments.F) C) and D)
G) A) and B)

Question 5

The optimal air quality would be determined where the marginal social cost of improving air quality is equal to the marginal social benefit from cleaner air.

Accepted Answer

A) True 
 B)False

Question 6

By current U.S. law, anyone generating, storing, or transporting hazardous waste must pay to clean it up if it leaks or is otherwise discharged into the environment. This law has been in effect

Accepted Answer

A)   since World War II
B)   since 1960
C)   since 1970
D)   since 1980
E)   only since 1990F) C) and E)
G) A) and E)

Question 7

Which state manufactures the most toxic chemicals and has the worst toxic waste burden?

Accepted Answer

A)   California
B)   Louisiana
C)   New York
D)   New Jersey
E)   West VirginiaF) B) and E)
G) A) and E)

Question 8

When the free market produces less than the socially optimal quantity of a good,

Accepted Answer

A)   negative externalities must be present
B)   marginal social cost must exceed marginal private cost
C)   marginal private benefit must exceed marginal social benefit
D)   the government should tax production of the good
E)   there has been a market failureF) B) and D)
G) B) and E)

Question 9

When a citizens' group opposes expansion of the prison located in town, the basis of the opposition is that the larger prison will produce

Accepted Answer

A)   a negative externality for the community
B)   a positive externality for the community
C)   more jobs in the community
D)   tax revenue for the community
E)   improved criminal justice optionsF) A) and E)
G) B) and C)

Question 10

Marginal external costs are

Accepted Answer

A)   additional unpriced costs imposed on society by producing one more unit of a good
B)   the cost of damaged goods
C)   the additional cost of imported goods
D)   the total cost to society of producing a good
E)   the marginal cost divided by the marginal revenueF) A) and B)
G) A) and C)

Question 11

When competitive market equilibrium determines a level of output for which the marginal social cost exceeds the marginal social benefit, the private equilibrium results in

Accepted Answer

A)   a positive externality
B)   a Coase equilibrium
C)   underproduction of the product
D)   a market failure
E)   external benefitsF) None of the above
G) C) and D)

Question 12

What kind of garbage tends to be recycled in the United States?

Accepted Answer

A)   hazardous materials that must be transformed chemically into less dangerous substances
B)   biodegradable materials
C)   foodstuffs
D)   aluminum, paper, and other materials that have high commercial value
E)   appliances that can be salvaged from dumps and repairedF) A) and E)
G) A) and B)

Question 13

If in market equilibrium the marginal social cost of producing a good exceeds the marginal private cost,

Accepted Answer

A)   not enough of the product is being produced
B)   the price charged for the good is too high
C)   the good produces a positive externality
D)   the good produces a negative externality
E)   the government should produce the goodF) A) and C)
G) A) and B)

Question 14

When using the traditional command-and-control approach to environmental regulation, the government attempts to

Accepted Answer

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 engineering standards that are applicable to all situations and does not recognize unique circumstances
E)   set a maximum requirement and they allows the individual firm the latitude of choosing the most efficient methodF) C) and D)
G) A) and B)

Question 15

NARRBEGIN: Exhibit 17-1
Exhibit 17-1
 
-In Exhibit 17-1, the socially efficient level of output is

Accepted Answer

A)   0 units
B)   100 units
C)   between 100 and 160 units
D)   160 units
E)   the answer cannot be determined from the information givenF) D) and E)
G) A) and B)

Question 16

Peyton Lopez will exploit the aquifer under his ranch as long as his personal marginal __________ is __________ __________ his personal marginal __________.

Accepted Answer

A)   cost, greater than, benefit
B)   benefit, greater than, cost
C)   cost, equal to, benefit
D)   benefit, less than, cost
E)   benefit, equal to, costF) C) and E)
G) B) and D)

Question 17

In the U.S., people tend to discard items rather than repair them because

Accepted Answer

A)   Americans are lazy
B)   of the high opportunity cost of time
C)   it is costly to use land for waste disposal
D)   high wages in the waste disposal industry discourages repairs
E)   low wages in the repair industry encourages disposalF) A) and B)
G) A) and C)

Question 18

If the benefits to society of students attending college exceed benefits to the students,

Accepted Answer

A)   higher education should be strictly regulated
B)   higher education should be taxed
C)   higher education provides a positive externality
D)   higher education is overproduced at the privately determined equilibrium
E)   in time, no higher education will be producedF) C) and D)
G) B) and D)

Question 19

Air pollution is more dangerous to the public, but toxic waste generates more public uproar. Why?

Accepted Answer

A)   Those exposed to the health hazard posed by the toxic waste site are usually less sure that exposure has occurred.
B)   Those exposed to the health hazard posed by the toxic waste site are usually more sure that exposure has occurred.
C)   Fewer people cause air pollution than toxic waste.
D)   Fewer people are affected by air pollution than by toxic waste.
E)   Toxic waste causes more illness and death than air pollution does.F) C) and D)
G) A) and C)

Question 20

Which of the following is an example of an activity that generates positive externalities.

Accepted Answer

A)   driving a car
B)   producing clothing
C)   washing your car
D)   education
E)   building a bridgeF) D) and E)
G) A) and C)

Exam 17: Externalities and the Environment

When using the traditional command-and-control approach to environmental regulation, the government attempts to

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The socially optimal level of output of a good with an externality occurs when

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Which state manufactures the most toxic chemicals and has the worst toxic waste burden?

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If a government regulation states that fluorocarbon emissions should be abated by 75 percent but the optimal level of pollution abatement is 85 percent, which of the following must be true?

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When a citizens' group opposes expansion of the prison located in town, the basis of the opposition is that the larger prison will produce

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What kind of garbage tends to be recycled in the United States?

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When competitive market equilibrium determines a level of output for which the marginal social cost exceeds the marginal social benefit, the private equilibrium results in

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Marginal social cost is equal to

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NARRBEGIN: Exhibit 17-1 Exhibit 17-1 -In Exhibit 17-1, the socially efficient level of output is

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Marginal external costs are

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Air pollution is more dangerous to the public, but toxic waste generates more public uproar. Why?

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By current U.S. law, anyone generating, storing, or transporting hazardous waste must pay to clean it up if it leaks or is otherwise discharged into the environment. This law has been in effect

Correct AnswerverifiedShow Answer

If the benefits to society of students attending college exceed benefits to the students,

Correct AnswerverifiedShow Answer

When the free market produces less than the socially optimal quantity of a good,

Correct AnswerverifiedShow Answer

Peyton Lopez will exploit the aquifer under his ranch as long as his personal marginal __________ is __________ __________ his personal marginal __________.

Correct AnswerverifiedShow Answer

Which of the following is an example of an activity that generates positive externalities.

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If in market equilibrium the marginal social cost of producing a good exceeds the marginal private cost,

Correct AnswerverifiedShow Answer

In the U.S., people tend to discard items rather than repair them because

Correct AnswerverifiedShow Answer

The optimal air quality would be determined where the marginal social cost of improving air quality is equal to the marginal social benefit from cleaner air.

Correct AnswerverifiedShow Answer

Which of the following helps explain why pesticides account for much of the water pollution in the United States?

Correct AnswerverifiedShow Answer

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Peyton Lopez will exploit the aquifer under his ranch as long as his personal marginal is his personal marginal .

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