57) The figure above shows the marginal social cost curve of generating electricity and the
marginal private cost curve. The marginal cost paid by the producers and everyone else in
society when 100 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 5¢ per kilowatt.
C) 10¢ per kilowatt.
D) 20¢ per kilowatt.
E) 15¢ per kilowatt.
58) The figure above shows the marginal social cost curve of generating electricity and the
marginal private cost curve. The marginal cost paid by the producers and everyone else in
society when 200 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 10¢ per kilowatt.
C) 20¢ per kilowatt.
D) 15¢ per kilowatt.
E) 5¢ per kilowatt.
Quantity
of steel
(millions
of tons per
week)
Marginal
benefit
(dollars
per ton)
Marginal
social cost
(dollars
per ton)
5
40
20
10
35
25
15
30
30
20
25
35
25
20
40
59) The table above shows information about the costs and benefits of a steel smelter that
pollutes the air of a city. The market is efficient when the quantity of steel produced is ________
tons per week.
A) 5
B) 10
C) 15
D) 20
E) 25
60) The table above shows information about the costs and benefits of a steel smelter that
pollutes the air of a city. If the marginal external cost is $10 per ton at every quantity of steel
produced, the equilibrium quantity when the steel industry is unregulated is ________ tons per
week.
A) 5
B) 15
C) 20
D) 25
E) 10
61) The figure above shows the costs and benefits associated with producing paper. What is the
marginal external cost when output is 6 tons?
A) $1,600
B) $1,200
C) $1,000
D) $600
E) $400
62) The figure above shows the costs and benefits associated with producing paper. What is the
unregulated competitive market level of output?
A) 0
B) 4 tons
C) 6 tons
D) More than 6 tons
E) None of the above answers is correct.
63) The figure above shows the costs and benefits associated with producing paper. What is the
efficient level of output?
A) 0
B) 4 tons
C) 6 tons
D) More than 6 tons
E) None of the above answers is correct.
64) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. It also illustrates the marginal benefit. There is no
external benefit. If the city of Seattle puts on 5 concerts per year, then the marginal benefit will
A) exceed the marginal social cost.
B) equal the marginal private cost.
C) be less than the marginal social cost.
D) will equal the marginal social cost.
E) None of the above answers is correct.
65) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. It also illustrates the marginal private benefit.
There is no external benefit. The efficient number of concerts in Seattle is
A) 0.
B) 5.
C) 10.
D) 20.
E) 15.
66) Legally established titles to ownership, use, and disposal of factors of production and goods
and services, are called ________ rights.
A) government
B) pollution
C) property
D) inefficient
E) private
67) Legally established titles to the ownership, use, and disposal of factors of production are
referred to as
A) property rights.
B) Coase rights.
C) pollution rights.
D) emission rights.
E) price-setting rights.
68) One reason why property rights help achieve an efficient level of pollution is because
property rights
A) force the marginal private cost to equal the marginal social cost.
B) force the marginal social cost to zero.
C) force the marginal external cost to a lower level than marginal private cost.
D) eliminate marginal private costs.
E) change the marginal external cost so that they are equal to the marginal social benefit.
69) If a producer must pay the cost of his or her pollution because property rights have been
assigned, then
A) pollution will be completely eliminated.
B) the supply curve will shift rightward as the new costs are added.
C) the supply curve will shift leftward as the new costs are added.
D) consumers will now consume more of the good because the external costs are reduced.
E) there is no longer any marginal benefit from the good or service being produced.
70) The Coase theorem states that
A) the level of pollution should be equal to zero to maximize social net benefit.
B) profit making producers pollute because they are forced to.
C) the efficient level of output is where marginal external cost equals marginal external benefit.
D) if property rights exist and transactions costs are low, private transactions are efficient.
E) the best way to limit pollution is by taxing producers who pollute.
71) The proposition that if property rights exist and are enforced, then private transactions are
efficient is referred to as the
A) Coase theorem.
B) property rights theorem.
C) pollution rights theorem.
D) emission rights theorem.
E) private-market efficiency theorem.
72) In part, the Coase theorem is a proposition about
A) assigning property rights.
B) measuring private costs.
C) subsidizing external benefits.
D) taxing external costs.
E) how increasing transactions costs can reduce deadweight losses.
73) The Coase theorem deals with the problem of pollution by
A) giving the government regulatory power over polluters.
B) making all polluters stop polluting.
C) establishing and enforcing private property rights.
D) having the government take over ownership of all polluting processes.
E) allowing the government to set the proper emission charge.
74) If transactions costs are low, then assigning property rights in a market with external costs
i. increases the deadweight loss.
ii. means private transactions are efficient.
iii. means that only consumers must pay the external costs.
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i and ii
75) Transactions costs are the
A) costs of using the Coase theorem.
B) opportunity costs of conducting a transaction.
C) external marginal costs of the externality.
D) reason why taxes cannot affect the inefficiency resulting from an external cost.
E) external costs when a firm pollutes.
76) Which of the following is the best example of a transactions cost?
A) the value of the time spent negotiating a contract
B) the price of a new set of tires
C) the cost associated with producing a golf club
D) the price of labor and materials used to produce a house
E) the price of food
77) Three methods the government can use to cope with the external cost from pollution are
A) pollution taxes, subsidies, and outright bans.
B) pollution taxes, regulations, and subsidies.
C) marketable permits, pollution subsidies, and pollution taxes.
D) pollution charges, marketable permits, and pollution limits.
E) vouchers, pollution subsidies, and pollution taxes.
78) Which of the following is a common method used by government to cope with the situation
in which production of a good creates an external cost?
A) removing property rights
B) subsidizing production
C) marketable permits
D) lottery
E) vouchers
79) Producing leather creates external costs in the form of water pollution. The figure above
illustrates the market for leather. In the absence of any government regulation, how many tons of
leather will be produced?
A) 0 tons
B) 200 tons
C) 300 tons
D) more than 300 tons
E) None of the above answers is correct.
80) Producing leather creates external costs in the form of water pollution. The figure above
illustrates the market for leather. If the government sets a pollution limit that achieves efficiency,
how many tons of leather are produced?
A) 0 tons
B) 200 tons
C) 300 tons
D) more than 300 tons
E) more than 0 tons and less than 200 tons
81) Which of the following is true regarding pollution charges?
i. They force a polluter to pay a price for its pollution.
ii. They are based on the marginal external cost of pollution.
iii. The fee that produces the efficient amount of pollution is easily determined.
A) i only
B) i and ii
C) ii and iii
D) i, ii, and iii
E) i and iii
82) When using pollution charges to improve efficiency in a market with an external cost,
regulators attempt to set the pollution charge equal to the
A) marginal social cost of production.
B) marginal external cost of production.
C) marginal private cost of production.
D) marginal private benefit of consumption.
E) marginal external benefit minus the marginal external cost.
83) Suppose a firm pollutes a river when it produces a product. To achieve the efficient amount
of output, a government could impose a ________ that equals the ________ of the pollution.
A) pollution charge; marginal social cost
B) pollution charge; marginal external cost
C) pollution tax; marginal social cost
D) pollution tax; marginal external cost
E) pollution subsidy; marginal social cost
84) In order for pollution taxes to be effective in eliminating the deadweight loss resulting from
pollution, the pollution tax must be set equal to the
A) marginal private cost.
B) marginal external cost.
C) marginal social cost.
D) marginal benefit of polluting.
E) price of the good.
85) To eliminate the inefficiency resulting from pollution that creates an external cost, the
government can impose a pollution tax on producers that is equal to the
A) MSB.
B) MC.
C) marginal external cost.
D) MSC.
E) price.
86) If the government taxes producers that create pollution, the government’s policy
A) allows the producers to pollute more by increasing their costs.
B) results in less production because the producers’ costs have risen.
C) eliminates pollution entirely by shifting the supply curve leftward.
D) allows the firms to pass along higher costs but doesn’t cut pollution.
E) forbids the firms from passing along higher costs.
87) A tax on a polluting industry
A) is not desirable because it reduces efficiency.
B) leads to less output in this industry.
C) causes more resources to be used in the polluting industry.
D) shifts the marginal social benefit curve leftward.
E) shifts the marginal social benefit curve rightward.
88) If the government taxes an industry that creates pollution, the tax
i. decreases the pollution.
ii. increases the price of the product produced by the firms.
iii. decreases the quantity of the good produced.
A) i only.
B) ii only.
C) ii and iii.
D) i and iii.
E) i, ii, and iii.
89) If a pollution tax in a market with an external cost changes the market so that it produces the
efficient level of output, which of the following occurs?
i. the supply curve shifts leftward
ii. the price increases
iii. the quantity produced decreases
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
90) When government levies pollutions taxes on sellers to eliminate the inefficiency from the
cost of pollution, the result is
A) a lower price.
B) a smaller quantity produced.
C) a smaller cost of production.
D) a rightward shift of the supply curve.
E) leftward shifts of the supply and demand curves.
91) The figure above illustrates the gasoline market. There is no external benefit from gasoline.
If this market is left unregulated and no pollution tax is imposed, the equilibrium quantity of
gasoline is
A) 0 gallons.
B) 5 million gallons.
C) 10 million gallons.
D) 20 million gallons.
E) 15 million gallons.
92) The figure above illustrates the gasoline market. There is no external benefit from gasoline.
If a pollution tax equal to the marginal external cost is imposed on gasoline, then the quantity of
gasoline produced and consumed equals
A) 0 gallons.
B) 5 million gallons.
C) 10 million gallons.
D) 20 million gallons.
E) None of the above answers is correct.
93) The figure above illustrates the gasoline market. There is no external benefit from gasoline.
If a tax on gasoline is imposed as shown in the figure, then the total tax revenue earned by the
government equals
A) $24 million.
B) $16 million.
C) $8 million.
D) more than $24 million.
E) less than $8 million.
94) The figure above shows the market for the chemical hydrogen sulfide, the production of
which creates an external cost. If the government assesses the marginal external cost correctly,
what is the amount of the pollution tax that eliminates the inefficiency?
A) $2 per pound
B) $3 per pound
C) $4 per pound
D) $1 per pound.
E) None of the above answers is correct.
95) The figure above shows the market for the chemical hydrogen sulfide, the production of
which creates an external cost. The government imposes the pollution tax shown in the above
figure. What quantity is produced after the pollution tax is imposed?
A) zero pounds
B) 80 million pounds
C) 160 million pounds
D) more than 160 million pounds
E) more than 80 million pounds and less than 160 million pounds.
96) The figure above shows the market for the chemical hydrogen sulfide, the production of
which creates an external cost. The government imposes the pollution tax shown in the figure.
How much tax revenue does the government collect?
A) $640 million
B) $320 million
C) $240 million
D) More than $640 million
E) Zero because the government has taxed the firms out of business.
97) The figure above shows a tax imposed on a good with an external cost. The area of the
rectangle abcd equals
A) the MSB.
B) the total tax revenue collected by the government.
C) the amount of pollution tax per ton.
D) the MC.
E) the deadweight loss.
98) The figure above shows the marginal social cost curve of generating electricity, the marginal
private cost curve, and the demand curve. The marginal external cost of producing 200 billion
kilowatt hours per day is ________ per kilowatt.
A) 0¢
B) 10¢
C) 20¢
D) 15¢
E) 5¢
99) The figure above shows the marginal social cost curve of generating electricity, the marginal
private cost curve, and the demand curve. If the market is competitive and unregulated, the
equilibrium price is ________ per kilowatt hour and the equilibrium quantity is ________
billions of kilowatt hours per day.
A) 10¢; 200
B) 15¢; 150
C) 20¢; 200
D) 20¢; 100
E) 7.5¢; 150