True / False
1. Increasing GDP generally causes increases in problems of waste disposal.
a.
True
b.
False
True
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
2. Increasing environmental awareness in the United States has occurred with increasing GDP, which has reduced
concerns about basic needs.
a.
True
b.
False
True
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
3. In the last three decades, air quality in American cities has improved.
a.
True
b.
False
True
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
4. Environmental problems occur exclusively in capitalist economies.
a.
True
b.
False
False
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
5. Pollution is a relatively new phenomenon.
a.
True
b.
False
False
Easy
6. If not recycled, an input used in production ultimately winds up as a waste product.
a.
True
b.
False
True
Moderate
7. Individuals and government have been contributors in harming the environment.
a.
True
b.
False
True
Moderate
8. Environmental destruction is peculiar to centrally planned economies.
a.
True
b.
False
False
Easy
9. The Army Corps of Engineers has been accused of acting on the basis of a so-called “edifice complex.”
a.
True
b.
False
True
Easy
10. Centrally planned economies like China produce relatively little pollution.
a.
True
b.
False
False
Moderate
11. Economists believe it is feasible and desirable to reduce environmental damage to zero.
a.
True
b.
False
False
Moderate
12. Recycling rates for aluminum, paper, and glass have been increasing in the United States.
a.
True
b.
False
True
Easy
13. The pricing system has a failure built into it when externalities exist.
a.
True
b.
False
True
Moderate
14. Pollution is an example of a negative externality.
a.
True
b.
False
True
Moderate
15. Economists believe that externalities can be cured by market methods.
a.
True
b.
False
True
Difficult
Review-Externalities: A Critical Shortcoming of the Market Mechanism
16. Economists believe that the goal of environmental policy should be zero pollution.
a.
True
b.
False
False
Difficult
17. Externalities are benefits or damages conferred upon people who are directly involved in an exchange of a good or
service.
a.
True
b.
False
False
Easy
18. Externalities can create a threat to environmental quality.
a.
True
b.
False
True
Easy
19. The production of smoke as a pollutant is a failure of the market system.
a.
True
b.
False
True
Moderate
20. Basic supply and demand analysis can be used to explain how externalities lead to environmental problems.
a.
True
b.
False
21. Charging firms that emit pollutants is one way to deal with pollution.
a.
True
b.
False
True
Easy
22. Taxing pollution will encourage firms to reduce pollutants dumped in the atmosphere or in streams.
a.
True
b.
False
True
Easy
23. Voluntary programs, direct controls, and emissions taxes are all equally effective ways of controlling pollution.
a.
True
b.
False
False
Moderate
24. Voluntary programs are dependable ways to protect the environment.
a.
True
b.
False
False
Moderate
25. Direct controls have traditionally been used heavily to control pollution in the U.S.
a.
True
b.
False
26. Direct controls have a clear advantage when a total ban is necessary.
a.
True
b.
False
27. When pollution emissions can be measured taxation will tend to be more effective than any other method of
controlling pollution.
a.
True
b.
False
28. Economists generally consider the use of taxes as the most efficient way of solving pollution problems.
a.
True
b.
False
29. Direct controls often require long legal proceedings before they can be effective.
a.
True
b.
False
30. A pollution tax penalizes inefficient firms.
a.
True
b.
False
31. Direct controls are considered inefficient because all firms are forced to pay the same costs.
a.
True
b.
False
32. When pollution problems arise from a sudden crisis, pollution taxes are a useful form of control.
a.
True
b.
False
33. Pollution taxes are preferred to direct controls because they don’t require a way of measuring pollutants produced.
a.
True
b.
False
34. Emissions permits might be called a “license to pollute.”
a.
True
b.
False
35. Emissions permits allow polluters to pay for the right to pollute a specified amount.
a.
True
b.
False
True
Easy
36. One advantage of emissions permits is that they allow the government to choose the level of pollution reduction.
a.
True
b.
False
True
Moderate
37. Although pollution is caused by a failure of the market, many economists believe that the best way to protect the
environment is to utilize the price mechanism.
a.
True
b.
False
True
Moderate
38. Rising prices will discourage consumption and encourage conservation.
a.
True
b.
False
True
39. Increasing scarcity of a resource causes new supplies to become more and more costly.
a.
True
b.
False
True
Moderate
40. Economic theory predicts that the price of a depletable resource will rise as it becomes more scarce.
a.
True
b.
False
True
Easy
41. Economic theory would lead us to suspect that deep sea oil reserves would be accessed before those located in the
Middle East or on the U.S. mainland.
a.
True
b.
False
False
Easy
42. Economists use a resource’s price as an indicator of its relative scarcity.
a.
True
b.
False
True
Moderate
43. The worst and most difficult to extract resources are used first.
a.
True
b.
False
False
Easy
44. If a depletable resource is selling in a perfectly competitive market, its price will rise by greater and greater dollar
amounts each year.
a.
True
b.
False
True
Easy
45. Even if demand for a resource grows over time, ever-rising prices of the resource that result from its growing scarcity
still discourage consumption.
a.
True
b.
False
True
Moderate
46. Unexpected discoveries of mineral reserves will ordinarily cause the price of these minerals to increase.
a.
True
b.
False
False
Easy
47. The invention of new mining methods will affect price through the supply side.
a.
True
b.
False
True
Moderate
48. Price controls would ordinarily be used to increase rather than decrease prices of depletable resources.
a.
True
b.
False
False
Moderate
49. Price controls on resources generally lead to surpluses.
a.
True
b.
False
False
Moderate
50. In a free market the quantity demanded will not exceed the quantity supplied of a resource, even if it is undergoing
rapid depletion.
a.
True
b.
False
True
Easy
51. When a resource is being depleted and becomes scarce, the market’s way of encouraging conservation is for the price
of the resource to rise, without any government intervention.
a.
True
b.
False
True
Easy
52. Dwindling resources encourage the development of substitute products.
a.
True
b.
False
True
Moderate
53. Rising prices of resources leads to inefficient resource use by industry.
a.
True
b.
False
False
Moderate
54. One of the virtues of rising resource prices is they encourage innovation, especially the discovery of other more
abundant resources.
a.
True
b.
False
True
Easy
55. John Maynard Keynes was the author of the book, The Economics of Welfare, which first addressed environmental
problems in terms of externalities.
a.
True
b.
False
False
Easy
economics
56. Centrally planned economies are able to cope with environmental pollution issues much better than capitalist
countries.
a.
True
b.
False
False
Moderate
Review—Externalities: A Critical Shortcoming of the Market Mechanism
57. A failure of the pricing system has led to pollution.
a.
True
b.
False
True
Difficult
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
Markets, market failure, and ext – Markets, market failure, and externalities
Review—Externalities: A Critical Shortcoming of the Market Mechanism
Multiple Choice
58. Increased concern about environmental problems derive partly from
a.
concerns about increasing economic output.
b.
concerns about unemployment and inflation.
c.
new awareness that the problems exist.
d.
concerns about the quality of life.
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
59. Identify the economist who first addressed the environmental problem in terms of externalities.
a.
Joseph Schumpeter
b.
Maynard Keynes
c.
A.C. Pigou
d.
J.B. Say
c
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Review-Externalities: A Critical Shortcoming of the Market Mechanism
60. One of the conclusions of A. C. Pigou was that
a.
a system of mandatory controls is the only effective means to control pollution.
b.
a system of charges can be an effective means to control pollution.
c.
pollution will wither away if a socialist system is in place.
d.
pollution cannot be adequately addressed in a price system.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
The study of economics, and defi – The study of economics, and definitions of economics
Review-Externalities: A Critical Shortcoming of the Market Mechanism
61. Interest in environmental problems has intensified, perhaps because
a.
for the first time in history in the 1970s people began to die from pollution-related diseases.
b.
rising incomes have caused people to be more concerned with the quality of their lives.
c.
the centrally planned economies are polluted.
d.
All of the above are true.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
62. Environmentalists, politicians, and economists have different perspectives on what constitutes appropriate
environmental policy. Which of the following statements was probably made by an economist?
a.
“We take the position that there are rights involved here, rights to be protected from threats to your health,
regardless of the costs involved.”
b.
“Protecting the environment is so important that standards cannot be too high, and continuing improvements
must be made regardless of cost.”
c.
“Pollution is a moral issue that cannot be reduced to dollars and cents.”
d.
“Clean air and water are things we can buy–if the price is right.”
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
63. The British economist A. C. Pigou
a.
wrote The Economics of Welfare in 1911.
b.
offered an explanation of the market economy’s poor environmental performance.
c.
outlined an approach to environmental policy still in favor with economists today.
d.
All of the above are correct.
The study of economics, and defi – The study of economics, and definitions of economics
Review-Externalities: A Critical Shortcoming of the Market Mechanism
64. What is new about environmental problems today is
a.
that for the first time in history we have environmental problems.
b.
the increased rate at which air and water pollution is occurring in the United States.
c.
the amount of attention the community now gives them.
d.
that environmental problems with pollution and garbage disposal have almost completely disappeared.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
65. Which of the following is an example of detrimental externality?
a.
A trailer’s entry onto an overcrowded road that delays the movement of other vehicles.
b.
Fall in demand for gasoline in the US softens the price of gasoline in the global market.
c.
Government investment in energy generation from non-conventional sources.
d.
Society devotes huge quantity of its scarce resources for vital innovative activity.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
66. Pollution problems
a.
have existed for many centuries.
b.
are attributable to modern industrialization.
c.
can be blamed on the profit system.
d.
have worsened in every respect in the past forty years.
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
67. Air quality in most U.S. cities has ____ since World War II.
a.
worsened
b.
improved
c.
remained unchanged
d.
improved slightly before a recent deterioration
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
68. Water quality in the United States has ____ in the past 25 years.
a.
improved
b.
worsened
c.
remained unchanged
d.
improved slightly before a recent deterioration
a
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
69. The socialist countries of Eastern Europe have
a.
fewer environmental problems than capitalist countries.
b.
improved their environment more than the capitalist countries.
c.
worse environmental problems than capitalist countries.
d.
worsened since the collapse of communism there.
c
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
70. The environmental problems of China:
a.
were caused by a lack of central planning in the economy.
b.
were caused by the burning of low-quality, high-sulfur coal.
c.
were caused by a lack of pollution controls.
d.
All of the above are correct.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
71. Some of the newer pollutants that have appeared
a.
are far more visible to the eye than older pollution.
b.
cause damage that is easily reversible.
c.
pose no significant long-term hazards.
d.
are far more dangerous than older forms of pollution.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
72. Serious environmental problems are
a.
unique to industrial economies.
b.
unique to Western economies.
c.
unique to civilized economies (i.e., those in which people live mainly in cities).
d.
None of the above is correct.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Review-Externalities: A Critical Shortcoming of the Market Mechanism
73. Since World War II,