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Tests, Surveys, and Pools Tests Test Canvas : TestBanks Chapter 16: ExternalitiesMicroeconom ics, 3e
Test Canvas: TestBanks Chapter 16: Externalities
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1. True/False: The marginal social benefit of pollut...
Question The marginal social benefit of pollution is always zero.
2. True/False: The total external cost of air pollut...
Question The total external cost of air pollution in Tennessee shows up in the final price of goods in Tennessee,
assuming that the government does not intervene in the marketplace.
3. True/False: Economists and environmentalists agre...
Question Economists and environmentalists agree that pollution is undesirable and that government policy should
aim to achieve a zero-pollution society.
4. True/False: If at the current amount of pollution...
Question If at the current amount of pollution the marginal social benefit of pollution is greater than the marginal
social cost of pollution, then there is too little pollution.
5. True/False: If a production activity generates a ...
Question If a production activity generates a negative externality, then the marginal social cost is equal to the
marginal cost of production reduced by the marginal external cost.
6. True/False: The economically efficient level of a...
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Question The economically efficient level of an externality is zero.
7. True/False: Externalities exist when individuals ...
Question Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive
to take those costs or benefits into account.
8. True/False: A principal cause of market failure i...
Question A principal cause of market failure is actions generating side effects that are not properly taken into
account by the market.
9. True/False: If an external cost exists, then the ...
Question If an external cost exists, then the marginal social cost curve will be to the left of the marginal cost of
production curve.
10. True/False: According to the Coase theorem, only ...
Question According to the Coase theorem, only when transaction costs are extremely high can two parties
internalize a negative externality.
11. True/False: According to the Coase theorem, the i...
Question According to the Coase theorem, the inefficiencies caused by externalities can be removed by the private
sector if individuals enter into appropriately structured deals, provided that the transaction costs of such
deals are sufficiently low.
12. True/False: If externalities are fully internaliz...
Question If externalities are fully internalized, an outcome is efficient even without government intervention.
13. True/False: Environmental standards ensure that t...
Question Environmental standards ensure that the marginal benefit of pollution is equal for all sources of pollution.
14. True/False: The efficient way to reduce pollution...
Question The efficient way to reduce pollution is to impose strict environmental standards on all polluters.
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15. True/False: Since talking while driving generates...
Question Since talking while driving generates a negative externality, banning talking while driving would be
economically efficient.
16. True/False: Taxes on sulfur dioxide emissions, ex...
Question Taxes on sulfur dioxide emissions, excise taxes on gas, and sales taxes are all examples of Pigouvian
taxes.
17. True/False: The optimal Pigouvian tax is equal to...
Question The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity
of pollution.
18. True/False: Emissions taxes and tradable emission...
Question Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is
achieved at the lowest possible cost. This is not the case for environmental standards, since they fail to
ensure that those who can reduce pollution most cheaply are in fact the ones to do so.
19. True/False: Reference: Ref 16-16 (Table: The Mar...
Question
Reference: Ref 16-16
(Table: The Marginal Social Benefit of Computer Chips) The table The Marginal Social Benefit of
Computer Chips shows several values for the price (P) and quantity demanded (QD) along the market
demand curve for computer chips. The production of computer chips generates an external benefit in the
form of a technology spillover. If the marginal social benefit is indicated by MSB, the optimal Pigouvian
subsidy is equal to $10.
20. Multiple Choice: A market economy will produce _______...
Question A market economy will produce ________without any government regulation.
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21. Multiple Choice: Given the general agreement that poll...
Question Given the general agreement that pollution is undesirable and social welfare is increased by reducing
pollution, the optimal level of pollution in a society is:
22. Multiple Choice: The socially optimal amount of pollut...
Question The socially optimal amount of pollution occurs where:
23. Multiple Choice: The marginal social benefit of pollut...
Question The marginal social benefit of pollution:
24. Multiple Choice: Pollution has ________ and ________.
Question Pollution has ________ and ________.
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25. Multiple Choice: There are benefits resulting indirect...
Question There are benefits resulting indirectly from pollution because:
26. Multiple Choice: The additional cost imposed on societ...
Question The additional cost imposed on society as a whole by an additional unit of pollution is:
27. Multiple Choice: The efficient level of pollution is:
Question The efficient level of pollution is:
28. Multiple Choice: The efficient quantity of pollution e...
Question The efficient quantity of pollution emissions occurs where:
29. Multiple Choice: As the quantity of pollution emission...
Question As the quantity of pollution emissions rises, the marginal social cost of pollution:
Answer remains constant.
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30. Multiple Choice: The socially optimal quantity of poll...
Question The socially optimal quantity of pollution is:
Answer zero.
31. Multiple Choice: The marginal social cost of pollution...
Question The marginal social cost of pollution rises as the quantity of pollution emissions:
Answer remains constant.
32. Multiple Choice: The marginal benefit of pollution emi...
Question The marginal benefit of pollution emissions ________ as the quantity of pollution emissions ________.
33. Multiple Choice: The marginal benefit from pollution _...
Question The marginal benefit from pollution ________ as the quantity of pollution emissions ________.
34. Multiple Choice: The efficient rate of emissions occur...
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Question The efficient rate of emissions occurs when:
35. Multiple Choice: The marginal cost of pollution emissi...
Question The marginal cost of pollution emissions ________ as the quantity of pollution emissions ________.
36. Multiple Choice: The marginal cost of pollution ______...
Question The marginal cost of pollution ________ as the quantity of pollution emissions ________.
37. Multiple Choice: The difference between the marginal s...
Question The difference between the marginal social cost curve and the marginal cost of production curve is the:
38. Multiple Choice: Reference: Ref 16-1 (Table: The Mar...
Question
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Reference: Ref 16-1
(Table: The Marginal Social Cost of Batteries) The table The Marginal Social Cost of Batteries lists
several price (P) and quantity (QS) values along the market supply curve for batteries. Because batteries
generate toxic wastes, there is an external cost associated with their production. The marginal external
cost is estimated to be $10. The marginal social cost would then be indicated by the values in the
column labeled:
39. Multiple Choice: A negative externality:
Question A negative externality:
40. Multiple Choice: The difference between the marginal s...
Question The difference between the marginal social benefit curve and the market demand curve is the:
41. Multiple Choice: The marginal external cost of a good ...
Question The marginal external cost of a good or activity equals the amount:
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42. Multiple Choice: Oscar owns a meat processing plant wh...
Question Oscar owns a meat processing plant whose unpleasant odors waft across the city. Because the
production of processed meat provides a negative externality to the community, at the market equilibrium
quantity, the marginal social:
43. Multiple Choice: Oscar owns a meat processing plant wh...
Question Oscar owns a meat processing plant whose unpleasant odors waft across the city. Because the
production of processed meat provides a negative externality to the community, the government should:
44. Multiple Choice: In the absence of government action, ...
Question In the absence of government action, polluters will pollute up to the point at which the marginal social
benefit of pollution is:
45. Multiple Choice: Suppose the production of DVDs genera...
Question Suppose the production of DVDs generates sulfur dioxide, an air pollutant. The equilibrium market
quantity of DVDs produced and consumed:
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46. Multiple Choice: Reference: Ref 16-2 (Table: The Soci...
Question
Reference: Ref 16-2
(Table: The Socially Optimal Quantity of Flash Drives) The table The Socially Optimal Quantity of Flash
Drives lists several values for price (P), quantity demanded (QD), and quantity supplied (QS) from the
market demand and supply curves for flash drives. Suppose that the production of flash drives generates
a marginal external cost equal to $10. The socially optimal number of flash drives will be:
Answer 5.
47. Multiple Choice: Suppose the production of DVDs genera...
Question Suppose the production of DVDs generates sulfur dioxide, an air pollutant. Then the market price for
DVDs:
48. Multiple Choice: Since the 1960s, power plants have ta...
Question Since the 1960s, power plants have taken actions, such as switching to low-sulfur coal and installing
scrubbers in their smokestacks, which have significantly reduced the problem of acid rain. Power plants
took these actions mainly because:
Answer of concern about the environment.
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49. Multiple Choice: Which of the following is not an exam...
Question Which of the following is not an example of an activity that generates an externality?
Answer Bob's Service Station dumps used oil in the river.
50. Multiple Choice: Which of the following is an example ...
Question Which of the following is an example of an activity generating a negative externality?
Answer You buy a new car, then discover it needs a new transmission.
51. Multiple Choice: If drivers decide to make phone calls...
Question If drivers decide to make phone calls without considering the costs imposed on others, the:
52. Multiple Choice: Which of the following is an example ...
Question Which of the following is an example of a negative externality?
Answer high prices for necessities such as drinking water in the aftermath of a natural disaster
53. Multiple Choice: An externality is said to exist when:
Question An externality is said to exist when:
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54. Multiple Choice: If an activity generates external cos...
Question If an activity generates external costs, the decision makers generating the activity will:
55. Multiple Choice: If a coal-powered electrical generato...
Question If a coal-powered electrical generator discharges smoke into the air and causes uncompensated costs
and discomfort to residents of a town, then this electrical generation has a(n):
56. Multiple Choice: Whenever human activity generates a c...
Question Whenever human activity generates a concentration of a substance in the environment sufficient to cause
harm to people, it is called:
57. Multiple Choice: Damage to the environment occurs beca...
Question Damage to the environment occurs because:
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58. Multiple Choice: Activities that generate external cos...
Question Activities that generate external costs will likely be carried out at levels that ________ those that would
be efficient.
59. Multiple Choice: All of the following are examples of ...
Question All of the following are examples of an external cost except:
60. Multiple Choice: An industry with production that gene...
Question An industry with production that generates external costs produces a quantity of output that is:
61. Multiple Choice: Which of the following best describes...
Question Which of the following best describes a negative externality?
62. Multiple Choice: A plastics manufacturing plant emits ...
Question
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A plastics manufacturing plant emits pollution into the Big River. This leads to higher costs and disruption
for fishermen on the river, for which they are not compensated. In this situation:
63. Multiple Choice: If at the current amount of pollution...
Question If at the current amount of pollution, the marginal social benefit of pollution is greater than its marginal
social cost, then:
64. Multiple Choice: If a good that involves external cost...
Question If a good that involves external costs is priced to take these costs into account, then its price will:
65. Multiple Choice: If external costs exist, the competit...
Question If external costs exist, the competitive free market:
66. Multiple Choice: A copper mining operation discharges ...
Question A copper mining operation discharges waste products into a river and causes higher costs and
discomfort to downstream users of the water for which they are not compensated. In this case:
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67. Multiple Choice: If the marginal benefit received from...
Question If the marginal benefit received from pollution is equal to its marginal cost, then:
68. Multiple Choice: If the marginal benefit received from...
Question If the marginal benefit received from pollution is less than its marginal cost, then:
69. Multiple Choice: The marginal benefit received from po...
Question The marginal benefit received from pollution is equal to its marginal cost in the market for highly polished
glass. In this situation:
70. Multiple Choice: The marginal benefit received from po...
Question The marginal benefit received from pollution is less than its marginal cost in the market for highly polished
glass. In this situation:
71. Multiple Choice: If the marginal benefit received from...
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Question If the marginal benefit received from pollution is greater than its marginal cost in a market, then:
72. Multiple Choice: When farmers raise pigs, there are a ...
Question When farmers raise pigs, there are a number of external costs. In particular, raising pigs generates
methane gas. Without government regulation, the equilibrium price and quantity of pigs raised means
that:
73. Multiple Choice: When farmers raise pigs, there are a ...
Question When farmers raise pigs, there are a number of external costs. In particular, raising pigs generates
methane gas. If the marginal external cost is $100 per pig and the government imposes a tax of $200 per
pig, then at the equilibrium price and quantity of pigs:
74. Multiple Choice: A familiar example of a negative exte...
Question A familiar example of a negative externality is traffic congestion. In principle, it should be possible to
internalize this externality by permitting drivers to negotiate about rights to drive during particular time
periods. The most likely reason that this does not happen is that:
75. Multiple Choice: The Coase theorem states that in the ...
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Question The Coase theorem states that in the presence of externalities, a market economy will:
76. Multiple Choice: An externality is said to be internal...
Question An externality is said to be internalized:
77. Multiple Choice: Automobile emissions generate polluti...
Question Automobile emissions generate pollution and cause higher costs and discomfort to residents of a city. In
this case:
78. Multiple Choice: The proposition that if bargaining is...
Question The proposition that if bargaining is costless, then the market can achieve an efficient outcome is the:
79. Multiple Choice: When individuals take external costs ...
Question When individuals take external costs and benefits into account:
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80. Multiple Choice: According to the Coase theorem, a mar...
Question According to the Coase theorem, a market will ________when negative externalities are present.
81. Multiple Choice: A familiar example of a negative exte...
Question A familiar example of a negative externality is loud music on a college campus. In principle, it should be
possible to internalize this externality by permitting students to negotiate about rights to play music
during particular time periods. The most likely reason that this does not happen is that:
82. Multiple Choice: The idea that even in the presence of...
Question The idea that even in the presence of externalities an economy can reach an efficient solution as long as
transaction costs of making a deal are low is known as:
83. Multiple Choice: The proposition that if transaction c...
Question The proposition that if transaction costs are low enough, the private market can achieve an efficient
outcome regardless of which of the affected parties hold the property rights is known as the:
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84. Multiple Choice: According to the Coase theorem, the p...
Question According to the Coase theorem, the private market can achieve an efficient outcome:
85. Multiple Choice: Figure: Pollution and Efficiency Refe...
Question Figure: Pollution and Efficiency
Reference: Ref 16-3
(Figure: Pollution and Efficiency) Point ________ in the figure Pollution and Efficiency represents an
efficient solution in this market, where sulfur emissions is a result of production.
86. Multiple Choice: Figure: Pollution and Efficiency Refe...
Question
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Figure: Pollution and Efficiency
Reference: Ref 16-3
(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, where sulfur
emissions are a result of production, an efficient solution takes place at a price of ________ and a
quantity of ________.
87. Multiple Choice: Figure: Pollution and Efficiency Refe...
Question Figure: Pollution and Efficiency
Reference: Ref 16-3
(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, where sulfur
emission is a result of production, an efficient solution is one in which:
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