7) In principle, a cap-and-trade program would
A) cause firms to generate more pollution than their allowed limits.
B) cause firms to generate less pollution than their allowed limits.
C) raise the production costs of all firms.
D) lower the production costs of all firms.
8) Under a cap-and-trade program, what would happen if governments reduce firms’ pollution
caps?
A) The market clearing price of pollution permits will increase.
B) The market cleaning price of pollution permits will decrease.
C) The marketing cleaning price of pollution permits will not change.
D) The marketing clearing price of pollution permits will cease to exist.
9) The 1997 Kyoto Protocol was signed by
A) only the United States and the European Union.
B) only nations in Asia.
C) more than three dozen nations.
D) all nations in the world.
10) The Kyoto Protocol was signed by participating nations in
A) 2001.
B) 1972.
C) 1997.
D) 2012.
11) Participating nations in the 1997 Kyoto Protocol agreed to reduce overall greenhouse gases
emission
A) to as much as 20 percent below the levels of the 1990s through 2020.
B) to as much as 10 percent below the levels of the 1990s through 2010.
C) to as much as 100 percent below the levels of the 1990s through 2007.
D) to as much as 50 percent below the levels of the 1990s through 2050.
12) The Emission Trading Scheme of the European Union
A) created a market for pollutants.
B) sets a cap on the amount of pollutants in each country.
C) allowed firms to benefit from emitting pollutants.
D) sets the amount of per-unit tax on each pollutant.
13) Which of the following best describes the impact of the Emissions Trading Scheme in the
European Union between 2005 and the late 2010s?
A) Overall greenhouse gas emissions increased.
B) Overall greenhouse gas emissions decreased.
C) Overall greenhouse gas emissions were totally eliminated.
D) Overall greenhouse gas emissions were constant.
14) Which of the following was signed in the Kyoto Protocol?
A) the Framework Convention on Climate Change
B) the Zero Greenhouse Gas Agreement
C) the Treaty on Global Warming
D) the Emission Trading Scheme
15) Participating nations in the 1997 Kyoto Protocol agreed to reduce overall greenhouse gases
emission through 2020 to
A) as much as 20 percent below the levels in the 1990s.
B) as much as 5 percent below the levels in the 1990s.
C) as much as 50 percent below the levels in the 1970s.
D) as much as 80 percent below the levels in the 1960s.
16) The EU Emission Trading Scheme created a market for
A) permits to emit greenhouse gases.
B) crude oil.
C) wind energy.
D) devices that lower the global temperature.
17) Which of the following is TRUE of the European Union’s cap-and-trade program?
A) Firms are taxed based on the their pollution levels.
B) Firms are forced to shut down when they exceed their pollution limits.
C) Governments subsidize firms to develop devices to reduce pollution.
D) Firms can trade pollution permits to meet their pollution limits.
18) By 2006, the market price of European Union emissions allowances dropped because
A) governments set their overall emission caps too high.
B) firms had drastically reduced their emissions.
C) firms underreport their emission amounts.
D) the market did not clear.
19) Which of the following is TRUE of the cap-and-trade program in the United States?
A) The state of California began a cap-and-trade program in 2013.
B) The United States is a participant of the Kyoto Protocol that implemented the cap-and-trade
program in 2005.
C) All states in the U.S. have implemented a cap-and-trade program before the Kyoto Protocol in
2005.
D) The state of Texas is currently the only state in the U.S. that has not implemented a cap-and-
trade program.
20) If pollution is bad, why do we still use pollution-causing resources such as coal and oil to
generate electricity?
A) Governments lack the political will to enforce the use of pollution free resources.
B) The cost of using pollution free resources to generate power in many circumstances is much
higher than generating that same power through conventional pollution-causing means.
C) Pollution is only a private cost.
D) The transaction costs of pollution is too low.
21) Explain how a market for pollutant emission allowances can induce firms to reduce the
amount of emissions.
22) “Creating a free market for carbon-dioxide emission permits would only encourage firms to
pollute more.” Do you agree or disagree? Why?
31.4 Common Property and Wild Species
1) When negative externalities exist, a voluntary agreement can be negotiated. Which of the
following statements is TRUE?
A) Voluntary agreements usually do not work since the owner has no incentive to negotiate.
B) Transactions costs must be low relative to the expected benefits of reaching an agreement.
C) Voluntary agreements are difficult to negotiate because they usually involve government
intervention.
D) Voluntary agreements always leave the owner worse off.
2) Which of the following would be viewed as a common property problem?
A) Your property is burglarized.
B) Vandals damage your property.
C) People pick all of the flowers in a public park.
D) To be safe you must lock your door at night.
3) All the costs associated with making, reaching, and enforcing agreements are called
A) private costs.
B) opportunity costs.
C) transaction costs.
D) social costs.
4) The exclusive rights of ownership that allow the use, transfer, and exchange of property are
called
A) common property rights.
B) private property rights.
C) transaction costs.
D) social benefits.
5) Economic theory suggests that if natural resources can be held as private property, then
A) conservation will be nonexistent.
B) owners will have an incentive not to abuse them.
C) natural resources will be sold off for immediate use.
D) people will simply hold them and refuse to make them available.
6) Common property ownership most likely leads to
A) an efficient allocation of resources.
B) production at a rate at which price is less than social cost.
C) more social justice.
D) an increase of externalities.
7) When no property rights exist
A) no one has an economic incentive to care for common property, and an externality may well
occur.
B) there will be no production.
C) externalities will be internalized by voluntary arrangements among a small group of parties.
D) society will produce beyond the production possibilities frontier, but the allocation of
resources is not apt to be optimal.
8) Private property rights involve
A) exclusive rights to use, transfer, and exchange the property.
B) exclusive rights to use property, but not to exchange the property.
C) rights to enjoy the property in any way desired but not to transfer or exchange the property.
D) rights granted by the government for renewable terms of 100 years or more.
9) Common property is
A) property that has mineral or oil deposits.
B) a resource that everyone is free to use as much as they want.
C) property owned by a group such as a club.
D) property that has little economic value.
10) Buffalo in the United States almost became extinct while cattle have never been close to
extinction. The difference is due to
A) the greater marginal value of a buffalo relative to a head of cattle, leading to greater
“harvesting” of buffalo.
B) the use of private property rights on cattle and common property rights on buffalo.
C) the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of
buffalo.
D) the differences in size between the two animals, and the effect of size differences on the costs
of hunting them.
11) Government intervention will not be necessary when voluntary contracting internalizes an
externality. Which of the following is NOT a necessary condition for this to occur?
A) well-defined private property rights
B) low transaction costs
C) large numbers of individuals involved in the transactions
D) low contract enforcement costs
12) The costs associated with reaching and enforcing agreements are called
A) private property costs.
B) common property costs.
C) transaction costs.
D) public costs.
13) With defined property rights, an externality
A) can only be corrected with government intervention.
B) will not lead to a misallocation of resources.
C) may be internalized with voluntary contracting, under certain circumstances.
D) must lead to society producing inside its production possibilities frontier.
14) A farmer notices that a neighboring rancher’s cattle are wandering and destroying some of
his crops. The farmer decides to offer a payment to the rancher if the rancher will reduce the size
of his herd. By doing so, the farmer
A) can be sure that the size of the herd will be reduced and the size of his own harvest will be
increased.
B) indicates to the rancher that there is an opportunity cost to the wandering of the cattle, and
thereby internalizes the externality.
C) inadvertently bears the costs of the externality when the rancher should be liable for the costs.
D) informs the rancher that the cattle have destroyed crops, which should induce the farmer to
build a fence in order to maintain good relations.
15) One difficulty in using voluntary transactions to internalize externalities is that
A) people are motivated by self-interest and are often unwilling to engage in a transaction that
might make another person better off.
B) the government usually will not enforce contracts of this type.
C) transaction costs of coming to an agreement can be very large when numerous people are
involved.
D) people usually don’t understand what the real opportunity costs are that they face.
16) Transaction costs are
A) the costs, such as sales taxes, that are imposed by the government.
B) equal to the hourly cost of a lawyer used to write a contract.
C) the costs associated with making, reaching, and enforcing agreements.
D) not true costs because they relate to time rather than real resources.
17) In general, pollution exists if
A) people are unconcerned about the hazards associated with pollution.
B) there are poorly defined private property rights.
C) there are poorly defined common property rights.
D) profit-making activity is taken to an extreme.
18) The underlying reason of the problem of pollution is
A) a poorly run Environmental Protection Agency.
B) greed on the part of consumers.
C) greed on the part of producers.
D) poorly defined property rights that are expensive to enforce.
19) Changing the ownership of the ocean from common property to private property would
A) ensure that this resource would be allocated in a more efficient manner.
B) ensure that this resource would be allocated in a less efficient manner than under common
property rights.
C) not be economically desirable.
D) result in no appreciable change in efficiency of utilization of this resource.
20) Exclusive rights of ownership that allow the use, transfer, and exchange of property are
called
A) common property rights.
B) nonexclusive property rights.
C) private property rights.
D) public property rights.
21) When no one owns a particular resource
A) property rights are clearly defined.
B) individuals have legal recourse for any damages caused to their resource.
C) no one has any incentive to consider externality spillovers associated with that resource.
D) positive externalities will arise.
22) Private property rights are
A) an externality.
B) a social cost.
C) property that is owned by everyone and therefore by no one.
D) exclusive rights of ownership.
23) Common property is
A) an externality.
B) a social cost.
C) property that is owned by everyone and therefore by no one.
D) any resource that is free for the user.
24) Common property often results in
A) a negative externality.
B) a social benefit.
C) more efficient production of goods.
D) exclusive rights of ownership.
25) Common property is
A) a resource that everyone is free to use as much as they want.
B) property that belongs to both spouses in a marriage.
C) property owned by a group such as a club or a church.
D) generic property as opposed to specific property.
26) In general, pollution exists in situations in which
A) people are selfish.
B) people refuse to take social responsibility seriously.
C) there are poorly defined private property rights.
D) there exists public property.
27) Joe has broken the mirror of my car. I have legal recourse to sue for damages because of
A) social costs.
B) transactions costs.
C) common property rights.
D) private property rights.
28) Buffalo in the United States almost became extinct while cattle, an animal that provides
similar products, never has been close to extinction. The difference is due to
A) the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of
buffalo.
B) the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of
buffalo.
C) cattle existing in Europe also while buffalo were specific to North America.
D) the use of private property rights on cattle and common property rights on buffalo.