Economics Chapter 35 Module 35 – Externalities And Public Policy The Table Shows The Marginal Social Benefit

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subject Words 6940
subject Authors Paul Krugman, Robin Wells

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Page 1
1.
According to many economists, the government should:
A)
reduce the level of carbon emissions as far as possible.
B)
use policies to achieve the optimal level of carbon-emissions reduction in the least
costly way.
C)
set policy to achieve the efficient level of pollution by reducing the costs of
pollution, which will always increase the benefits to society.
D)
reduce carbon emissions whenever the marginal cost exceeds a predetermined level
set by the courts.
2.
The principal government agency in the United States responsible for enforcing national
environmental policies is the:
A)
Department of Agriculture.
B)
Department of the Interior.
C)
Environmental Protection Agency.
D)
Department of Justice.
3.
Which factor is an environmental standard?
A)
tradable pollution permits
B)
taxes on the level of pollution
C)
legal limits on sulfur dioxide emissions
D)
production subsidies
4.
Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf
burning are:
A)
Pigouvian taxes.
B)
internalization of externalities.
C)
transaction costs.
D)
environmental standards.
5.
Many economists believe that there are more efficient ways to deal with pollution than
with environmental standards because these standards do not:
A)
reduce pollution enough.
B)
allow reductions in pollution to be achieved at minimum cost.
C)
specify the behavior that needs to be changed.
D)
target behaviors in a way that can be enforced.
Page 2
6.
When the government attempts to reduce the noise from airplanes by restricting the
noise level from a jet engine to less than 50 decibels, it is using a(n):
A)
environmental standard.
B)
emissions tax.
C)
Pigouvian tax.
D)
tradable emissions permit.
7.
When the government attempts to reduce climate change by establishing a minimum
level of fuel efficiency on new cars, it is using a(n):
A)
environmental standard.
B)
emissions tax.
C)
Pigouvian tax.
D)
tradable emissions permit.
8.
Your community requires the sewage-treatment plant to process raw sewage so that it is
safe to return the water to the environment. This example illustrates:
A)
an emissions tax.
B)
the Coase theorem.
C)
a tradable emissions permit.
D)
an environmental standard.
9.
Automobile emissions generate pollution, have health costs for pedestrians, and cause
discomfort to residents of a city. In this case:
A)
too little of society's resources are being used to operate automobiles.
B)
the externality can be internalized by imposing a specific tax on drivers.
C)
there is an external benefit to society from operating automobiles.
D)
the externality can be internalized by granting a specific subsidy to drivers.
Page 3
10.
(Figure: Environmental Standards versus Emissions Taxes) Use Figure: Environmental
Standards versus Emissions Taxes. In the figure, if the goal is to limit the total
emissions of the two firms, A and B, to 600 tons, the most efficient solution is an _____,
and total pollution would be _____ tons.
Figure: Environmental Standards versus Emissions Taxes
A)
environmental standard; 300
B)
emissions tax; 600
C)
environmental standard; 600
D)
emissions tax; 200
11.
Suppose that government officials have set an emissions tax to reduce pollution.
Assume that the optimal tax would be $1,500, but government officials have set the tax
at $500. At the equilibrium with the $500 tax:
A)
there will be too much pollution.
B)
the marginal social cost of pollution will be less than $500.
C)
the marginal social benefit of pollution will be less than $500.
D)
the marginal social benefit of pollution will be more than $500.
12.
Suppose that government officials have set an emissions tax to reduce pollution.
Assume that the optimal tax would be $500, but government officials have set the tax at
$900. At the equilibrium with the $900 tax:
A)
there will be too much pollution.
B)
the marginal social cost of pollution will be less than $900.
C)
the marginal social benefit of pollution will be $900.
D)
the marginal social benefit of pollution will be more than $900.
Page 4
13.
If government officials set an emissions tax too high:
A)
there will be too little pollution.
B)
there will be too much pollution.
C)
the marginal social cost of pollution will exceed the marginal social benefit of
pollution.
D)
pollution will be unabated.
14.
Suppose that government officials have set an emissions tax to reduce pollution. Further
suppose that, with the emissions tax, the marginal social cost of pollution exceeds the
marginal social benefit of pollution. The emissions tax is:
A)
too low.
B)
too high.
C)
optimal.
D)
efficient.
15.
Which statement is correct?
A)
An emissions tax is a more efficient way to reduce pollution than is an
environmental standard because an emissions tax equalizes the marginal benefit of
pollution from all sources.
B)
An environmental standard is a more efficient way to reduce pollution than is an
emissions tax because an environmental standard can be structured to equalize the
reduction in pollution from all sources.
C)
If an emissions tax and environmental standards lead to the same total reduction in
pollution, then they will also lead to the same reduction in pollution by individual
polluters.
D)
It is easy to set emissions taxes at the “correct” level since the relationship between
emissions taxes and the reduction in emissions that they induce has been
extensively studied and is well known.
16.
Suppose an emissions tax is imposed on all dairy farms in Wisconsin. This tax would:
A)
encourage the dairy farmers to lower prices.
B)
increase the level of emissions.
C)
reduce the supply of milk in Wisconsin.
D)
increase the supply of milk in Wisconsin.
Page 5
Use the following to answer questions 17-19:
Figure: Three Firms That Pollute
17.
(Ref 35-1 Figure: Three Firms that Pollute) Use Figure 35-1: Three Firms That Pollute.
If each company is allowed to emit only 300 tons of pollution per day, which company
will be most adversely affected?
A)
firm A
B)
firm B
C)
firm C
D)
They are equally affected.
18.
(Ref 35-1 Figure: Three Firms that Pollute) Use Figure 35-1: Three Firms That Pollute.
If the city imposes a tax of $400 per ton of pollution, firm B will produce _____ tons of
mercury, and firm A will produce _____ tons of mercury than will firm C.
A)
600; 200 fewer
B)
700; 200 fewer
C)
300; 500 more
D)
300; 200 fewer
19.
(Ref 35-1 Figure: Three Firms that Pollute) Use Figure 35-1: Three Firms That Pollute.
In the figure, at what tax rate would firm C produce positive amount of pollution?
A)
$400
B)
$500
C)
$700
D)
$200
Page 6
20.
Pigouvian taxes are designed to reduce:
A)
the marginal cost of production.
B)
the marginal benefit of consumption.
C)
external costs.
D)
external benefits.
21.
(Figure: The Optimal Quantity of Pollution) Use Figure: The Optimal Quantity of
Pollution. The figure shows the marginal social cost (MSC) and marginal social benefit
(MSB) for firms that pollute the air with sulfur dioxide. Using the figure, the optimal
Pigouvian tax per unit of pollution is:
Figure: The Optimal Quantity of Pollution
A)
$500.
B)
$250.
C)
$167.
D)
$83.
22.
If an emissions tax is too low:
A)
there will be too little pollution.
B)
there will be too much pollution.
C)
the marginal social cost of pollution will be less than the marginal social benefit of
pollution.
D)
there could be either too much or too little pollution.
Page 7
23.
Taxes are a more effective method of controlling pollution than are environmental
standards because:
A)
standards allow greater flexibility.
B)
standards require less information.
C)
standards never require the efficient level of output.
D)
taxes encourage reducing pollution at the lowest possible cost.
24.
The government has adopted an emissions tax if it:
A)
transfers the ownership of city air to a private firm that charges automobile drivers
a profit-maximizing price, based in part on the pollution capacity of the
atmosphere.
B)
charges automobile drivers $0.10 for each unit of automobile emissions.
C)
pays automobile drivers $0.10 for each 10% reduction in automobile emissions.
D)
specifies the type of catalytic converter that must be used to reduce automobile
emissions.
25.
For the same amount of pollution emitted, an emissions tax is said to be more efficient
than is an environmental standard because all polluters:
A)
emit pollution up to the point at which the marginal benefit of polluting is equal to
the emissions tax.
B)
emit the same amount of pollution, regardless of the marginal benefit of polluting.
C)
pay the same total tax bill for their pollution.
D)
reduce pollution emissions to zero.
26.
Licenses that are exchangeable and that enable the holder to pollute up to a specified
amount during a given period are called:
A)
emissions taxes.
B)
environmental standards.
C)
tradable emissions permits.
D)
Pigouvian taxes.
27.
Tradable pollution permits are a:
A)
tax system for internalizing pollution costs to the market.
B)
subsidy system for charging consumers for the use of common property resources.
C)
system of voluntary negotiations between polluters and damaged parties.
D)
system of exchangeable licenses that enable the holder to pollute up to a specified
amount during a given period.
Page 8
28.
Suppose the federal government determines the total level of municipal sewage that can
be discharged by cities along a river. If the cities are able to buy and sell rights to the
total discharge level among themselves, then the government's environmental policy
includes:
A)
emissions taxes.
B)
Pigouvian subsidies.
C)
tradable pollution permits.
D)
command and control.
29.
Which example illustrates an environmental policy that uses tradable pollution permits?
A)
a charge of $0.10 to automobile drivers for a given level of emitted emissions
B)
paying automobile drivers $0.10 for each 10% reduction in automobile emissions
C)
allowing automobile drivers to buy and sell the right to emit a certain level of
automobile emissions
D)
ignoring pollution and letting private markets operate without government
interference
30.
Assume that the price of a tradable emissions permit for a ton of sulfur dioxide is $150.
Which statement is incorrect?
A)
A firm that buys permits has an incentive to limit pollution to the point at which the
marginal benefit of emissions is equal to $150.
B)
A firm that has more permits than it plans to use has an incentive to limit pollution
to the point at which the marginal benefit of emissions is equal to $150.
C)
The opportunity cost of emitting a ton of sulfur dioxide is $75 for all firms.
D)
The opportunity cost of emitting a ton of sulfur dioxide is $150 for all firms.
31.
With tradable emissions permits, the price of the permit is determined by:
A)
the government.
B)
the supply of and demand for permits.
C)
environmental protection organizations.
D)
the World Trade Organization.
32.
Licenses that can be bought and sold by polluters and that enable the holder to pollute
up to a specified amount during a given period are called:
A)
emissions taxes.
B)
Pigouvian taxes.
C)
tradable emissions permits.
D)
environmental standards.
Page 9
33.
Which example best describes tradable emissions permits?
A)
a tax system for internalizing emission costs to the market
B)
a subsidy system for encouraging production of goods with positive externalities
C)
a system of voluntary negotiations between polluters and damaged parties
D)
a system of licenses that can be bought and sold and that enable the holder to
pollute up to a specified amount during a given period
34.
Assume that the federal government determines the total level of pollutants that can be
discharged by city industries. A city is able to buy and sell the rights to this total
discharge level with other cities. This example illustrates a(n):
A)
emissions tax.
B)
Pigouvian tax.
C)
tradable emissions permit.
D)
environmental standard.
35.
When tradable emissions permits are used, if the demand for goods that produce
emissions shifts to the right, the equilibrium price of permits _____ and the equilibrium
quantity _____.
A)
decreases; increases
B)
increases; stays the same
C)
decreases; decreases
D)
stays the same; increases
36.
With tradable emissions permits, if the demand for goods that produce emissions shifts
to the left, the equilibrium price of permits _____ and the equilibrium quantity _____.
A)
increases; stays the same
B)
decreases; increases
C)
decreases; stays the same
D)
increases; increases
37.
An advantage of tradable emissions permits is that:
A)
pollution costs are easier to measure than are emissions taxes.
B)
nondegradable pollutants can be more easily controlled than can degradable
pollutants.
C)
the value that future generations place on pollution damages can be determined.
D)
they provide incentives for firms to develop technologies that are less polluting.
Page 10
38.
Which example illustrates an environmental policy based on tradable emission permits?
A)
a charge to companies of $1 for every 100 units of pollutants emitted
B)
paying companies $1 for each 10% reduction in emissions
C)
allowing companies to buy and sell the right to a certain level of emissions
D)
ignoring pollution and letting private markets operate without government
interference
39.
If the number of available tradable emissions permits is decreased, the equilibrium price
of the permits _____ and the equilibrium quantity of emissions _____.
A)
decreases; decreases
B)
increases; increases
C)
increases; decreases
D)
decreases; increases
40.
If the number of available tradable emissions permits increases, the equilibrium price of
the permits _____ and the equilibrium quantity _____.
A)
increases; does not change
B)
increases; increases
C)
decreases; does not change
D)
decreases; increases
41.
There are two plants in an industry. To reduce pollution, the government has imposed
environmental standards forcing each plant to cut emissions by 60%. At the emissions
standard, the marginal social benefit of pollution for plant A is $500, and the marginal
social benefit of pollution for plant B is $125. The same level of pollution can be
achieved at a lower cost by:
A)
forcing plant A to reduce emissions and allowing plant B to increase emissions.
B)
allowing plant A to pollute more and requiring plant B to pollute less.
C)
forcing both plants to reduce emissions.
D)
allowing both plants to pollute more.
42.
With tradable emissions permits, the main problem is determining the _____, while with
emissions taxes, the main problem is determining the _____.
A)
optimal quantity of pollution; optimal tax rate
B)
optimal price of the permits; optimal level of pollution
C)
optimal quantity of pollution; marginal social benefit of pollution
D)
marginal social cost of pollution; optimal tax rate
Page 11
Use the following to answer questions 43-46:
Figure: City with Two Polluters
43.
(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If
the government does not intervene in the pollution market, equilibrium will occur where
firm A produces _____ tons of pollution and firm B produces _____ tons of pollution,
for a total of _____ tons.
A)
2,000; 2,000; 4,000
B)
0; 1,000; 1,000
C)
1,000; 0; 1,000
D)
800; 1,400; 2,200
44.
(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If
the government wants to limit total pollution to 2,200 tons, it could impose an emissions
tax of _____ on both firms.
A)
$100
B)
$200
C)
$300
D)
$400
Page 12
45.
(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If
the government imposed an emissions tax of $400, firm A would produce _____ tons of
pollution and firm B would produce _____ tons of pollution.
A)
200; 400
B)
400; 1,200
C)
800; 1,400
D)
1,200; 1,600
46.
(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If
the government issued licenses to emit a total of 1,600 tons of pollution, the market
price to emit 1 ton of pollution would equal:
A)
$100.
B)
$200.
C)
$300.
D)
$400.
47.
By using _____ to reduce emissions, the government can ensure that the marginal
benefit of an additional unit of pollution is the same for all polluters.
A)
an environmental standard
B)
a subsidy
C)
a ban on pollution
D)
either an emissions tax or a tradable emissions permit
48.
An external benefit is a:
A)
negative externality.
B)
benefit that accrues to domestic firms as a result of the actions of foreign (external)
firms.
C)
benefit that accrues to foreign (external) firms as a result of the actions of domestic
firms.
D)
benefit that individuals or firms confer on others without receiving compensation.
49.
External benefits are associated with the production of batteries. Without government
regulation, the market will:
A)
produce too many batteries.
B)
price batteries at less than the marginal social cost.
C)
price batteries at less than the marginal social benefit.
D)
price batteries above the marginal social cost.
Page 13
50.
Which activity generates a positive externality?
A)
You buy a new car and find $5,000 in the door panel.
B)
Your next-door neighbor mows the lawn at 6 A.M.
C)
Your next-door neighbor installs a bat house, and the bats eat mosquitoes.
D)
Joe buys health insurance but decides not to take the time to get a flu shot.
51.
Which statement describes a positive externality?
A)
Sam dug a pond, so he could go fishing, but the pond has contributed to an
explosion of mosquitoes in your neighborhood.
B)
Sam has dozens of cats, and they come into your yard to hunt the birds that come to
your birdbath.
C)
Sam buys a dilapidated house, renovates it, and increases the property values of all
the houses in the neighborhood.
D)
Liquid waste from Sam's chicken farm flows into a neighbor's well water.
52.
A Pigouvian subsidy is:
A)
designed to discourage activities generating externalities.
B)
designed to encourage activities generating external benefits.
C)
appropriate when the marginal social cost curve is above the marginal cost of
production curve.
D)
appropriate when the marginal social cost curve and the marginal social benefit
curve intersect at an inefficient level.
53.
Suppose that the production of roses generates a positive externality in that travelers
enjoy the scenic beauty of the garden. An appropriate government policy yielding the
efficient outcome would be a:
A)
Pigouvian tax.
B)
Pigouvian subsidy.
C)
system of rose-production permits.
D)
reduction in transaction costs.
54.
Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood.
Because her consumption of rosebushes provides a positive externality to the
community, the government should _____ because the market quantity of rosebushes is
_____ than the socially optimal quantity.
A)
provide a subsidy; greater
B)
impose a tax; lower
C)
provide a subsidy; lower
D)
impose a tax; greater
Page 14
55.
Which example illustrates a policy solution to inefficiency in the free market caused by
the stated externality?
A)
The city government imposes rent control. The externality is that housing's
quantity demanded exceeds the quantity supplied at the current price.
B)
The federal government imposes a minimum wage. The externality is that firms
pay too little to their workers.
C)
The government offers free childhood immunizations. The externality is that an
immunized child cannot transmit disease to others.
D)
The federal government provides national defense. The externality is that people
can't be excluded from national defense, even if they don't pay for it.
56.
Which example is a good or market activity that is associated with a positive
externality?
A)
smoking cigarettes
B)
listening to a new CD with earbuds
C)
innovation in the semiconductor industry
D)
an indoor classical music concert with tickets that cost $50
57.
When innovations by one firm are quickly emulated and improved on by rival firms in
the same industry or in other industries, it is:
A)
industrial espionage.
B)
illegal under most patents.
C)
technology spillover.
D)
technology takeover.
Use the following to answer questions 58-68:
Page 15
58.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The shows the marginal social benefit and the marginal social cost of preserving various
amounts of land in a city for a public park. Suppose that parks result in positive benefits
to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. Without government
intervention, the amount of land dedicated to the public park will be _____ acres.
A)
0
B)
1
C)
3
D)
9
59.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but the marginal private benefit that any one
individual in the community gets from parks is close to 0. Without government
intervention, at the amount of land dedicated to the public park the marginal social
benefit will be:
A)
$225.
B)
$150.
C)
$100.
D)
$0.
60.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. Without government
intervention, at the amount of land dedicated to the public park the marginal social cost
will be:
A)
$225.
B)
$150.
C)
$100.
D)
$0.
Page 16
61.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. The socially optimum amount
of land dedicated to the public park will be _____ acres.
A)
0
B)
1
C)
3
D)
9
62.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. At the socially optimum
amount of land dedicated to the public park, the marginal social benefit will be:
A)
$225.
B)
$150.
C)
$100.
D)
$0.
63.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. At the socially optimum
amount of land dedicated to the public park, the marginal social cost will be:
A)
$225.
B)
$150.
C)
$100.
D)
$0.
Page 17
64.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. If the government wants to
achieve the optimum amount of land for the park, it could use a Pigouvian _____ of
_____ per park acre.
A)
tax; $300
B)
tax; $150
C)
subsidy; $150
D)
subsidy; $450
65.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. If 1 acre is dedicated to the
park, this outcome is _____ because _____.
A)
efficient; MSB = MSC
B)
efficient; MSB > MSC
C)
inefficient; MSB > MSC
D)
inefficient; MSB < MSC
66.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. If 1 acre is dedicated to the
park, the park is _____ from a social perspective.
A)
too large
B)
the socially optimum size
C)
too small
D)
the efficient size
Page 18
67.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. If 5 acres are dedicated to the
park, this outcome is _____ because _____.
A)
efficient; MSB = MSC
B)
efficient; MSB > MSC
C)
inefficient; MSB > MSC
D)
inefficient; MSB < MSC
68.
(Ref 35-3 Table: Externalities from Parks) Use Table 35-3: Externalities from Parks.
The table shows the marginal social benefit and the marginal social cost of preserving
various amounts of land in a city for a public park. Suppose that parks result in positive
benefits to the community as a whole but that the marginal private benefit that any one
individual in the community gets from parks is close to 0. If 5 acres are dedicated to the
park, the park is _____ from a social perspective.
A)
too large
B)
the socially optimum size
C)
too small
D)
the efficient size
69.
Tony has a cell phone, and his service provider is Verizon. When he calls his wife,
Meleah, who is also a Verizon customer, he does not have to pay for those minutes. The
more Verizon customers there are in the market, the more benefit Tony receives. This is:
A)
a network externality.
B)
the Coase theorem.
C)
a Pigouvian subsidy.
D)
a technology spillover.
Page 19
Use the following to answer questions 70-72:
Figure: The Socially Optimal Quantity of Pollution
70.
(Ref 35-4 Figure: The Socially Optimal Quantity of Pollution) Use Figure 35-4: The
Socially Optimal Quantity of Pollution. In the figure, firms are the only beneficiaries of
pollution, and costs are borne solely by others in the society. The optimal level of
pollution is:
A)
zero since no pollution is best for society.
B)
where the marginal social benefit curve intersects the quantity axis.
C)
where the marginal social cost curve intersects the quantity axis.
D)
where the marginal social benefit curve intersects the marginal social cost curve.
71.
(Ref 35-4 Figure: The Socially Optimal Quantity of Pollution) Use Figure 35-4: The
Socially Optimal Quantity of Pollution. In the figure, firms are the only beneficiaries of
pollution, and costs are borne solely by others in the society. Without government
intervention:
A)
firms will continue to pollute until the marginal benefit to them is zero.
B)
firms will continue to pollute until the marginal benefit to them is $200.
C)
the optimal quantity of pollution will occur.
D)
The outcome cannot be determined without more information.
72.
(Ref 35-4 Figure: The Socially Optimal Quantity of Pollution) Use Figure 35-4: The
Socially Optimal Quantity of Pollution. In the figure, firms are the only beneficiaries of
pollution, and costs are borne solely by others in the society. The optimal quantity of
pollution could be achieved:
A)
with a Pigouvian subsidy.
B)
through a free market solution
C)
with a Pigouvian tax.
D)
by subsidizing consumers of the products produced by the firms.
Page 20
Use the following to answer questions 73-79:
Figure: Efficiency and Pollution
144. (Ref 35-5 Figure: Efficiency and Pollution) Use Figure 35-5: Efficiency and Pollution.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others
in the society. In the absence of government intervention, the amount of pollution will be _____
tons.
A) 20
B) 30
C) 40
D) 45
Ans: D
Refer To: Ref 35-5 Figure: Efficiency and Pollution
bloomslevel: Applying
modulename: Module 35
levelofdifficulty: Moderate
questiontype: Multiple Choice
sequence: 16144
topic: Policies Toward Pollution
Page 21
73.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely
by others in the society. The socially optimal quantity of pollution is _____ tons.
A)
0
B)
20
C)
30
D)
45
74.
(Ref 35-5 Figure: Efficiency and Pollution) Use Figure 35-5: Efficiency and Pollution.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely
by others in the society. If this market produced _____ tons of pollution, then _____.
A)
30; it would be efficient
B)
45; marginal social cost would be less than marginal social benefit
C)
20; marginal social benefit would be less than marginal social cost
D)
20; the marginal social benefit would be $7.
75.
(Ref 35-5 Figure: Efficiency and Pollution) Use Figure 35-5: Efficiency and Pollution.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely
by others in the society. An optimal Pigouvian tax of _____ per ton of pollution can
move this market to the socially optimal quantity of pollution.
A)
$5
B)
$15
C)
$25
D)
$45
76.
(Ref 35-5 Figure: Efficiency and Pollution) Use Figure 35-5: Efficiency and Pollution.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely
by others in the society. A Pigouvian tax of $10 per acre of pollution will result in a
quantity of pollution for which the:
A)
marginal social benefit is less than the marginal social cost.
B)
marginal social benefit exceeds the marginal social cost.
C)
marginal social benefit equals the marginal social cost.
D)
resources are allocated efficiently.
Page 22
77.
(Ref 35-5 Figure: Efficiency and Pollution) Use Figure 35-5: Efficiency and Pollution.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely
by others in the society. If the government imposed an environmental standard that did
not allow the quantity of pollution to exceed 20 tons, there would be:
A)
a socially optimal quantity of pollution.
B)
too little pollution because its marginal social benefit would exceed its marginal
social cost.
C)
too much pollution because its marginal social cost would exceed its marginal
social benefit.
D)
too much pollution because any pollution is too much from an economist's
perspective.
78.
(Ref 35-5 Figure: Efficiency and Pollution) Use Figure 35-5: Efficiency and Pollution.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely
by others in the society. If the government imposed an environmental standard that did
not allow the quantity of pollution to exceed 40 tons, there would be:
A)
a socially optimal quantity of pollution.
B)
too little pollution because its marginal social benefit would exceed its marginal
social cost.
C)
too much pollution because its marginal social cost would exceed its marginal
social benefit.
D)
too much pollution because any pollution is too much from an economist's
perspective.
79.
(Ref 35-5 Figure: Efficiency and Pollution) Use Figure 35-5: Efficiency and Pollution.
Assume that firms are the only beneficiaries of pollution and that costs are borne solely
by others in the society. If the government imposed an environmental standard that did
not allow the quantity of pollution to exceed 30 tons, there would be:
A)
a socially optimal quantity of pollution.
B)
too little pollution because its marginal social benefit would exceed its marginal
social cost.
C)
too much pollution because its marginal social cost would exceed its marginal
social benefit.
D)
too much pollution because any pollution is too much from an economist's
perspective.
Page 23
Use the following to answer questions 80-82:
Figure: MSB and MSC of Pollution
80.
(Ref 35-6 Figure: MSB and MSC of Pollution) Use Figure 35-6: MSB and MSC of
Pollution. Assume that firms are the only beneficiaries of pollution and that costs are
borne solely by others in the society. What level of pollution would be emitted in a
market economy without government regulation?
A)
Q1
B)
Q2
C)
Q3
D)
Q4
81.
(Ref 35-6 Figure: MSB and MSC of Pollution) Use Figure 35-6: MSB and MSC of
Pollution. Assume that firms are the only beneficiaries of pollution and that costs are
borne solely by others in the society. What level of pollution represents the socially
optimal level?
A)
Q1
B)
Q2
C)
Q3
D)
Q4
Page 24
82.
(Ref 35-6 Figure: MSB and MSC of Pollution) Use Figure 35-6: MSB and MSC of
Pollution. Assume that firms are the only beneficiaries of pollution and that costs are
borne solely by others in the society. Suppose pollution is unregulated. What level of
emissions tax would move the level of pollution to the socially optimal level?
A)
$100 per ton
B)
$800 per ton
C)
$500 per ton
D)
$300 per ton
Use the following to answer questions 83-85:
Figure: Model of a Competitive Market
83.
(Ref 35-7 Figure: Model of a Competitive Market) Use Figure 35-7: Model of a
Competitive Market. Given the figure, if there are no external benefits or costs, the
output at Q will be:
A)
larger than is socially desirable.
B)
smaller than is socially desirable.
C)
efficient.
D)
inefficient.
Page 25
84.
(Ref 35-7 Figure: Model of a Competitive Market) Use Figure 35-7: Model of a
Competitive Market. Given the figure, if there are external costs, a tax imposed on
sellers will:
A)
decrease the equilibrium quantity.
B)
increase the equilibrium quantity.
C)
have no effect on the equilibrium price.
D)
decrease the equilibrium price.
85.
(Ref 35-7 Figure: Model of a Competitive Market) Use Figure 35-7: Model of a
Competitive Market. Given the figure, if a tax is imposed on sellers, the equilibrium
price will _____ and the equilibrium quantity will _____.
A)
increase; decrease
B)
remain the same; increase
C)
remain the same; decrease
D)
increase; increase
86.
Environmental standards ensure that the marginal benefit of pollution is equal for all
sources of pollution.
A)
True
B)
False
87.
The most economically efficient way to reduce pollution is to impose strict
environmental standards on all polluters.
A)
True
B)
False
88.
Since texting while driving generates a negative externality, banning texting while
driving would necessarily be economically efficient.
A)
True
B)
False
89.
Taxes on sulfur dioxide emissions, excise taxes on gas, and sales taxes are all examples
of Pigouvian taxes.
A)
True
B)
False
Page 26
90.
The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially
optimal quantity of pollution (assuming there are no private costs from pollution to the
polluter).
A)
True
B)
False
91.
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.
A)
True
B)
False
92.
(Table: The Marginal Social Benefit of Computer Chips) Use Table: The Marginal
Social Benefit of 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.
A)
True
B)
False
93.
Why do economists argue that an emissions tax is a more efficient way to reduce
pollution than is an environmental standard?
Page 27
94.
(Table: Pollution and Marginal Cost of Reduction) Use Table: Pollution and Marginal
Cost of Reduction. There are two large firms in your community, Big Chemical and
Mega Manufacturing, and each is a significant source of pollution. Combined, they are
producing 500 tons of pollution, and the EPA has determined that emission levels
should be reduced by half. The marginal costs of reducing pollution is constant for each
firm and is given in the table.
A) If the EPA dictated that each firm must emit only 125 tons of pollution, how much
total cost would the firms incur to meet this environmental standard?
B) If the EPA distributes 125 pollution permits to each firm, each permit giving the
firm the right to emit 1 ton of pollution, which firm will sell pollution permits, and
which firm will buy them?
C) Under this system, what is the total cost to the firms of reducing pollution to a total
of 250 tons?
95.
Economists say that, when an activity provides a positive externality to the community,
the market does not produce enough of that activity. Why?
96.
More and more firms are developing cars that are powered by electricity, rather than
gasoline. How does the absence of a network externality hinder the widespread adoption
of these vehicles?
97.
An emissions tax will:
A)
ensure that the marginal benefit of pollution is equal for all sources of pollution.
B)
set standards to which all producers must adhere, regardless of their production
costs.
C)
cause all polluters to reduce emissions by the same amount.
D)
increase pollution, but not in the most efficient cost-saving way.
Page 28
98.
Firm A and firm B both produce a good whose manufacture causes pollution, but the
firms differ in their marginal benefit from pollution. In this case, an emissions standard
would:
A)
reduce pollution in the most effective manner.
B)
lead to an unequal reduction in pollution for both firms.
C)
not be efficient since it does not take into account differences in marginal benefits
from polluting.
D)
be preferred to an emissions tax since it takes into account differences in marginal
benefits.
99.
Pigouvian taxes:
A)
tax the profits of polluting firms.
B)
are designed to reduce external costs.
C)
are essentially the same as emissions standards.
D)
are tradable emissions permits.
100.
Markets for the right to pollute are:
A)
established by individual firms when they reduce emissions.
B)
established by government when it issues tradable pollution permits.
C)
likely to result in fewer incentives to develop and implement technology that
reduces pollution.
D)
a means by which more pollution is encouraged.
101.
Both emissions taxes and tradable emissions permits:
A)
are efficient cost-minimizing methods of pollution reduction.
B)
work only if they are coupled with environmental standards.
C)
encourage more pollution.
D)
are usually less effective than are environmental standards.
102.
Positive externalities:
A)
are similar to negative externalities in their ease of measuring marginal benefits.
B)
are likely to be solved with the use of a Pigouvian tax.
C)
are difficult to measure since marginal social benefits are hard to observe.
D)
result from greater than optimal production of a good.
Page 29
103.
Flu vaccines often provide both private benefits to individuals and positive external
benefits to other members of society. As a result, without government intervention, one
would find:
A)
too many doses of flu vaccine being produced since external benefits would not be
considered.
B)
too few doses of flu vaccine being produced since external benefits would not be
considered.
C)
the optimal amount of doses of flu vaccines being produced since external benefits
would not be considered.
D)
a shortage of doses of flu vaccine because their marginal social benefit is
overestimated.
104.
Suppose that each person in a community had to pay for his or her own education from
kindergarten through high school. One would expect that:
A)
less education would be acquired than at present since an individual may not
consider the positive external benefits of education to society.
B)
more education would be acquired than at present since an individual may not
consider the positive external benefits of education to society.
C)
the optimal amount of education would be acquired by community members since
they each paid for the amount of education they wanted.
D)
a Pigouvian tax would ensure the optimal amount of education.
105.
To encourage consumption of a good that generates positive externalities, the BEST
option for policymakers would be to:
A)
impose a tax on the amount consumed to achieve the socially optimal level.
B)
mandate consumption of the good at the socially optimal level.
C)
provide a subsidy per unit of the good consumed to achieve the socially optimal
level.
D)
do nothing since the market will achieve the socially optimal level without
government intervention.
106.
A good is subject to a network externality when:
A)
the value of the good to an individual is less when a large number of other people
also use the good.
B)
the value of the good is determined only by marginal private benefits.
C)
an increase in the number of other people using the good increases its value to an
individual.
D)
a good yields negative externalities.
Page 30
107.
Network externalities are often:
A)
separate from positive feedback.
B)
a reason for natural monopolies.
C)
less likely to occur in the communications or technology industries than they are in
other industries.
D)
not likely to move toward market domination.
Use the following to answer questions 108-110:
Figure: Marginal Private Benefits and Marginal Social Benefits
108.
(Ref 35-8 Figure: Marginal Private Benefits and Marginal Social Benefits) Use Figure
35-8: Marginal Private Benefits and Marginal Social Benefits. Without government
intervention, this market will produce _____ units at a price of _____.
A)
Q0; P0
B)
Q1; P0
C)
Q1; P2
D)
Q2; P1
109.
(Ref 35-8 Figure: Marginal Private Benefits and Marginal Social Benefits) Use Figure
35-8: Marginal Private Benefits and Marginal Social Benefits. If government does
intervene and encourages the market to produce and price at the socially optimal level,
what will be the output and price?
A)
Q0 and P0
B)
Q1 and P0
C)
Q1 and P2
D)
Q2 and P1
Page 31
110.
(Ref 35-8 Figure: Marginal Private Benefits and Marginal Social Benefits) Use Figure
35-8: Marginal Private Benefits and Marginal Social Benefits. One way for the
government to achieve this socially optimal level is by:
A)
imposing a per-unit tax equal to P1 - P2.
B)
providing a per-unit subsidy of P0 - P2.
C)
providing a per-unit subsidy of P1 - P2.
D)
leaving the quantity at the initial private market-clearing quantity and price.
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