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Chapter 14
Chapter 14
1. An externality is
A) a cost paid for by the producer of a good or service.
B) a benefit or cost experienced by someone who is not a producer or consumer of a good or service.
C) anything that is external or not relevant to the production of a good or service.
D) a benefit realized by the purchaser of a good or service.
Answer:
In 2006, Abu Dhabi Launched MASDAR in an attempt to reduce its carbon footprint and promote a
more environment friendly culture around the UAE. Abu Dhabi is trying to solve the issue of
Figure 14-1 shows a market with an externality. The current market equilibrium output of Q1 is not the
economically efficient output. The economically efficient output is Q2.
9.
Refer to Figure 14-1. Suppose the current market equilibrium output of Q1 is not the economically
efficient output because of an externality. The economically efficient output is Q2. In that case,
diagram shows
15. Refer to Figure 14-2. The marginal cost of reducing pollution curve is the same curve as
A) the supply of pollution reduction curve.
B) the negative externality curve.
C) the value of pollution reduction curve.
D) the demand for pollution reduction curve.
Answer:
16. Refer to Figure 14-2. The marginal benefit of reducing pollution curve is the same curve as
A) the positive externality curve.
B) the external benefit curve.
C) the supply of pollution reduction curve.
D) the demand for pollution reduction curve.
Answer:
17. If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer
to sue the polluting firm, your legal fees would be considered
A) social costs of the pollution. B) marginal benefits.
C) transaction costs.
D) external costs.
Answer:
18. What does the phrase "internalizing an external cost" mean?
A) limiting the extent to which domestic firms can outsource production
B) prohibiting economic activities that create externalities
C) finding a way to address cross-border pollution
D) forcing producers to factor into their production costs, the cost of the externalities created in the
production of their output
Answer:
Figure 14-3
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers
and lakes and causes substantial environmental damage. Figure 14-3 illustrates the situation in the toilet
paper market.
19. Refer to Figure 14-3. The efficient output is
A) Q1.
B) Q4.
C) Q3.
D) Q2.
Answer:
20. Refer to Figure 14-3. The private profit-maximizing output level is
A) Q3.
B) Q4.
C) Q1.
D) Q2.
Answer:
21. Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a
pollution generating good. All of the following will result from the tax except
A) an increase in the demand for the good.
B) a decrease in the equilibrium quantity produced and consumed.
C) a decrease in market supply of the good. (yes)
D) an increase in the equilibrium market price. (yes)
Answer:
22. Consider the following methods of pollution reduction:
a. the government sets a target for maximum emissions (Y)
b. the government mandates the installation of specific pollution abatement equipment (Y)
c. the government imposes a per unit tax on the good that creates pollution
d. the government gives firms a tax rebate for every unit of pollution abated
Which of the above is an example of a command and control approach to reducing pollution?
A) a, b, and d only
B) a and b only
C) b only
D) a only
E) a, b, c, and d
Answer:
C) private goods
D) common resources
Answer:
26. Which of the following is an example of a product that is nonexcludable and rivalrous?
A) national defense
B) automobiles
C) free concert (with limited seating) in a park
D) flu vaccinations
Answer:
27. In economics, the term "free-rider" refers to
A) a supervisor who delegates menial time-consuming activities to others.
B) a person who evades taxes.
C) one who waits for other s to produce a good and then enjoys its benefits without paying for it.
D) one who volunteers her services.
Answer:
28. The demand curve for a public good is also called
A) total welfare curve.
B) total social benefit curve.
C) marginal social benefit curve.
D) total willingness-to-pay curve.
Answer:
29. For-profit producers will produce only private goods because
A) markets exist for private goods but not for public goods.
B) buyers will be willing to pay for the goods since the benefits are excludable.
C) all external benefits can be internalized using market prices.
D) the cost of production can be easily determined easily found.
Answer:
30. A tragedy of the commons occurs when a resource is
A) non-rival and non-excludable.
B) non-rival and excludable.
C) rival and non-excludable.
D) rival and excludable.
Answer: