Economics Usa 8th Edition Behravesh Test Bank

Economics USA 8th Edition Behravesh
Test Bank
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CHAPTER 9: POLLUTION AND THE ENVIRONMENT
MULTIPLE CHOICE
1. A significant cost of economic growth is

a. increased consumer satisfaction. d. environmental pollution.
b. higher levels of per capita output. e. economies of scale.
c. increased leisure time.
ANS: D DIF: Moderate REF: p. 216
TOP: Pollution and the Environment MSC: Understanding
2. A principal source of air pollution in the United States is

a. motor vehicles.
b. fertilizers, pesticides, and detergents.
c. the steel industry.
d. nuclear reactors.
e. discharges from municipal sewage plants.
ANS: A DIF: Moderate REF: p. 217
TOP: Our Environmental Problems MSC: Understanding
3. One person’s (or firm’s) use of a resource that damages other people who cannot obtain proper
compensation is called a(n)
a. private cost. d. effluent fee.
b. positive externality. e. compensated social cost.
c. external diseconomy.
ANS: C DIF: Easy REF: p. 217| p. 219
TOP: The Important Role of External Diseconomies MSC: Remembering
4. A firm dumping pollutants into a stream, thereby rendering the water unfit for use by those
downstream, would be an example of a(n)
a. unfair distribution of income. d. public good.
b. positive externality. e. transfer payment.
c. external diseconomy.
ANS: C DIF: Moderate REF: p. 217| p. 219
TOP: The Important Role of External Diseconomies MSC: Evaluating
5. An external diseconomy results in a socially nonoptimal use of a resource because

a. the private costs exceed the social costs.
b. it prohibits economic growth.
c. the resource user does not bear the full cost of his or her actions.
d. firms will not maximize their profits.
e. too little of the resource will be used.
ANS: C DIF: Moderate REF: p. 217| p. 219
TOP: The Important Role of External Diseconomies MSC: Understanding
6. When market prices fall short of the true social costs of an activity
a. there are significant benefits to the public at large.
b. resources are underused.
c. society is properly compensated for its losses.
d. there is no economic growth.
e. external diseconomies exist.
ANS: E DIF: Moderate REF: p. 217| p. 219
7. When the social costs of using a resource exceed the private costs
a. that resource is underutilized.
b. use of that resource becomes unprofitable.
c. the price of that resource is bid up.
d. an external diseconomy exists.
e. there is a shift in the production possibilities curve.
ANS: D DIF: Moderate REF: p. 217| p. 219
8. When countries ignore external diseconomies, their products

a. require too much labor to be profitable.
b. are of lower quality.
c. take longer to produce.
d. become perfectly inelastic in supply.
e. have artificially low prices.
ANS: E DIF: Difficult REF: pp. 219–220
9. The pollution of streams and the atmosphere indicates

a. artificially low prices for these resources.
b. the quantities supplied exceed the quantities demanded of these resources.
c. the presence of excessive amounts of direct regulation regarding waste disposal.
d. that the private costs of production exceed the social costs of production.
e. the presence of external economies.
ANS: A DIF: Difficult REF: pp. 219–220
10. When firms do not have to pay the true social costs for resources
a. they have an incentive to reduce pollution voluntarily with their excess profits.
b. the net social benefits are increased.
c. they will use too little of them, from society’s perspective.
d. no external diseconomies are present.
e. the public is induced to buy more of that output than it would otherwise.
ANS: E DIF: Moderate REF: pp. 219–220
11. When resource prices reflect true social costs

a. external diseconomies must be present.
b. profit-maximizing firms will tend to produce socially desirable amounts of output.
c. firms will not use any air or water in their production processes.
d. production will cease.
e. firms realize no net benefits from continued production.
ANS: B DIF: Difficult REF: pp. 219–220
12. The price system functions most effectively when
a. supply equals demand.
b. there is no divergence between private costs and social costs.
c. prices equal output.
d. external diseconomies equal external economies.
e. there is a complete absence of direct regulation.
13. When individuals do not pay the true social costs of their actions
a. these costs disappear.
b. they refrain from undertaking these actions.
c. there must be no divergence between the private and social costs of these actions.
d. social benefits exceed social costs.
e. others in society pay the costs of these actions.
14. A paper mill that degrades river water while producing its product creates a divergence between
private and social costs if, and only if, the
a. mill treats the water to restore its quality before returning it to the river.
b. mill dumps the degraded water back into the river, for which privilege it pays a high levy
to towns downstream.
c. price of the paper produced there includes the cost of water treatment.
d. mill treats the water to restore its quality, for which service it is appropriately compensated
by the towns downstream.
e. water is dumped back into the river in an untreated state with no compensation paid to
downstream users.
15. Pollution-generating companies tend to overproduce because

a. consumers want something as compensation for the pollution.
b. the supply curve of the firm incorporates only the private costs of production.
c. the private costs exceed the social costs.
d. consumers pay for waste disposal in the price of the product.
e. they have extra profits to spend on advertising.
16. Requiring deposits on soft drink containers is an example of using the price system to eliminate an
external diseconomy because
a. consumers prefer throwaway cans.
b. it shifts pollution costs from individuals to society.
c. it makes the drinker pay for the disposal costs of the can.
d. the deposit allows the financing of trash baskets.
e. the private costs exceed the social costs.
ANS: C DIF: Difficult REF: pp. 219–220
17. Environmental pollution is an economic problem because
a. levels of pollution decline as the rate of economic growth increases.
b. firms that maximize profits rarely pollute.
c. capitalist market economies normally minimize pollution-causing activities.
d. firms and individuals that pollute pay less than the true social cost of disposing of their
wastes.
e. it is a sign that the price system is functioning in an optimal way.
ANS: D DIF: Moderate REF: pp. 219–220
18. Crystal Clear Glass Company uses a refinement method that creates air pollution, causing the
recreational industry in the area to suffer and forcing a number of citizens to relocate. This behavior is
an example of a(n)
a. private cost. d. external diseconomy.
b. effluent fee. e. transfer payment.
c. positive externality.
19. One means of increasing national output without increasing pollution at a commensurate rate is to
a. achieve zero economic growth.
b. achieve a higher rate of population growth.
c. substitute the production of nonpolluting products for polluting products.
d. discourage technological change.
e. trust in the efficiency of the private market system.
ANS: C DIF: Moderate REF: pp. 220–221
TOP: Economic Growth and Environmental Pollution MSC: Understanding
20. Opponents of zero economic growth as a means to reduce pollution argue that growth in productive
capacity would
a. help produce the equipment required to reduce pollution.
b. encourage a more rapid growth in population.
c. shift resources from consumers to businesses, reducing the consumption of polluting
goods.
d. redistribute income to more affluent people, who pollute less than poor people.
e. be the most effective way to slow the rate of technological change.
ANS: A DIF: Moderate REF: pp. 220–221
TOP: Economic Growth and Environmental Pollution MSC: Remembering
21. Pollution control policies such as effluent fees

a. lower consumer prices.
b. raise the sales of those firms being taxed.
c. cause the social costs to exceed the private costs.
d. increase the external diseconomies of production.
e. increase firms’ costs of production.
ANS: E DIF: Moderate REF: p. 221
TOP: Public Policy toward Pollution MSC: Understanding
22. The simplest way for government to intervene to remedy a country’s pollution problem is through the
use of
a. effluent fees.
b. direct regulation.
c. pollution taxes.
d. tax credits for pollution control equipment.
e. certificates or licenses to pollute.
ANS: B DIF: Moderate REF: p. 221
23. The issuance of enforceable rules for waste disposal represents a pollution control policy based on
a. direct regulation. d. effluent fees.
b. tax credits. e. financial incentives.
c. subsidies.
ANS: A DIF: Moderate REF: p. 221
24. A mandatory neighborhood recycling program is an example of dealing with an environmental

pollution problem by using
a. the price system. d. direct regulation.
b. tax incentives. e. dumping duties.
c. effluent fees.
TOP: Public Policy toward Pollution MSC: Evaluating
25. The economic rationale behind effluent fees is

a. to eliminate all pollution.
b. to create external diseconomies.
c. to expand the role of regulatory agencies.
d. unsound because the private market system is not given the freedom to eliminate the
pollution problem.
e. to bring the private cost of waste disposal closer to the social cost.
ANS: E DIF: Moderate REF: p. 221
26. An effluent fee induces a polluter to

a. increase his or her profits.
b. reduce waste discharge.
c. eliminate pollution entirely.
d. overspend on pollution reduction to the point where profits disappear.
e. stop production.
ANS: B DIF: Moderate REF: p. 221
27. Which of the following policies would be LEAST desirable in helping to control pollution?
a. tax credits for pollution control equipment
b. federal grants-in-aid to municipal and regional agencies for waste cleanup
c. zero economic growth
d. direct regulation
e. effluent fees
ANS: C DIF: Moderate REF: p. 221 | p. 223
28. A market-based approach for reducing pollution to a specific overall authorized level can be achieved
by using
a. laws that ban polluting activities.
b. tax credits for pollution control equipment.
c. open market operations.
d. transferable emissions permits.
e. direct regulation.
ANS: D DIF: Moderate REF: p. 221 | p. 223
29. One way the government can reduce the financial burden to firms that install pollution control
equipment is to use
a. tax credits. d. price controls.
b. effluent fees. e. quotas.
c. direct regulation.
ANS: A DIF: Moderate REF: p. 221 | p. 223
30. Implementing which of the following policies would make it most difficult to predict the impact on the
level of pollution?
a. direct regulation
b. transferable emissions permits
c. effluent fees
d. banning the use of certain substances
e. establishing overall limits to atmospheric levels of certain substances
31. If the government charges Crystal Clear Glass Company according to the estimated pounds of waste it
discharges into the atmosphere, this is an example of
a. direct regulation. d. private cost regulation.
b. a tax credit. e. a transferable emissions permit.
c. an effluent fee.
32. As a result of this government action, we would expect that the price of glass produced by Crystal
would
a. fall steeply.
b. fall slightly.
c. stay about the same.
d. rise.
e. do any of the above, since government action may either raise or lower costs.
ANS: D DIF: Difficult REF: p. 221 | p. 223
33. At present, the major means by which government intervenes to remedy the country’s pollution
problem is
a. effluent fees.
b. direct regulation.
c. pollution taxes.
d. tax credits for pollution control equipment.
e. issuance of certificates or licenses to pollute.
ANS: B DIF: Moderate REF: p. 221 | p. 223
TOP: Public Policy toward Pollution MSC: Remembering
34. The federal agency established in 1970 to establish air and water quality standards and devise rules to
achieve these standards is the
a. Sierra Club. d. DDT.
b. Council on Environmental Quality. e. EPA.
c. Council of Economic Advisers.
TOP: Pollution Control Programs in the United States MSC: Remembering
35. The 1997 Kyoto environmental summit embraced which of the following policies to reduce worldwide
pollution?
a. carbon taxes
b. zero economic growth
c. worldwide effluent fees collected by the United Nations
d. tradable emissions permits
e. internationally uniform targets for greenhouse gas emissions
ANS: D DIF: Difficult REF: pp. 223–224
TOP: Pollution Control Programs in the United States MSC: Remembering
36. Pollution control programs can lead to an adverse redistribution of income when
a. low-income neighborhoods are in close proximity to industrial pollution.
b. polluting goods and services play a bigger role in the budgets of the poor than of the rich.
c. such programs result in increased employment opportunities for low-income individuals.
d. the total cost of such programs is paid almost entirely by upper-income groups.
e. the social benefits of control programs fall disproportionately on the poor.
ANS: B DIF: Difficult REF: p. 225
TOP: How Clean Should the Environment Be? MSC: Remembering
37. Which of the following best represents an economic cost to society for decreasing the levels of
pollution?
a. Decreases in pollution levels result in a decreased mortality rate.
b. The recreational value of our environment is increased with reduced pollution.
c. Reducing pollution frequently increases the life span of capital goods and leads to
decreased maintenance costs.
d. Programs to reduce pollution often lead to firms’ closing plants and putting people out of
work.
e. Recycling solid wastes has reduced communities’ garbage collection costs.
ANS: D DIF: Difficult REF: p. 225
TOP: How Clean Should the Environment Be? MSC: Evaluating
The following questions are based on the following diagram:

38. Curve 1 represents the
a. cost of pollution to society.
b. cost of pollution control to society.
c. difference between the cost of pollution and the cost of pollution control.
d. sum of the costs of pollution and of pollution control.
e. cost of pollution divided by the cost of pollution control.
ANS: B DIF: Moderate REF: pp. 225–227
TOP: How Clean Should the Environment Be? MSC: Applying

ANS: A DIF: Moderate REF: pp. 225–227

41. It costs society more to allow pollution to take place than it does to reduce pollution in the range
a. 0A. d. BC.
b. AB. e. CD.
c. AC.
TOP: How Clean Should the Environment Be? MSC: Analyzing
42. Point C represents the

a. highest cost of pollution.
b. average cost of pollution.
c. optimal level of pollution
d. absence of pollution.
e. point where the costs of pollution equal the costs of pollution control.
43. From the perspective of economic analysis, society should

a. try to reduce pollution to a level as close to zero as is humanly possible.
b. realize that it is unrealistic to expect that efforts to reduce pollution will be cost effective
from society’s standpoint.
c. strive to maximize the difference between the costs of pollution and the costs of pollution
control.
d. reduce pollution as long as the reduction in social costs equals or exceeds the additional
cost associated with the control program.
e. pursue reduced pollution levels as long as the social cost of achieving these levels exceeds
the social cost of polluting.
TOP: How Clean Should the Environment Be? MSC: Understanding
44. A sensible pollution control goal for society is to

a. eliminate pollution entirely in the long run.
b. equate the costs of pollution to the costs of pollution control.
c. allow pollution if external diseconomies are realized.
d. allow pollution if the cost of monitoring waste discharge exceeds the effluent fee.
e. minimize the sum of the costs of pollution and the costs of controlling pollution.
TOP: How Clean Should the Environment Be? MSC: Understanding
Level of pollution (mean number Cost of pollution Cost of pollution control

of polluted stream miles)
0 $0 million $10.0 million
1,000 $0.5 million $7.0 million
45. The table above shows the cost to society of allowing a given pollution level (in terms of polluted
stream miles) and the cost of pollution control (in millions of dollars). How many polluted stream
miles should be tolerated to minimize the total costs of pollution?
a. 0 d. 3,000
b. 1,000 e. 4,000
c. 2,000
46. The following table shows the costs to society of allowing certain levels of air pollution as well as the
costs of pollution control. What is the optimal level of air pollution in terms of both the costs of
pollution and the costs of control?
Level of pollution (pounds of Cost of pollution Cost of pollution

pollutants per unit of air) control
0 $75 million $0 million
a. 0 d. 300
b. 100 e. 400
c. 200
47. The social cost of pollution equals 4P, where P is the level of pollution, and the cost of pollution
control equals 10 − 1P. What is the optimal level of pollution?
a. 0 d. 4
b. 1 e. 10
c. 2
48. The EPA has estimated that it would cost $60 billion to remove 85 to 90 percent of water pollutants
from industrial and municipal sources, but a zero discharge of pollutants would cost about $320
billion. This suggests that
a. pollution control costs increase at an increasing rate as the level of pollution desired is
lowered.
b. the costs of pollution remain the same as the environment becomes more polluted.
c. achieving a zero level of pollution is not very costly compared with the benefits of clean
water.
d. the costs of pollution to society rise as the levels of pollution decline.
e. society is better off if it makes only minimal efforts to control the level of pollution.
49. During the 1980s, environmentalists

a. were pleased with the Reagan administration’s environmental policy.
b. argued for the elimination of the EPA.
c. argued for reduced water and air quality standards as being economically more desirable.
d. accused the Reagan administration of emasculating the EPA.
e. raised large amounts of money to donate to pollution abatement programs.
TOP: How Clean Should the Environment Be? MSC: Remembering
50. When the United States passed the Marine Mammals Act in the early 1990s because of pressure from
environmental groups, it
a. significantly increased the U.S. imports of Mexican tuna.
b. increased the demand for fish, while reducing the demand for seals.
c. violated World Trade Organization multilateral trade agreements.
d. prohibited the marine “ranching” of dolphins.
e. illustrated that significant environmental improvement can be achieved with no additional
costs to individuals and firms.
ANS: C DIF: Moderate REF: p. 228 TOP: Case Study 9.3
MSC: Remembering
51. The most efficient way of reducing greenhouse gases is

a. discouraging attempts to develop alternative energy sources.
b. subsidizing “green” fuels.
c. implementing carbon taxes.
d. outlawing smog-producing industries.
e. giving away cap-and-trade permits instead of auctioning them.
ANS: C DIF: Moderate REF: p. 228 TOP: Cross Chapter Case—Part 2
MSC: Remembering
52. A basic economic problem encountered when evaluating some of the more recent environmental
initiatives, such as proposals designed to halt global warming or reduce acid rain, is that
a. economic growth will be increased in the developing countries at the expense of growth in
developed countries.
b. since environmental changes are not affected by human production or consumption, these
policies have no impact on the problem.
c. the cost of these environmental initiatives may exceed the estimated value of the benefits.
d. since all such proposals are demonstrated to be effective, there is no means to decide
which approach is best.
e. most efforts to control pollution result in the creation of a new form of pollution; for
example, reducing atmospheric pollution increases water pollution.
ANS: C DIF: Moderate REF: Annenberg Learner video, Pollution
TOP: How Much Is a Clean Environment Worth? MSC: Remembering
53. An appropriate way for government to intervene when external diseconomies exist in an industry is to
a. shift the industry demand curve to the right by subsidizing consumers.
b. shift the industry supply curve to the left by taxing producers.
c. subsidize the industry to raise its profits.
d. encourage imports of the good to replace domestic production.
e. make the industry’s supply curve more nearly reflect the supply curve of a competitive
industry.
ANS: B DIF: Moderate REF: Annenberg Learner video, Pollution
54. When external diseconomies exist

a. the true demand curve is to the right of the market demand curve.
b. the actual market equilibrium price is too high from society’s perspective.
c. the supply curve slopes downward to the right.
d. industry output is less than socially optimal.
e. the supply curve reflecting the social costs is to the left of the industry supply curve.
ANS: E DIF: Moderate REF: Annenberg Learner video, Pollution
55. In commenting on the problems of implementing the provisions of the Clean Air Act for Los Angeles,
EPA director William Ruckelshaus noted that
a. Los Angeles really did not have a pollution problem and that implementing the act would
be burdensome.
b. under provisions of the act, the EPA was not allowed to take the economic costs imposed
by the act into consideration.
c. it would require taking only 10 percent of the cars in the region off the highway and that
people were unwilling to make even this small sacrifice.
d. the Los Angeles pollution was created by activities taking place outside the region and
thus not covered by the provisions of the law.
e. the Clean Air Act dealt only with industrial pollution and that the problem in Los Angeles
was caused by automobiles.
ANS: B DIF: Moderate REF: Annenberg Learner video, Pollution
56. Pollution control efforts are justified whenever the marginal social benefits
a. exceed the total benefits to society.
b. are less than the average social costs.
c. are rising and costs are falling.
d. can be shown to be attainable.
e. exceed the marginal social costs.
ANS: E DIF: Moderate REF: Annenberg Learner video, Pollution

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Economics USA 8th Edition Behravesh

1. A significant cost of economic growth is

2. A principal source of air pollution in the United States is

5. An external diseconomy results in a socially nonoptimal use of a resource because

8. When countries ignore external diseconomies, their products

9. The pollution of streams and the atmosphere indicates

11. When resource prices reflect true social costs

15. Pollution-generating companies tend to overproduce because

21. Pollution control policies such as effluent fees

24. A mandatory neighborhood recycling program is an example of dealing with an environmental

25. The economic rationale behind effluent fees is

26. An effluent fee induces a polluter to

The following questions are based on the following diagram:

39. Curve 2 represents the

40. Curve 3 represents the

42. Point C represents the

43. From the perspective of economic analysis, society should

44. A sensible pollution control goal for society is to

Level of pollution (mean number Cost of pollution Cost of pollution control

Level of pollution (pounds of Cost of pollution Cost of pollution

49. During the 1980s, environmentalists

51. The most efficient way of reducing greenhouse gases is

54. When external diseconomies exist

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