Quiz 16: Externalities

A market economy will produce _____ without any government regulation. A)too little pollution B)too much pollution C)the socially optimal amount of pollution D)the amount of pollution that maximizes total surplus

A negative externality: A)is any cost above the economic cost. B)equals the social cost plus the firm's private cost. C)is an uncompensated cost imposed by an individual or firm on others. D)equals the opportunity cost minus the social costs.

Which activity does NOT generate a negative externality? A)Bob's Service Station dumps used oil in the river. B)Bob renovates a run-down house in the neighborhood. C)Bob occasionally drives while drunk. D)Bob's Service Station donates a car to charity.

Which activity generates a negative externality? A)You buy a new car,then discover it needs a new transmission. B)Your next-door neighbor mows the lawn at 6 A.M. C)The only two coffee shops in town conspire to raise prices. D)After Jane buys health insurance,she begins racing motorcycles on the weekends.

If drivers decide to make phone calls without considering the costs imposed on others,the: A)number of phone calls made while driving will be more than the socially optimal quantity. B)number of phone calls made while driving will be fewer than the socially optimal quantity. C)marginal social cost curve will lie below the marginal cost of production curve. D)marginal social benefit curve will lie below the marginal social cost curve.

Which example illustrates a negative externality? A)high prices for necessities such as drinking water in the aftermath of a natural disaster B)the risks to nonsmokers from second-hand smoke C)the increased risk of a traffic accident to an individual who uses a cell phone while driving D)unemployment in the steel industry caused by low prices of imported (external)steel

An externality is said to exist when: A)individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account. B)individuals impose costs or benefits on others,and the market provides incentives to take these costs and benefits into account. C)individual actions are affected by external forces like the loss of U.S.jobs because of competition from abroad. D)individual actions are affected by government policies (such as taxes)that are externally imposed on the market.

If an activity generates external costs,the decision makers generating the activity will: A)be faced with its full costs. B)be faced with no costs. C)not be faced with its full costs. D)be faced with excessive costs.

A coal-powered electrical generator that discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town has a(n): A)quasi-public good. B)external cost. C)external benefit. D)specific tax.

Whenever human activity generates a concentration of a substance in the environment sufficient to cause harm to living things,it is called: A)a free good. B)an external shock. C)a result of human greed. D)pollution.

Damage to the environment occurs because: A)no one involved in markets cares about the environment. B)a nonzero amount of pollution is never socially optimal. C)pollution results from production of goods and services. D)pollution reduces the social cost of production.

Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient. A)are equal to B)are less than C)exceed D)compete with

An example that does NOT illustrate an external cost is: A)the smoke nuisance of a factory. B)zoning restrictions on your property. C)land defilement from strip mining. D)a spreading patch of weeds on your next-door neighbor's lawn.

An industry with production that generates external costs produces a quantity of output that is: A)socially optimal. B)smaller than the socially optimal quantity. C)larger than the socially optimal quantity. D)socially optimal if a specific subsidy is given to buyers.

Which statement BEST describes a negative externality? A)Your neighbor loves to bake bread and always brings you a loaf fresh and hot from the oven. B)Your neighbor has an ornamental pond that breeds mosquitoes. C)Your neighbor has invested in beautiful landscaping,increasing the value of all of the houses on the block. D)Your neighbor has a pool and has given you an open invitation to come over and swim.

A plastics manufacturing plant dumps pollution into the Big River.This pollution leads to higher costs and disruption for fishermen on the river,for which they are not compensated.In this situation: A)too few of society's resources are being used to produce plastic. B)too many of society's resources are being used to produce plastic. C)the ideal amount of society's resources are being used to produce plastic. D)there is an external benefit to society from plastic production.

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: A)zero. B)the level that reduces the marginal social costs of pollution to zero. C)the level at which the marginal social cost is equal to the marginal social benefit. D)the level that minimizes the average total cost of producing the product that generates the pollution.

The socially optimal amount of pollution occurs where the marginal social benefit of pollution is _____ the marginal social cost of pollution. A)equal to B)greater than C)less than D)There is no socially optimal amount of pollution.

The marginal social benefit of pollution: A)is zero since pollution is not beneficial. B)can be measured as the additional gain to society from one additional unit of pollution. C)is easy to estimate since polluters are required to file this information in their tax returns. D)is equal to the marginal social cost of pollution since benefits to producers are equal to costs to consumers.

Pollution has _____ and _____. A)no benefits;only costs B)benefits;costs C)no opposition;only advocates D)short-term effects;very few long-term effects

There are benefits resulting indirectly from pollution because: A)we obtain goods and services that we enjoy,even though we pollute in the process. B)firms pollute the environment only if it allows them to increase the price they can charge consumers. C)businesses and consumers receive a perverse satisfaction from polluting. D)it can often be beneficial to wildlife.

The additional cost imposed on society as a whole by an additional unit of pollution is: A)the marginal social benefit of pollution. B)the marginal social cost of pollution. C)the optimal Pigouvian tax. D)a technology spillover.

The efficient level of pollution is the quantity at which: A)its total benefits exceed its total costs to society by the greatest possible amount. B)its total benefits to society equal its total costs to society. C)the marginal social benefit of an additional unit of pollution is greater than the marginal social cost of the additional unit. D)the marginal social benefit of an additional unit of pollution is less than the marginal social cost of the additional unit.

The efficient quantity of pollution emissions occurs where: A)there is absolutely no damage done to a pristine environment. B)government forces zero pollution to occur,no matter what the cost. C)the marginal social benefits of pollution exceed the marginal social costs of pollution. D)the marginal social benefit of pollution is equal to the marginal social cost of pollution.

As the quantity of pollution rises,its marginal social cost: A)remains constant. B)falls. C)rises. D)rises at first but eventually falls.

The socially optimal quantity of pollution is: A)zero. B)the quantity at which marginal social cost is equal to zero. C)the quantity at which marginal social benefit is equal to zero. D)the quantity at which marginal social cost is equal to the marginal social benefit.

The marginal social cost of pollution rises as the quantity of pollution emissions: A)remains constant. B)falls. C)rises. D)rises but subsequently gradually falls.

The marginal benefit of pollution emissions _____ as the quantity of pollution emissions _____. A)decreases;increases B)increases;increases C)decreases;decreases D)remains unchanged;goes up or down

The marginal social benefit from pollution _____ as the quantity of pollution emissions _____. A)remains constant;increases B)increases;decreases C)increases;increases D)remains constant;decreases

The efficient rate of emissions occurs when: A)there is absolutely no damage done to a pristine environment. B)government forbid s all pollution,no matter what the cost. C)the marginal social benefits of pollution exceed the marginal social costs of pollution. D)the change in social benefits and the change in social costs from an additional unit of emissions are equal.

The marginal social cost of pollution emissions _____ as the quantity of pollution emissions _____. A)decreases;increases B)increases;increases C)increases;decreases D)remains constant;decreases

If,at the current amount of pollution,its marginal social benefit is greater than its marginal social cost: A)there is too little pollution. B)there is too much pollution. C)society is achieving the optimal amount of pollution. D)the externality is minimized.

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: A)too little of society's resources is being used to produce copper. B)too much of society's resources is being used to produce copper. C)the optimal amount of society's resources is being used to produce copper. D)there is an external benefit to society from copper production.

If the marginal social benefit received from pollution is equal to its marginal social cost: A)society's well-being can be improved if the quantity of pollution increases. B)society's well-being can be improved if the quantity of pollution decreases. C)society has achieved its socially optimal level of pollution. D)the market is producing too much pollution.

If the marginal social benefit received from pollution is less than its marginal social cost: A)society's well-being can be improved if the quantity of pollution increases. B)society's well-being can be improved if the quantity of pollution decreases. C)society has achieved its socially optimal level of pollution. D)the market is producing too little pollution.

The marginal social benefit received from pollution is equal to its marginal social cost in the market for highly polished glass.In this situation: A)society's well-being can be improved if the quantity of pollution decreases. B)firms in the market produce too much pollution. C)firms in the market produce too little pollution. D)firms in the market produce the socially optimal level of pollution.

The marginal social benefit received from pollution is less than its marginal social cost in the market for highly polished glass.In this situation: A)firms in the market produce the socially optimal level of pollution. B)society's well-being cannot be improved by changing the quantity of pollution. C)firms in the market produce too much pollution. D)firms in the market produce too little pollution.

If the marginal social benefit received from pollution is greater than its marginal social cost in a market: A)society's well-being can be improved if the quantity of pollution decreases. B)firms in the market produce the socially optimal level of pollution. C)firms in the market produce too much pollution. D)firms in the market produce too little pollution.

If a good that involves external costs is priced to take these costs into account,then its price will likely: A)fall,and output will likely rise. B)rise,and output will likely fall. C)not change,but output will likely fall. D)rise,but output will likely stay the same.

If external costs exist,the competitive free market: A)allocates resources inefficiently. B)allocates resources efficiently. C)automatically corrects an overallocation of resources. D)automatically corrects an underallocation of resources.

When farmers raise hogs,there are a number of external costs.In particular,hogs generate methane gas.Without government regulation: A)too few hogs will be raised. B)the price of hogs will be less than the marginal social cost of the last hog sold. C)the price of hogs will be less than the marginal benefit of the last hog sold. D)the price of hogs will be less than the marginal cost of the last hog sold to the hog farmer who sold it.

When farmers raise hogs,there are a number of external costs.In particular,hogs generate methane gas.If the marginal external cost is $100 per hog and the government imposes a tax of $200 per hog,then at the equilibrium price and quantity of hogs: A)too few hogs will be raised. B)the price will be less than the marginal social cost. C)the price will be less than the marginal social benefit. D)the price will be less than the marginal cost to hog farmers.

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 rights to drive during particular times.The most likely reason that these negotiations do NOT happen is that: A)most individuals are unfamiliar with the Coase theorem. B)the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive. C)agreements arising from such negotiations could not be enforced since the Constitution guarantees all individuals freedom of access to all public roads. D)lawyers would find a way to prohibit such negotiations unless they were actively involved,thus making transaction costs prohibitive.

The Coase theorem states that,in the presence of externalities,a market economy will: A)always reach an efficient solution. B)never reach an efficient solution. C)reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined. D)reach an efficient solution only in the case of government regulation.

An externality is said to be internalized: A)when individuals take external costs and benefits into account in their decision making. B)when the Coase theorem is irrelevant or cannot be applied. C)when individuals successfully petition the government to ban or restrict activities that generate negative externalities. D)when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.

The proposition that,if bargaining is costless and property rights are well-defined,the market can achieve an efficient outcome is the: A)Coase theorem. B)property rights paradigm. C)market rights theorem. D)efficient environment paradigm.

When individuals take external costs and benefits into account: A)there are no external costs. B)they internalize the externality. C)the government should intervene in the market. D)the market will not reach an efficient solution.

According to the Coase theorem,when negative externalities are present,a market will: A)always reach an efficient solution. B)reach an efficient solution if transaction costs are low and property rights are well-defined. C)reach an efficient solution only if the government intervenes in the market with a tax. D)reach an efficient solution only if the negative externalities are offset by positive externalities.

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 rights to play music during particular times.The most likely reason that these negotiations do NOT happen is that: A)most students are unfamiliar with the Coase theorem. B)the transaction costs associated with identifying and establishing communication with students would be high. C)music is an experience,not a good. D)some students don't view loud music as a negative externality.

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 and property rights are well-defined is known as: A)a Pigouvian tax. B)a network externality. C)a technology spillover. D)the Coase theorem.

The proposition that,if transaction costs are low enough and property rights are well-defined,the private market can achieve an efficient outcome,regardless of which of the affected parties hold the property rights,is known as the: A)Coase theorem. B)property rights paradigm. C)market rights theorem. D)green environment paradigm.

According to the Coase theorem,the private market can achieve an efficient outcome: A)as long as the enforcement of property rights costs less than the marginal benefit of emissions. B)only if the property right to clean air is assigned to the polluter. C)only if the property right to clean air is assigned to the party harmed by pollution. D)if bargaining costs are low and property rights are well-defined.

Use the following to answer questions 53-58: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency)Use Figure: Pollution and Efficiency.Point _____ in the figure represents an efficient solution in this market,where sulfur emissions are a result of production. A)A B)B C)E D)F

Use the following to answer questions 53-58: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency)Use Figure: Pollution and Efficiency.In this market,whose sulfur emissions are a result of production,an efficient solution takes place at a price of _____ and a quantity of _____. A)$5;40 B)$15;30 C)$25;30 D)$15;15

Use the following to answer questions 53-58: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency)Use Figure: Pollution and Efficiency.In this market,whose sulfur emissions are a result of production,an efficient solution is one in which: A)MSB < MSC. B)MSC < MSB. C)total cost = total benefit. D)MSC = MSB.

Use the following to answer questions 53-58: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency)Use Figure: Pollution and Efficiency.In this market,in which sulfur emissions are a result of production,if _____ units of emissions are produced,then _____. A)30;it would be efficient B)30;MSB > MSC C)45;total cost would equal total benefits D)45;MSC = 0

Use the following to answer questions 53-58: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency)Use Figure: Pollution and Efficiency.In this market,in which sulfur emissions are a result of production,if _____ units of emissions are produced,then _____. A)40;MSB = MSC B)30;MSB < MSC C)40;MSB < MSC D)30;MSC < MSB

Use the following to answer questions 53-58: Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency)Use Figure: Pollution and Efficiency.In this market,in which sulfur emissions are a result of production,too much pollution is found when the price is _____ and the quantity is _____. A)$5;15 B)$5;40 C)$25;20 D)$5;30

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.The efficient quantity of pollution is _____ tons. A)0 B)2 C)4 D)8

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.At the efficient quantity of pollution,the marginal social cost of pollution is _____ the marginal social benefit of pollution. A)greater than B)equal to C)less than D)unrelated to

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.At the efficient quantity of pollution,the marginal social cost of pollution is: A)$0. B)$100. C)$200. D)$400.

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.At the efficient quantity of pollution,the marginal social benefit of pollution is: A)$400. B)$300. C)$200. D)$100.

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.Suppose that the marginal cost from the production process itself (to the producer)is 0.The market-determined quantity of pollution is _____ tons. A)0 B)2 C)4 D)8

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.Suppose that the marginal cost from the production process itself (to the producer)is 0.At the market-determined quantity of pollution,the marginal social benefit of pollution is: A)$800. B)$400. C)$200. D)$0.

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.Suppose that the marginal cost from the production process itself (to the producer)is 0.At the market-determined quantity of pollution,the marginal social cost of pollution is: A)$800. B)$400. C)$200. D)$0.

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.If 5 tons of pollution is produced,the marginal social benefit is _____,and the marginal social cost is _____. A)$0;$800 B)$300;$500 C)$400;$400 D)$800;$0

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.If 5 tons of pollution is produced,the outcome is _____ because _____. A)efficient;MSB = MSC B)efficient;MSB > MSC C)inefficient;MSB > MSC D)inefficient;MSB < MSC

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.If 5 tons of pollution is produced: A)too much pollution is produced. B)the efficient amount of pollution is produced. C)not enough pollution is produced. D)the socially optimum amount of pollution is produced.

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.If 2 tons of pollution is produced,the marginal social benefit is _____,and the marginal social cost is _____. A)$600;$200 B)$500;$300 C)$400;$400 D)$800;$0

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.If 2 tons of pollution is produced,the outcome is _____ because _____. A)efficient;MSB = MSC B)efficient;MSB > MSC C)inefficient;MSB > MSC D)inefficient;MSB < MSC

Use the following to answer questions 59-71: -(Table: Coal Mine Pollution)Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.From the perspective of efficiency,2 tons of pollution is: A)too much. B)the efficient amount. C)not enough. D)the socially optimum amount.

Use the following to answer questions 59-71: -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.

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.

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

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.

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.

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.

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.

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.

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.

(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

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.

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.

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.

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.

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.

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.

Use the following to answer questions 88-90: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute)Use Figure: 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.

Use the following to answer questions 88-90: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute)Use Figure: 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

Use the following to answer questions 88-90: Figure: Three Firms That Pollute -(Figure: Three Firms that Pollute)Use Figure: 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

Use the following to answer questions 88-90: Figure: Three Firms That Pollute -Pigouvian taxes are designed to reduce: A)the marginal cost of production. B)the marginal benefit of consumption. C)external costs. D)external benefits.

(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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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

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.

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

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

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.

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

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

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

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.

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

Use the following to answer questions 114-117: Figure: City with Two Polluters -(Figure: City with Two Polluters)Use Figure: 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

Use the following to answer questions 114-117: Figure: City with Two Polluters -(Figure: City with Two Polluters)Use Figure: 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

Use the following to answer questions 114-117: Figure: City with Two Polluters -(Figure: City with Two Polluters)Use Figure: 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

Use the following to answer questions 114-117: Figure: City with Two Polluters -(Figure: City with Two Polluters)Use Figure: 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.

Use the following to answer questions 114-117: Figure: City with Two Polluters -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

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.

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.

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.

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.

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.

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.

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

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.

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

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 129-139: -(Table: Externalities from Parks)Use: Table: 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

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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.

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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.

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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.

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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.

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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

Use the following to answer questions 129-139: -(Table: Externalities from Parks)Use: Table: 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

Use the following to answer questions 129-139: -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.

Use the following to answer questions 141-143: Figure: The Socially Optimal Quantity of Pollution -(Figure: The Socially Optimal Quantity of Pollution)Use Figure: 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.

Use the following to answer questions 141-143: Figure: The Socially Optimal Quantity of Pollution -(Figure: The Socially Optimal Quantity of Pollution)Use Figure: 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.

Use the following to answer questions 141-143: Figure: The Socially Optimal Quantity of Pollution -(Figure: The Socially Optimal Quantity of Pollution)Use Figure: 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.

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: 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 marginal social cost of pollution will equal _____,and the marginal social benefit of pollution will equal _____. A)$25;$5 B)$5;$25 C)$15;$15 D)$25;$0

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: Efficiency and Pollution.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

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: 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.

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: 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

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: 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.

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: 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.

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: 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.

Use the following to answer questions 144-152: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution)Use Figure: 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.

Use the following to answer questions 153-156: Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution)Use Figure: 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

Use the following to answer questions 153-156: Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution)Use Figure: 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

Use the following to answer questions 153-156: Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution)Use Figure: 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.If the current level of pollution is at Q₁,_____ pollution is being emitted because _____. A)not enough;MSB > MSC B)not enough;MSB < MSC C)too much;MSB > MSC D)the socially optimal amount of;MSB = MSC

Use the following to answer questions 153-156: Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution)Use Figure: 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 157-160: Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market)Use Figure: 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.

Use the following to answer questions 157-160: Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market)Use Figure: Model of a Competitive Market.Given the figure,if there are external costs: A)resources will be underallocated to the production of the good. B)resources will be overallocated to the production of the good. C)resources will be efficiently allocated to the production of the good. D)the price at P will be higher than if there were no external costs.

Use the following to answer questions 157-160: Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market)Use Figure: 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.

Use the following to answer questions 157-160: Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market)Use Figure: 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

Use the following to answer questions 157-160: Figure: Model of a Competitive Market -A principal cause of market failure is actions generating side effects on nonmarket participants that are not properly taken into account by the market.

The total external cost of air pollution in Tennessee affects the final price of goods in Tennessee,assuming that the government does not intervene in the marketplace.

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.

The marginal social benefit of pollution is always zero.

Economists and environmentalists agree that pollution is undesirable and that government policy should aim to achieve a zero-pollution society.

If at the current amount of pollution its marginal social benefit is greater than its marginal social cost,then there is too little pollution.

The economically efficient level of an externality is zero.

According to the Coase theorem,only when transaction costs are extremely high can two parties internalize a negative externality.

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.

If externalities are fully internalized,an outcome is efficient,even without government intervention.

Environmental standards ensure that the marginal benefit of pollution is equal for all sources of pollution.

The most economically efficient way to reduce pollution is to impose strict environmental standards on all polluters.

Since texting while driving generates a negative externality,banning texting while driving would necessarily be economically efficient.

Taxes on sulfur dioxide emissions,excise taxes on gas,and sales taxes are all examples of Pigouvian taxes.

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).

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.

(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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

(Scenario: Private and External Benefits)Use Scenario: Private and External Benefits.How many hours of lawn upkeep will occur in this community,and what will be the marginal private benefit of such upkeep? Scenario: Private and External Benefits A small community finds that tidy lawns and neighborhoods provide both private and external benefits.They determine that the marginal private benefit (MPB)of lawns can be represented by the equation MPB = 50 - 0.5Q,where Q is the number of hours spent on keeping lawns tidy.The marginal private cost (MPC)of such lawn upkeep is represented by the equation MPC = 0.5Q,where Q is again the number of hours engaged in lawn upkeep. A)50 hours and $50 B)45 hours and $20 C)50 hours and $25 D)100 hours and $50

(Scenario: Private and External Benefits)Use Scenario: Private and External Benefits.The community estimates the marginal benefit to external parties from lawn upkeep to be $15.Given this information,what is the socially optimal amount of lawn upkeep for this community? Scenario: Private and External Benefits A small community finds that tidy lawns and neighborhoods provide both private and external benefits.They determine that the marginal private benefit (MPB)of lawns can be represented by the equation MPB = 50 - 0.5Q,where Q is the number of hours spent on keeping lawns tidy.The marginal private cost (MPC)of such lawn upkeep is represented by the equation MPC = 0.5Q,where Q is again the number of hours engaged in lawn upkeep. A)0 hours B)45 hours C)50 hours D)65 hours

(Scenario: Private and External Benefits)Use Scenario: Private and External Benefits.The community decides that the marginal benefit to external parties from lawn upkeep is $15 and that it is important to maintain the socially optimal number of lawn upkeep hours.To achieve this goal,the community will: Scenario: Private and External Benefits A small community finds that tidy lawns and neighborhoods provide both private and external benefits.They determine that the marginal private benefit (MPB)of lawns can be represented by the equation MPB = 50 - 0.5Q,where Q is the number of hours spent on keeping lawns tidy.The marginal private cost (MPC)of such lawn upkeep is represented by the equation MPC = 0.5Q,where Q is again the number of hours engaged in lawn upkeep. A)require community lawn service of 45 hours. B)subsidize everyone who contributes to lawn upkeep with a payment of $15. C)implement a Pigouvian lawn tax of $65. D)provide no additional funds to lawn upkeep.

Use the following to answer questions 207-209: Figure: Marginal Private Benefits and Marginal Social Benefits -(Figure: Marginal Private Benefits and Marginal Social Benefits)Use Figure: 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

Use the following to answer questions 207-209: Figure: Marginal Private Benefits and Marginal Social Benefits -(Figure: Marginal Private Benefits and Marginal Social Benefits)Use Figure: 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

Use the following to answer questions 207-209: Figure: Marginal Private Benefits and Marginal Social Benefits -(Figure: Marginal Private Benefits and Marginal Social Benefits)Use Figure: 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 - P_2. B)providing a per-unit subsidy of P₀ - P_2. C)providing a per-unit subsidy of P₁ - P_2. D)leaving the quantity at the initial private market-clearing quantity and price.