Question 1

-In the above figure, if the market is unregulated, the equilibrium quantity is

Accepted Answer

The equilibrium quantity is the quantity at which the quantity supplied equals the quantity demanded. In this case, the equilibrium quantity is 100 units.

Question 2

Generating electricity creates air pollution. This industry, if left unregulated will produce at an inefficient market equilibrium where

Accepted Answer

The answer of Generating electricity creates air pollution. This industry,...

Question 3

When producing a good creates pollution, an external cost, and the government imposes a tax equal to the marginal external cost, then

Accepted Answer

When the government imposes a tax equal to the marginal external cost of pollution from producing a good, it internalizes the externality. This means the cost of pollution is reflected in the production cost, leading producers to adjust their output to the socially optimal or efficient level, where the marginal social cost equals the marginal social benefit.

Question 4

There are two industries that emit sulfur dioxide. The government decides to use a policy of marketable permits for pollution. If Harry's industry has a higher marginal cost of reducing sulfur dioxide than does Joe's industry,

Accepted Answer

Since Harry's industry has a higher marginal cost of reducing sulfur dioxide, it is more cost-effective for Harry's industry to buy permits rather than reduce emissions. Joe's industry, with a lower marginal cost of reducing emissions, will find it cheaper to reduce sulfur dioxide and sell the excess permits to Harry's industry. This makes B the correct choice.

Question 5

A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the chemical factory is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced

Accepted Answer

With clear property rights, the chemical factory will take into account the harm its pollution causes to the fishing club and will reduce production accordingly.

Question 6

If the government assigns private property rights to a common resource, then the

Accepted Answer

Assigning private property rights to a common resource aligns the incentives of the property owners with the social interest, as owners bear the cost of overuse or depletion. This makes the marginal private cost of using the resource equal to the marginal social cost, promoting efficient use and mitigating the tragedy of the commons.

Question 7

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. What is the quantity produced if the market for paper is unregulated?

Accepted Answer

In an unregulated market, the quantity produced is determined by the equilibrium where supply equals demand. Since there are no external benefits and pollution is an external cost, the market will overproduce compared to the socially optimal level. Therefore, the quantity produced is likely the highest option, 60 tonnes per week.

Question 8

-Based on the data in the above table, the table shows a market for a good with

Accepted Answer

The table shows that as the quantity of the good increases, the marginal external cost increases. This indicates that the good has an external cost.

Question 9

One way to overcome the problem of the commons is to

Accepted Answer

Assigning property rights to someone for the resource can help overcome the problem of the commons by giving the owner an incentive to manage the resource sustainably, as they bear the costs of overexploitation and benefit from its conservation.

Question 10

-In the above figure, if no government intervention occurs, at the unregulated competitive market equilibrium, the marginal cost of the externality is _______ per unit.

Accepted Answer

The answer of 
-In the above figure, if no government...

Question 11

-The figure above illustrates the problem of overcrowding and external costs experienced during the summer months in a national park. If the market is unregulated, in equilibrium the external cost of visiting the national park is given by the distance between

Accepted Answer

The external cost of visiting the national park is the difference between the private cost and the social cost. The private cost is the cost that the visitor pays to enter the park, while the social cost is the cost that the visitor imposes on others by visiting the park. In this case, the external cost is the cost of overcrowding and pollution. The distance between points F and G represents the difference between the private cost and the social cost, so it is the external cost.

Question 12

Property rights

Accepted Answer

Property rights are legally established titles of ownership enforceable in courts, can help address externalities, and apply to both factors of production and goods and services.

Question 13

-The tables above show the marginal costs and benefits from the production of paper. The efficient level of output is _______ of paper.

Accepted Answer

The efficient level of output is where the marginal cost equals the marginal benefit. Without the specific tables, we typically look for the point where these two values are equal or closest to each other, indicating the most efficient production level. Given the options, 2,400 tonnes is suggested as the correct answer based on standard economic principles of efficiency.

Question 14

Consider a market in which there is an external cost. A tax can be used to arrive at the efficient market equilibrium because the tax will

Accepted Answer

A tax on a good with an external cost (such as pollution from production) effectively increases the cost of producing that good. This is represented in economic models as a leftward shift in the supply curve, indicating a decrease in supply at any given price, as producers account for the higher production costs due to the tax. This helps internalize the external cost, leading to a more efficient market outcome by reducing the quantity produced and consumed to a level that reflects the true social cost of the good.

Question 15

If a good has an external cost, then the marginal private cost curve

Accepted Answer

When a good has an external cost, the marginal private cost curve lies below the marginal social cost curve because the marginal social cost includes both the private costs and the external costs.

Question 16

-The tables above show the marginal costs and benefits from the production of paper. If the market is perfectly competitive and unregulated, the

Accepted Answer

In a perfectly competitive and unregulated market, firms produce where marginal cost equals marginal benefit. If the market equilibrium results in 800 tonnes more than the efficient amount, it indicates overproduction relative to the socially optimal level.

Question 17

The Coase Theorem is the proposition that if the number of involved parties is low, if property rights _______ and transactions costs are _______, then private transactions are efficient.

Accepted Answer

The Coase Theorem posits that private transactions can efficiently solve the problem of externalities as long as property rights are clearly defined (exist) and the costs associated with transactions are low. This allows parties to negotiate solutions that maximize economic efficiency.

Question 18

The cost of producing one more unit of a good or service that is paid by the producer

Accepted Answer

The cost of producing one more unit of a good or service that is paid by the producer is known as the marginal private cost. This cost includes all the expenses that the producer incurs in the production of that additional unit, such as materials, labor, and other inputs, but does not include external costs that may be borne by others.

Question 19

-The above table shows the marginal benefits and costs from the production of fertiliser. There are no external benefits. If the market is perfectly competitive and unregulated, at the equilibrium output, the

Accepted Answer

The answer of 
-The above table shows the marginal benefits...

Question 20

For a common resource, the marginal private cost curve slopes _______ and the marginal social cost curve slopes _______.

Accepted Answer

For a common resource, the marginal private cost curve slopes upward because as more of the resource is used, the cost to each additional user typically increases due to scarcity. The marginal social cost curve also slopes upward, but at a steeper angle than the private cost curve, because it includes the external costs imposed on others not directly involved in the transaction.

Quiz 9: Economics of the Environment