Question 1

A negative externality is likely to arise if _____
A)the government sets up more schools.
B)a company introduces a research and development unit.
C)factories install devices to reduce the amount of chemicals released.
D)the government introduces a measles vaccine.
E)car owners refuse to pay for devices that reduce the emission of carbon monoxide.

Accepted Answer

When car owners refuse to pay for devices that reduce the emission of carbon monoxide, negative externalities arise because the pollution affects the environment and public health but the car owners do not bear the full cost of the pollution. The costs are instead passed on to society as a whole, creating a negative externality.

Question 2

Which of the following is not an exhaustible resource?
A)coal
B)oil
C)air
D)iron ore
E)uranium

Accepted Answer

Air is not an exhaustible resource as it is constantly replenished through natural processes such as photosynthesis and the carbon cycle. Other options such as coal, oil, iron ore, and uranium are all finite resources that are being depleted at an alarming rate, leading to concerns about their long-term availability and sustainability.

Question 3

Private property rights are defined and enforced _____
A)only in a capitalist economy.
B)only in a command economy.
C)by the largest firm in an economy.
D)by the market forces of demand and supply.
E)by the government, by informal social actions, and by ethical norms.

Accepted Answer

Private property rights are defined and enforced by a combination of government laws and policies, informal social actions such as peer pressure and social norms, and ethical norms. While a market economy may provide incentives for respecting private property rights, it is ultimately the role of the government to enforce these rights. Private property rights are not exclusive to a capitalist economy as socialist countries also have private property rights.

Question 4

When the consumption of a good or service imposes costs to society that are not reflected in the market price of the good,_____
A)a negative externality arises.
B)it implies that a renewable resource has been used in the production of the good.
C)a positive externality arises.
D)it implies that the good is a public good.
E)it implies that a nonrenewable resource has been used in the production of the good.

Accepted Answer

When there are costs to society that are not considered in the market price of the good, it creates a negative externality. This means that the production or consumption of the good has a detrimental effect on third parties outside of the transaction. For example, pollution from factories or traffic congestion from cars can negatively impact the health and wellbeing of people who are not directly involved in the production or consumption of the product.

Question 5

Which of the following is a source of a positive externality?
A)a factory that pollutes a river
B)a person who litters a street
C)a car that emits carbon monoxide
D)a company that engages in research and development
E)a product that contributes to the greenhouse effect

Accepted Answer

Research and development can create positive externalities by spurring innovation and new technologies that benefit society as a whole.

Question 6

Which of the following is an example of a positive externality?
A)water pollution
B)the installation of a streetlight
C)second-hand smoke
D)a loud conversation in the workplace
E)the emission of harmful gases by a factory

Accepted Answer

The installation of a streetlight provides benefits to the community in terms of increased safety and reduced crime, which are externalities that are not accounted for by the individual or organization installing the streetlight. This is an example of a positive externality.

All of the other choices are negative externalities that impose costs on others without compensation or agreement, such as pollution, second-hand smoke, and harmful emissions from a factory. A loud conversation in the workplace could potentially be a negative externality if it disrupts the work of others, but the question does not provide enough information to determine this.

Question 7

Which of the following is true of renewable resources?
A)Additional units of these resources can be purchased in the market.
B)Additional units of these resources are provided by the government.
C)Worn-out units cannot be repaired for further use.
D)They can be drawn on indefinitely if used conservatively.
E)They are available in finite amounts.

Accepted Answer

Renewable resources can be drawn on indefinitely if used conservatively. They are replenished naturally and can be sustained over time with proper management. Option A is incorrect as the availability of renewable resources in the market is dependent on their natural replenishment, not purchase. Option B is incorrect as the government may undertake measures to promote the use of renewable resources, but they are not the providers of additional units. Option C is incorrect as renewable resources can often be repaired or recycled for further use. Option E is also incorrect as renewable resources are replenished continuously and not available in finite amounts.

Question 8

An externality is _____
A)a cost of a transaction that is borne by the government.
B)a benefit of a transaction that is enjoyed by the firms.
C)a cost or benefit that arises when market price changes.
D)any cost or benefit of a transaction that is not accounted for in the market price.
E)the revenue generated by a firm.

Accepted Answer

An externality is any cost or benefit of a transaction that is not accounted for in the market price. It occurs when the actions of an individual or a firm have an impact on the well-being of another individual or firm, and this impact is not reflected in the price of the transaction. For example, pollution from a factory may impose costs on the neighboring community that are not reflected in the price of the goods produced by the factory.

Question 9

What can cause externalities?
A)a cost of a transaction that is borne by the government
B)a benefit of a transaction that is enjoyed by firms
C)lack of property rights to some resources
D)a cost or benefit that arises when market price changes
E)the revenue generated by a firm

Accepted Answer

Externalities can be caused by a lack of property rights to some resources, which can result in the overuse or underuse of those resources, leading to negative effects on society as a whole.

Answer: D
 Externalities can also arise when market price changes, leading to costs or benefits that are not reflected in the market price and impacting third parties.

Therefore, the best choices are C and D.

Question 10

A(n)_____ resource does not renew itself,and so is available in a finite amount.
A)open-access
B)renewable
C)cyclical
D)recyclable
E)exhaustible

Accepted Answer

An exhaustible resource is a resource that does not renew itself, and so is available in a finite amount. Once this resource has been used up, it cannot be replaced. Examples of exhaustible resources include fossil fuels, such as oil and coal, and minerals like gold and silver.

Question 11

Pollution arises because _____
A)the atmosphere is a nonrenewable resource.
B)the atmosphere is a finite resource.
C)private property rights can be enforced on the atmosphere.
D)the atmosphere is an open-access resource.
E)the atmosphere is a private property.

Accepted Answer

Pollution arises because the atmosphere is an open-access resource, meaning that it is available for use by anyone without restriction. This leads to a tragedy of the commons situation where individuals and businesses can use the atmosphere as a free dumping ground for pollutants, causing harm to others and the environment. Private property rights cannot be enforced on the atmosphere as it is a public good and not owned by any individual or entity. The atmosphere is also not a nonrenewable resource or a finite resource, as it can renew itself over time, but excessive pollution can disrupt this process. The atmosphere is not a private property either, but a shared common pool resource.

Question 12

_____ resources,if used conservatively,can be used indefinitely over time.
A)Open-access
B)Renewable
C)Cyclical
D)Recyclable
E)Exhaustible

Accepted Answer

Renewable resources can be replenished over time, such as solar or wind energy, while exhaustible resources are finite and will eventually run out. Open-access resources, cyclical resources, and recyclable resources do not necessarily have anything to do with the sustainability of their use over time.

Question 13

The byproducts of production or consumption that impose costs on other consumers or firms are known as _____
A)negative externalities.
B)transaction costs.
C)sunk costs.
D)positive externalities.
E)moral hazards.

Accepted Answer

Negative externalities are the costs imposed on third parties by the production or consumption of goods or services. These costs are not reflected in the market price and are thus not borne by the producers or consumers, but rather by individuals or groups who are not directly involved in the economic transaction.

Question 14

Which of the following is an exhaustible resource?
A)timber
B)oil
C)fish
D)grasslands
E)rivers

Accepted Answer

Oil is an exhaustible resource because it is formed over millions of years from the remains of dead plants and animals, and it is being consumed at a much faster rate than it is being replenished.

Question 15

A person can cause a negative externality by _____
A)being immunized.
B)having a loud conversation in an office.
C)landscaping her lawn.
D)paying taxes.
E)attending school.

Accepted Answer

Having a loud conversation in an office can disturb others and reduce their productivity, which is a negative externality. The other options are either not relevant to causing externality or can have positive externalities (e.g. being immunized can stop the spread of disease and benefit others).

Question 16

Fish in the ocean are _____
A)exhaustible and also open-access resources.
B)renewable and also open-access resources.
C)private goods.
D)merit goods.
E)renewable resources whenever property rights are well defined.

Accepted Answer

Fish in the ocean are considered renewable resources because they have the ability to reproduce and replenish themselves over time. However, they are also open-access resources, meaning that anyone can access and exploit them, which can lead to overfishing and depletion. Private goods are owned and controlled by specific individuals or groups, which does not apply to fish in the open ocean. Merit goods are goods or services that have social benefits but may not be provided in sufficient quantities by the free market, which also does not apply to fish in the ocean. While defining property rights for fish in the ocean can help regulate their use and prevent overfishing, this is not always a feasible option, making B the best choice.

Question 17

Negative externalities of open resources arise because _____
A)there are no enforceable property rights to open-access resources.
B)these are private goods and government enforces property rights.
C)consumers have to pay for each unit of production.
D)the government undertakes the distribution of these resources.
E)these are available in finite amounts.

Accepted Answer

When there are no enforceable property rights to open-access resources, individuals may not take into consideration the negative effects their actions may have on others who share the same resource. As a result, negative externalities, such as environmental degradation or depletion of natural resources, can occur.

Question 18

Which of the following is a renewable resource?
A)oil
B)air
C)coal
D)iron ore
E)uranium

Accepted Answer

Air is a renewable resource as it is constantly replenished by natural processes such as photosynthesis and respiration. Other options listed are non-renewable resources that are finite and will eventually run out.

Question 19

Markets can allocate resources efficiently only as long as _____
A)property rights are well defined and can be easily enforced.
B)property rights are well defined but not easily enforced.
C)property rights are not defined but can be easily enforced.
D)property rights are not defined and not easily enforced.
E)a nonrenewable resource has been used in the production of the good.

Accepted Answer

Property rights being well defined and easily enforceable is essential for markets to allocate resources efficiently. Without this, there is a risk of externalities and market failures that can lead to inefficient allocation. Having defined and enforceable property rights ensures that individuals and firms can make decisions without fear of infringement or unwanted interference, which promotes the optimal use of resources.

Question 20

An individual who listens to loud music late in the night is creating _____
A)a positive externality.
B)a common-pool problem.
C)a negative externality.
D)a free-rider problem.
E)asymmetric information.

Accepted Answer

The individual who listens to loud music late in the night is creating noise pollution, which is a negative externality. The noise affects the quality of life of the people living nearby, without any compensation or consideration.

Quiz 17: Externalities and the Environment

A negative externality is likely to arise if _____

Which of the following is not an exhaustible resource?

Private property rights are defined and enforced _____

When the consumption of a good or service imposes costs to society that are not reflected in the market price of the good,_____

Which of the following is a source of a positive externality?

Which of the following is an example of a positive externality?

Which of the following is true of renewable resources?

An externality is _____

What can cause externalities?

A(n) _____ resource does not renew itself,and so is available in a finite amount.

Pollution arises because _____

_____ resources,if used conservatively,can be used indefinitely over time.

The byproducts of production or consumption that impose costs on other consumers or firms are known as _____

Which of the following is an exhaustible resource?

A person can cause a negative externality by _____

Fish in the ocean are _____

Negative externalities of open resources arise because _____

Which of the following is a renewable resource?

Markets can allocate resources efficiently only as long as _____

An individual who listens to loud music late in the night is creating _____