Chapter 16

1. If drivers decide to make phone calls without considering the costs imposed on others, the:

[removed] marginal social cost curve will lie below the marginal cost of production curve.

[removed] number of phone calls made while driving will be fewer than the socially optimal quantity.

[removed] number of phone calls made while driving will be more than the socially optimal quantity.

[removed] marginal social benefit curve will lie below the marginal social cost curve.

2. 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:

[removed] zero.

[removed] the level at which the marginal social cost is equal to the marginal social benefit.

[removed] the level that reduces the marginal social costs of pollution to zero.

[removed] the level that minimizes the average total cost of producing the product that generates the pollution.

3. The efficient rate of emissions occurs when:

[removed] the marginal social benefits of pollution exceed the marginal social costs of pollution.

[removed] there is absolutely no damage done to a pristine environment.

[removed] government forbids all pollution no matter what the cost.

[removed] the change in social benefits and the change in social costs due to an additional unit of emissions are equal.

4. According to the Coase theorem, when negative externalities are present, a market will:

[removed] always reach an efficient solution.

[removed] reach an efficient solution only if the negative externalities are offset by positive externalities.

[removed] reach an efficient solution if transaction costs are low and property rights are well-defined.

[removed] reach an efficient solution only if the government intervenes in the market.

5.

Reference: Ref 16-2

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. The efficient quantity of pollution is _____ tons.

[removed] 8

[removed] 0

[removed] 4

[removed] 2

6.

Reference: Ref 16-2

(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. If 5 tons of pollution is produced:

[removed] too much pollution is produced.

[removed] the efficient amount of pollution is produced.

[removed] the socially optimum amount of pollution is produced.

[removed] not enough pollution is produced.

7. Your community requires the sewage treatment plant to process raw sewage so that it is safe to return the water to the environment. This is:

[removed] an environmental standard.

[removed] an emissions tax.

[removed] a tradable emissions permit.

[removed] the Coase theorem.

8. For the same amount of pollution emitted, an emissions tax is said to be more efficient than an environmental standard because all polluters:

[removed] emit pollution up to the point at which the marginal benefit of polluting is equal to the emissions tax.

[removed] emit the same amount of pollution, regardless of the marginal benefit of polluting.

[removed] pay the same total tax bill for their pollution.

[removed] reduce pollution emissions to zero.

9. Which of the following is an environmental policy based on tradable emission permits?

[removed] a charge to companies of $1 for every 100 units of pollutants emitted

[removed] ignoring pollution and letting private markets operate without government interference

[removed] allowing companies to buy and sell the right to a certain level of emissions

[removed] paying companies $1 for each 10% reduction in emissions

10. External benefits are associated with the production of batteries. Without government regulation, the market will:

[removed] price batteries at less than the marginal social benefit.

[removed] price batteries at less than the marginal social cost.

[removed] price batteries above the marginal social cost.

[removed] produce too many batteries.

11.

Reference: Ref 16-7

(Table: Externalities from Parks) The table Externalities from Parks shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park. If 1 acre is dedicated to the park, the park is:

[removed] the socially optimum size.

[removed] the efficient size.

[removed] too large.

[removed] too small.

12. Figure: Efficiency and Pollution

Reference: Ref 16-9

(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 20 tons, there would be:

[removed] a socially optimal quantity of pollution.

[removed] too much pollution, because any pollution is too much from an economist's perspective.

[removed] too much pollution, because its marginal social cost would exceed its marginal social benefit.

[removed] too little pollution, because its marginal social benefit would exceed its marginal social cost.

13. Figure: Model of a Competitive Market

Reference: Ref 16-11

(Figure: Model of a Competitive Market) Given the figure Model of a Competitive Market, if there are external costs, a tax imposed on sellers will:

[removed] have no effect on the equilibrium price.

[removed] decrease the equilibrium price.

[removed] increase the equilibrium quantity.

[removed] decrease the equilibrium quantity.

14. Figure: The Quantity of Pollution

Reference: Ref 16-14

(Figure: The Quantity of Pollution) Look at the table The Quantity of Pollution. If the amount of pollution emitted is 150:

[removed] this economy is producing at the socially optimal level of pollution.

[removed] this economy would benefit by increasing production of this good.

[removed] the production of pollution is not socially optimal.

[removed] the marginal social benefit is greater than the marginal social cost of pollution.

15. Both emissions taxes and tradable emissions permits:

[removed] are efficient cost-minimizing methods of pollution reduction.

[removed] encourage more pollution.

[removed] work only if they are coupled with environmental standards.

[removed] are usually less effective than environmental standards.

16. A good is subject to a network externality when:

[removed] an increase in the number of other people using the good increases its value to an individual.

[removed] the value of the good to an individual is less when a large number of other people also use the good.

[removed] a good yields negative externalities.

[removed] the value of the good is determined only by marginal private benefits.

17. Network externalities are often:

[removed] less likely to occur in the communications or technology industries than in other industries.

[removed] separate from positive feedback.

[removed] a reason for natural monopolies.

[removed] not likely to move toward market domination.

18. The marginal social benefit received from pollution is equal to its marginal social cost in the market for highly polished glass. In this situation:

[removed] firms in the market produce too little pollution.

[removed] firms in the market produce the socially optimal level of pollution.

[removed] firms in the market produce too much pollution.

[removed] society's well-being can be improved if the quantity of pollution decreases.

19.

The diagram below shows the marginal social benefit (MSB) and the marginal social cost (MSC) curves associated with air pollution.

 Part 1: Identify the marginal social benefit (MSB) and the marginal social cost (MSC) curves by assigning the appropriate labels to the two curves.

 Part 2: Use the vertical drop line tool to identify the socially optimal quantity of pollution in this case. Label this point Qopt. Make sure that the highest point of the drop line for Qopt is placed on the MSB curve.

 Part 3: Suppose Congress decides it now wants to achieve the socially optimal level of pollution with a tradable emissions permit program. The government issues permits but finds that the equilibrium price per permit is $250. Use the vertical drop line tool to illustrate what level of pollution will result with the permits. Label this point Qp. Make sure to place the highest point of the drop line for Qp on the MSB curve.

20.

Malaria is a contagious disease spread by mosquitoes. Mosquitoes bite an infected person and pass the disease along by biting an uninfected person. In developing nations, the spread of malaria can be diminished if people sleep underneath mosquito nets draped over beds. The accompanying graph shows the market supply and demand for mosquito nets.

 Part 1: Use the copy tool to draw a curve showing the marginal social benefit (MSB) from the use of mosquito nets.

 Part 2: Use a vertical drop line to identify the socially optimal quantity, and label it Qopt. Make sure that the highest point of the drop line for Qopt is placed on the supply curve.

Suppose a Pigouvian subsidy is used to completely internalize the external benefit.

 Part 3: Use a horizontal drop line to identify the price that suppliers would receive after the subsidy. Label it Ps.

 Part 4: Use a horizontal drop line to identify the price that consumers would pay after the subsidy. Label it Pc.