Question_Doc14_15Dec_4th

Question_Doc14_15Dec_4th

Question

11) To totally internalize an externality, a government can
levy a tax related only to the physical

quantity of pollution if

A) the economic damages associated with the pollution are
different across different locations.

B) the economic damages are too large to be determined.

C) the economic damages associated with the pollution are
the same across different locations.

D) the economic damages are zero.

12) To correct for a negative externality, a government
might impose a uniform tax related only

to the physical quantity of pollution if

A) the administrative costs are high.

B) the cost of ascertaining the actual economic costs are
relatively small.

C) the economic damages are zero.

D) the economic damages associated with the pollution are
different across different locations.

13) An externality refers to the idea that

A) explicit costs differ from implicit costs.

B) decision-makers do not internalize all the costs.

C) we cannot do anything that does not affect other people.

D) private and internal costs differ.

14) Your neighbor has just planted some fragrant flowers.
The wonderful scent drifts into your

room and makes you happy.

A) This scent is an internal cost to you.

B) This cannot be an externality since you are enjoying the
scent.

C) This is an externality since you get a benefit from your
neighbor’s flowers.

D) The social cost of this activity is entirely borne by you
neighbor.

15) If all firms had to bear all the social costs of their
actions, we should observe marginal cost

curves

A) of all firms shifting up.

B) of some firms shifting up, of some others shifting down,
and of the rest not shifting at all.

C) of all firms that had generated externalities shifting up
while there would be no change for the

rest of the firms.

D) of some firms shifting up and of the rest shifting down.

16) In order to correct the problems associated with
external costs,

A) the signals given to the economy must change so that
decision-makers will take into account

all the costs of their actions.

B) the government must take over production of industries
that are responsible for most of the

pollution.

C) standards must be established that make it illegal to
pollute.

D) the prices of all goods must be raised so people will
consume less of the world’s resources.

17) Which of the following methods could be used to correct
for external costs?

A) Impose a tax or an effluent fee on the offenders.

B) Have the offender clean up the pollution it caused.

C) Require firms in the industry to install pollution
control devices.

D) All of the above would be appropriate.

18) Suppose cars are taxed according to the amount of
pollution they emit per gallon of gasoline

consumed. We would expect to observe all of the following
EXCEPT

A) an increase in quantity demanded of less-polluting
automobiles and a reduction in quantity

demanded of more-polluting automobiles.

B) an increase in quantity demanded of more fuel-efficient
cars.

C) an increase in production of automobiles that were less
polluting.

D) an increase in the miles driven.

19) The most efficient way to get firms to reduce pollution
is to

A) set uniform emission standards and require all firms to
meet the standards.

B) make the worst polluters shut down and go out of business.

C) make them pay for the social costs of production and let
them decide how to respond to the

higher costs.

D) provide firms and consumers with the information about
the effects of their actions and

encourage them to behave responsibly.

20) When a polluter has to bear the full social cost of
their actions, they will

A) weigh the costs and benefits of each potential action and
might decide to not stop polluting by

paying a fine.

B) go out of business since pollution abatement is
expensive.

C) will always decide to reduce the amount of pollution by
reducing the quantity they produce.

D) increase the price of the product and the quantity
produced to pay for the additional costs.

21) To efficiently improve environmental quality, it is
usually

A) better to focus on the hardest areas to clean up first
since these usually are the biggest

problems.

B) more appropriate to concentrate on the physical
quantities of pollution rather than on

economic costs.

C) best to set up stringent emission standards that must be
followed by everyone.

D) better to focus on economic damages rather than physical
quantities of pollution.

22) A uniform tax according to the physical quantities of
pollution may not be the appropriate

way to correct for an externality because

A) it places a unfair burden on small producers.

B) a uniform tax can only account for social costs and not
external costs.

C) a firm will reduce production.

D) it may not adequately account for economic damages.

23) Which of the following might be a way that an automobile
driver’s pollution costs could be

internalized?

A) The driver could purchase abatement equipment for her
car.

B) The state could eliminate the gas tax.

C) The state could pay a gas subsidy for everyone who
drives.

D) The state could allow her to drive in the HOV lane.

24) When an external cost exists that is NOT taken into
account in the production of a product,

A) the level of output is too low, and the supply curve
should shift to the right to account for the

externality.

B) the level of output is optimal, and there should be no
change in the supply curve.

C) the price of the product is too high, and production
should be expanded to lower the price.

D) the level of output is too high, and the supply curve
should shift to the left to account for the

externality.

25) Use the above table. If the level of production was
determined by the market, it would be

A) 4.

B) 5.

C) 6.

D) 7.

26) Use the above table. What will the price be before
external costs are internalized with a tax?

A) $14

B) $13

C) $12.20

D) $1.80

27) Use the above table. What will the output level be when
external costs are internalized with a

tax?

A) 4

B) 5

C) 6

D) 7

.

28) Use the above table. What will the price be when
external costs are internalized with a tax?

A) $14

B) $13

C) $12.20

D) $1.80

29) Use the above table. What will the tax be when external
costs are internalized?

A) $14

B) $13

C) $12.20

D) $1.80

30) Use the information in the above table. The external
marginal costs are

A) increasing.

B) decreasing.

C) constant.

D) inverse to quantity produced.

31) The government imposes a tax on an industry that
produces goods creating a negative

externality. Yet the industry produces more than the optimum
quantity of output. This means

A) the tax is more than the external cost associated with
the product.

B) the tax is less than the external cost associated with
the product.

C) the company should advertise the product more.

D) the company should increase the production of the
product.

32) The marginal cost to society of reducing pollution
increases with the increased use of

pollution abatement because

A) of the diminishing marginal utility of abatement.

B) of the reduced demand for abatement.

C) of the diminishing returns from abatement.

D) of the high cost of abatement.

33) All of the following are choices for the polluter when
faced with additional costs to abate the

externality EXCEPT

A) ignore the government regulations.

B) install pollution abatement equipment.

C) reduce the pollution-causing activity.

D) pay the price to pollute.

34) The government is considering levying a tax on the
pollution generated from two electric

power plants (Plant A and Plant B). Plant A is located in a
city with a high density of

population, and Plant B is located in the rural area with a
low density of population. The

government should

A) levy the same tax per unit of pollution on both plants.

B) levy a higher tax per unit of pollution on Plant A
because of its higher economic damage.

C) levy a higher tax per unit of pollution on Plant B
because of its lower economic damage.

D) tax only Plant A but not Plant B because Plant B
generates less revenue.

35) To correct for the social impact of pollution, the
government should levy a per-unit tax

A) that is the same for all polluters regardless of their
locations or sizes.

B) according to the economic damage of the pollution.

C) according to the business activity of the polluter.

D) only to those polluters that can afford to pay for the
tax.

36) Suppose that the nation wide average cost of air
pollution generated by a car is $1,000.

Would a tax of $1,000 on every car induce people to take
external costs into consideration and

bring about the optimal price and output for autos? Explain.

37) Using a graph, show the effects of a negative externality.
Where is the socially optimum

point of output? How can it be achieved?

38) Is a uniform per-unit tax on firms that cause an
externality an optimal policy for correcting

the externality? Explain.

1) Assuming that pollution cannot be removed from the
environment at zero cost, the optimal

level of pollution

A) will be zero.

B) will be negative.

C) will be positive.

D) cannot be determined.

2) As we approach total pollution abatement

A) the marginal benefit to society declines.

B) the marginal benefit to society increases.

C) the marginal benefit to society increases, but at a
decreasing rate.

D) the marginal cost to society declines.

3) As we approach total pollution abatement

A) the marginal cost to society falls.

B) the marginal cost to society rises.

C) the marginal cost to society equals the marginal benefit
to society.

D) the marginal cost to society falls but then rises.

4) It is assumed that the marginal benefit of air
cleanliness falls with the degree of cleanliness

since

A) the marginal cost of air cleanliness increases.

B) air cleanliness is a public good and not a private good.

C) the marginal utility of air cleanliness falls with the
degree of cleanliness.

D) the generation of pollution should be considered an
externality.

5) The marginal cost of pollution abatement is represented
by

A) an upward sloping curve.

B) a downward sloping curve.

C) a horizontal curve.

D) a vertical curve.

6) The marginal benefit of pollution abatement is
represented by

A) an upward sloping curve.

B) a downward sloping curve.

C) a horizontal curve.

D) a vertical curve.

7) Attaining higher and higher levels of air cleanliness
causes

A) additional costs to rise to increasingly high levels.

B) larger and larger increases in per capita incomes.

C) additional costs to fall to lower and lower levels.

D) larger and larger marginal benefits to society.

8) According to economic analysis, the optimal level of
pollution is

A) always zero.

B) at the point at which the marginal benefits of pollution
control exceed the marginal cost.

C) at the point at which the marginal benefits of pollution
control are less than the marginal cost.

D) at the point at which the marginal benefits from
pollution control are equal to the marginal

cost.

9) In the process of reducing pollutants in our environment,
we are

A) achieving a cleaner environment at no real cost.

B) causing higher levels of unemployment.

C) reallocating resources in an inefficient manner.

D) trading off less of other goods and services for a
cleaner environment.

10) In general, we would expect the marginal cost of
pollution abatement to be

A) zero.

B) decreasing.

C) increasing.

D) constant.

11) The marginal benefit from pollution abatement

A) increases as pollution abatement increases because people
learn to want an even cleaner

environment as the environment gets cleaner.

B) decreases as pollution abatement increases because of the
law of diminishing marginal

product.

C) is constant as pollution abatement increases because
pollution abatement is valued for its own

sake and not for the utility it provides.

D) decreases as pollution abatement increases because of the
law of diminishing marginal utility.

12) The total benefits to society from pollution abatement

A) increase at an increasing rate with the increase of
pollution abatement.

B) increase at a decreasing rate with the increase of
pollution abatement.

C) decrease at an increasing rate with the increase of
pollution abatement.

D) decrease at a decreasing rate with the increase of
pollution abatement.

Question_Doc14_15Dec_4th


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Preview: are xxx large xx be determined xx the economic xxxxxxx associated xxxx xxx pollution xxx the same xxxxxx different locations xx the xxxxxxxx xxxxxxx are xxxx Answer: C12) xx correct for x negative xxxxxxxxxxxx x government xxxxx impose a xxxxxxx tax related xxxx to xxx xxxxxxxx quantity xx pollution ifA) xxx administrative costs xxx high xx xxx cost xx ascertaining the xxxxxx economic costs xxx relatively xxxxx xx the xxxxxxxx damages are xxxx D) the xxxxxxxx damages xxxxxxxxxx xxxx the xxxxxxxxx are different xxxxxx different locations xxxxxxx A13) xx xxxxxxxxxxx refers xx the idea xxxxxx explicit costs xxxxxx from xxxxxxxx xxxxx B) xxxxxxxxxxxxxxx do not xxxxxxxxxxx all the xxxxx C) xx xxxxxx do xxxxxxxx that does xxx affect other xxxxxx D) xxxxxxx xxx internal xxxxx differ Answer: xxxx Your neighbor xxx just xxxxxxx xxxx fragrant xxxxxxx The wonderful xxxxx drifts into xxxx room xxx xxxxx you xxxxx A) This xxxxx is an xxxxxxxx cost xx xxx B) xxxx cannot be xx externality since xxx are xxxxxxxx xxx scent xx This is xx externality since xxx get x xxxxxxx from xxxx neighbor’s flowers xx The social xxxx of xxxx xxxxxxxx is xxxxxxxx borne by xxx neighbor Answer: xxxx If xxx xxxxx had xx bear all xxx social costs xx their xxxxxxxx xx should xxxxxxx marginal cost xxxxxxxx of all xxxxx shifting xx xx of xxxx firms shifting xxx of some xxxxxx shifting xxxxx xxx of xxx rest not xxxxxxxx at all xx of xxx xxxxx that xxx generated externalities xxxxxxxx up while xxxxx would xx xx change xxx the rest xx the firms xx of xxxx xxxxx shifting xx and of xxx rest shifting xxxx Answer: xxxx xx order xx correct the xxxxxxxx associated with xxxxxxxx costs,A) xxx xxxxxxx given xx the economy xxxx change so xxxx decision-makers xxxx xxxx into xxxxxxx all the xxxxx of their xxxxxxx B) xxx xxxxxxxxxx must xxxx over production xx industries that xxx responsible xxx xxxx of xxx pollution C) xxxxxxxxx must be xxxxxxxxxxx that xxxx xx illegal xx pollute D) xxx prices of xxx goods xxxx xx raised xx people will xxxxxxx less of xxx world’s xxxxxxxxx xxxxxxx A17) xxxxx of the xxxxxxxxx methods could xx used xx xxxxxxx for xxxxxxxx costs?A) Impose x tax or xx effluent xxx xx the xxxxxxxxx B) Have xxx offender clean xx the xxxxxxxxx xx caused xx Require firms xx the industry xx install xxxxxxxxx xxxxxxx devices xx All of xxx above would xx appropriate xxxxxxx xxxx Suppose xxxx are taxed xxxxxxxxx to the xxxxxx of xxxxxxxxx xxxx emit xxx gallon of xxxxxxxx consumed We xxxxx expect xx xxxxxxx all xx the following xxxxxxxx an increase xx quantity xxxxxxxx xx less-polluting xxxxxxxxxxx and a xxxxxxxxx in quantity xxxxxxxx of xxxxxxxxxxxxxx xxxxxxxxxxx B) xx increase in xxxxxxxx demanded of xxxx fuel-efficient xxxx xx