ECONOMICS 201 6380 – The term refers to a market exchange that affects a third party

Chapter 12 (Answers highlighted in YELLOW)
Multiple Choice Questions

1.The term ____________ refers to a market
exchange that affects a third party who is outside or external to the exchange.
A.
social costs
B. spillover
C.
market failure
D.
private costs

2.Market
failure describes a situation in which the market itself ______________________ in a way that
balances social costs and benefits.
A.
remains outside the transaction
B.
incurs the costs outside the production process
C. fails to allocate resources efficiently
D.
avoids externalities

3.The
problem of pollution typically arises in ______________ economies around the
world.
A. high-income
B.
low-income
C.
high or low-income
D.
middle income

4.In
addition to the current levels of air and water pollution, a list of important
environmental issues would most likely include:
A.
emissions of greenhouse gases
B.
safe disposal of hazardous waste materials
C.
destruction of wetlands and other habitats
D.
extinction of species and all of the above

5.If an
externality of pollution exists for all manufacturers in a given industry, then
all related social costs
A.
are no longer represented in their supply curves.
B.
continue to be represented in their supply curves.
C.
are no longer represented in their demand curves.
D.
continue to be represented in their demand curves.

6.In the U.S., the command-and-control
environmental laws of the early 1970s, together with the ensuing amendments and
updates that have been made to them over time,
A. were necessary as US industries had zero incentive to
control pollution.
B.
were an inexpensive incentive for industrial polluters to improve performance.
C.
are given considerable credit for cleaner air and water in recent decades.
D.
draws distinctions between the needs of firms and costly equipment upgrades.

7.A
pollution charge gives the trucking industry an incentive to reduce its
emissions, as long as the _____________ of reducing the emissions is
_______________ .
A.
total cost; less than the tax
B.
total cost; equal to the social cost
C.
marginal cost; less than the tax
D.
marginal cost; equal to the social cost

8.Certain schools of economic thought
suggest that a _____________ would reduce pollution in a __________________, when compared to
command-and-control regulation.
A.
marketable permit; less cost-effective way
B.
pollution tax; flexible, more cost-effective way
C.
marketable permit; less flexible manner
D.
pollution tax; less cost effective, but flexible way

9.Environmentalist
groups tend to prefer ________________ to ___________________.
A.
command-and-control regulations; marketable permits
B.
marketable permits; pollution charges
C.
pollution taxes; marketable permits
D.
marketable permits; monetary refunds

10.Marketable
permits can be viewed as a form of improved _______________.
A.
command-and-control regulations
B.
property rights
C.
refundable tax credits
D. flat fee pollution tax

11.With
respect to the benefits of clean air and water, which of the following would
most likely be classified as being relatively easy to value in economic terms?
A.
gains in farming, fishing and tourism
B.
gains from lower levels of corrosion
C.
gains in environmental enjoyment
D.
all of the above are correct answers

12.The
challenge of preserving biodiversity,

A.
any nation itself can reduce emissions to solve global warming.
B.
any nation acting alone can protect biodiversity around the world.
C.
includes the full spectrum of animal and plant genetic material.
D.
a nation can protect biodiversity within its own borders and c.

13.The
supply and demand conditions facing a firm that makes widgets and generates a
negative externality by dumping a highly toxic sludge in a nearby river is
given in the table below.

Price

Quantity
Demanded

Quantity
Supplied without Paying Social Costs

Quantity
Supplied after Paying Social Costs

100

0

120

75

80

10

100

50

55

30

90

30

40

55

85

25

30

80

80

20

20

100

65

15

The
equilibrium price and quantity when only private costs are taken into account
are
A.
Price = $55, Quantity = 30
B.
Price = $40, Quantity = 55
C.
Price = $30, Quantity = 20
D.
Price = $30, Quantity = 80

14.Michigan
(MI) and Wisconsin (WI) both border Lake Michigan. Both states pollute Lake Michigan and both states suffer the consequences of
the pollution. However, the two states face a prisoner’s dilemma of the sort
studied in Chapter 12. Each country must decide whether to protect or not to
protect Lake Michigan from pollution. The
payoffs from the choices are shown in the table below.

Michigan

Protect

Not
Protect

Wisconsin

Protect

WI
gains 500
MI
gains 500

WI
loses 300
MI
gains 600

Not
Protect

WI
gains 600
MI
loses 300

WI
loses 250
MI
loses 250

From
the table, we know that if Wisconsin chooses to protect the lake, Michigan will
choose to ______ the lake. If Wisconsin chooses to not protect the lake, Michigan will choose to ______ the lake
A.
protect, protect
B.
not protect, protect
C.
protect, not protect
D.
not protect, not protect

15.Bulgaria
primarily produces two goods, nesting dolls and grapes. The production of both
goods primarily requires labor. The following table shows possible combinations
of nesting dolls and grapes.

Nesting Dolls
(measured in thousands)

Bushels of Grapes
(measured in thousands)

A

10

6

B

3

40

C

8

30

D

3

60

E

5

15

Which
of the following points is more likely to represent a market-oriented policy?
A.
E
B.
C
C.
all points
D.
none

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