Oursociety generally placeslittle emphasison economicefficiency

Part I: True/False Statements

Instructions: EntereitherTrue
or
False aftereach ofthe following statementsto
indicate whetheryou
believe itto be
corrector incorrect.

Question 1:

Oursociety
generally placeslittle
emphasison
economicefficiency asan
allocation
criterion.
.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

Question 2:

Alternative
efficientallocationshave the sametotallevelsand
distributionsofwealth.
.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

Question 3:

“Economicefficiency”doesnotaddress“fairness.”

.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

Question 4:

The three assumptionsofperfectcompetition
imply /eliminatesthe
existence ofheterogeneous
commodities,which would
potentially trade atdifferentpricesthatreflectdifferenttypesorqualities
.0/msohtmlclip1/01/clip_image002.gif”>True orFalse:

Question 5:

The firsttheorem
of
welfare economicsstatesthatallmarketsachieve economically
efficientresource
allocations.
.0/msohtmlclip1/01/clip_image003.gif”>True orFalse:

Question 6:

The transferability
attribute
of
efficientproperty
rightsrequiresthatproperty
rightsare
secure from encroachmentby
others
.0/msohtmlclip1/01/clip_image003.gif”>True orFalse:

Question 7:

An efficientproperty
rightsstructure isnecessary
to achieve efficientresource allocation through markettrades.
.0/msohtmlclip1/01/clip_image003.gif”>True orFalse:

Question 8:

The economicefficiency criterion
discriminatesbetween alternative
efficientallocations.
.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

Question 9:

The FirstTheorem ofEconomicWelfare
statesthatperfectly
competitive marketsachieve
economically efficientresource allocations.
.0/msohtmlclip1/01/clip_image003.gif”>True orFalse:

Question 10:

Given
no governmentalintervention,a negative
externality in automobile
production impliesthe
price ofautomobilesistoo high.
.0/msohtmlclip1/01/clip_image003.gif”>True orFalse:

Question 11: Undermarketcapitalism,goodsand servicesare
allocated
by a setofdecentralized markets.
.0/msohtmlclip1/01/clip_image002.gif”>True orFalse:

Question 12:

An externality
existswhenever
the welfare ofone
individualdependsnotonly
on the actionsofthat individual,butalso on
the
actionsofsome otherindividualaswell
.0/msohtmlclip1/01/clip_image003.gif”>True orFalse:

Question 13:

A publicgood isone forwhich
use
by one
individualdoesnotaffectuse
by others

.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

Question 14:

Individual rationality
impliessocial rationality
.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

Question 15:

The Coase theorem statesthatthe
assignmentofproperty
rightsamong partiesdeterminesthe efficientallocation
of
resources.
.0/msohtmlclip1/01/clip_image003.gif”>True orFalse:

Question 16:

Ifthe litigation ortransactionscostsare
not
too high,both
liability and negotiation can achieve economicefficiency

.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

Question 17:

CostEffectivenessand
EconomicEfficiency are used
interchangeably.
.0/msohtmlclip1/01/clip_image001.gif”>True orFalse:

.0/msohtmlclip1/01/clip_image004.gif”>
Part II: Multiple Choice
Questions

Instructions: EntereitherA,B,C,orD (only one)aftereach ofthe following questionsto
indicate yourbestanswer.

Question 18:

Taxesand permitsprovide
incentivesforfirmsto:
A. Investin new,more cost-effective abatementtechnologies
B. Achieve economicefficiency.
C. Provide regulatory agenciesinformation
on abatementcosts.
.0/msohtmlclip1/01/clip_image003.gif”>D. A and B
A,B,C,orD:

Question 19:

Which ofthe
following
can
be used
to correctforexternalitiesin large
numberscases:
A. Taxes
B. Directives
C.Allofthe above.
.0/msohtmlclip1/01/clip_image003.gif”>D. None ofthe above.
A,B,C,orD

Question 20:

Uniform directive
policespenalize:
A. Firmswith high abatementcosts.
B. Firmswith low
abatementcosts.
C. Firmsthatdo nothave
equalabatementcosts.
.0/msohtmlclip1/01/clip_image003.gif”>D. Firmsthathave equalabatementcosts.
A,B,C,orD:

Question 21:

There isa higherincidence ofpollution taxeson producersif:
A. Pollution
taxesare imposed equi-marginally.
B. The pollution isassociated with the production
of
luxuries.
C. There isa marketfailure.
.0/msohtmlclip1/01/clip_image003.gif”>D. The pollution isassociated with the production
of
necessities.
A,B,C,orD:

.0/msohtmlclip1/01/clip_image006.jpg” alt=”Description: mid-term exam – graph”>

Figure 1 describesthe
costsand benefitsresulting from logging
operationsin
a national forest. A logging company gainsprofits from increased lumberproduction
according
to the “MarginalGain ofLoggers” curve. Atthe sametime,recreationalanglers lose fishing opportunitiesin troutstreamsthatare
negatively affected by
the
logging operations. The
“MarginalLossofAnglers”
curve
describesthe
lossofvalue suffered by
these anglersaslumberproduction
increases.
The lettersA
through
H describe individualareaswithin the graph.

Forquestions22
through
25,
assumethatthe
ForestService hasdecided
to allow the logging company to
harvestany
amount oflumberfrom X1
to X5.
Furtherassumethatthe anglersare notorganized enough
to be
able to affectthatdecision.

Question 22:

Whatleveloflumberproduction will resultwithoutnegotiation?
A. X1
B. X3
C. X5
.0/msohtmlclip1/01/clip_image003.gif”>D. None ofthe above.
A,B,C,orD:

Question 23:

Whatwillbe the totallosssuffered by
the
anglerswithoutnegotiation?
A. AreasA + B + C + D + E + F
B. AreasA + B + E + F
C. AreasC + D + G + H
.0/msohtmlclip1/01/clip_image003.gif”>D. AreasA + B + C + D + G + H
A,B,C,orD:

Question 24:

Whatwould
be the totalpotentialgainsfrom trade ifthe
logging company and
the
anglerswere able
to negotiate?
.0/msohtmlclip1/01/clip_image007.gif”>A. AreasA + BB. AreasE + FC. AreasC + DD. AreasG + HA,B,C,orD:

Question 25:

Question 26:

Ifthe logging
company
was
considering an
offerofcompensation
by the anglersfora
reduction
in production
from
X5 to
X4,
whatwould be itsminimum willingnessto
acceptpayment?
A. Area A
.0/msohtmlclip1/01/clip_image007.gif”>B. AreasA + BC. AreasC + DD. Area D

The fundamentalprinciple ofthe PorterHypothesisis:
A. Differentefficientallocationscan be
achieved
by marketprocessesthrough
appropriate
re-
distributionsofwealth.
B. Environmental regulationsmustbe
both
stringentenough
and flexible
enough to induce firmsto meaningfully
re-examine theirproduction processes
C. The totalamountofmassand energy
isconstant(although
massand
energy can interconvert).
D. Given an
initialallocation
the
(perfectly competitive)marketachievesan efficientallocation.
.0/msohtmlclip1/01/clip_image007.gif”>
A,B,C,or
D:

Question 27:

Netbenefitisthe appropriate measure
of
desirability
since:
A. Costmustbe added
to the benefitsto
determine the desirability of
the
action.
B. Itreflectsthe
reality thatcostsmustbe
paid.
C. Itachieve
economicefficiency.
D. A and C
.0/msohtmlclip1/01/clip_image002.gif”>
A,B,C,orD:

Question 28:

The marginalbenefitsofabatementgenerally
decrease
as
the levelofabatementincreasesbecause:

A. An increase
in abatementgiven an
already high levelofabatementisgenerally valued lessthan
a

similarincrease given a low
levelofabatement.
B. An increase
in abatementgiven an
already high levelofabatementgenerally
costsmore
than
a similarincrease given a low
levelofabatement.
C. The marginalbenefitcurve
needsto crossthe
marginal costcurve
to achieve economicefficiency.
D. The marginalbenefitcurve
isalso known asa demand
curve
and demand curvesslope
downward.

.0/msohtmlclip1/01/clip_image001.gif”>A,B,C,orD:

Question 29:

An economicallocation
describes:
A. A potentialdistribution ofwealth (orresources).
B. Isnotnecessarily
fair.
C. Requiressomeone
to be
rich
and someone
to be
poor.
D. A and B

.0/msohtmlclip1/01/clip_image003.gif”>A,B,C,orD:

Question 30:

Externalitiesviolate which characteristicofefficientproperty rights
A. Exclusivity
B. Universality
C.Transferability
D. Enforceability
.0/msohtmlclip1/01/clip_image003.gif”>
A,B,C,orD:

Question 31:

Which ofthe
following
isnotan
impedimentto
economicefficiency
A. Externalities.
B. Property resourcesthatare notexclusively controlled
by an
individual.
C. The initialdistribution ofresourcesorwealth.

D. Publicgoods.

.0/msohtmlclip1/01/clip_image003.gif”>A,B,C,orD:

Question 32:

Which ofthe
following
doesnottend to
cause a “free rider” problem.
A. One cannotexclude
use
by others.
B. Governmentsachieve distributive
equity.
C. Benefitsare
simultaneously provided to
many
individuals
D. A,B,and C

.0/msohtmlclip1/01/clip_image003.gif”>A,B,C,orD:

Question 33:

One advantage oftradable permitsystemsthattaxsystemsdo nothave
isthat:
A. Ifanyone
can
buy permits,then
the
marketforpermitswill reflectsocialbenefits,notjustthe benefitsofpolluting firms.
B. Permitsystemsautomatically
equate the marginalabatementcostsofall firms,thereby minimizing
totalabatementcosts.
C. Permitsystemsprovide
incentivesto investin
new,more costeffective
abatementtechnologies.
D. Permitsystemsprovide
someinformation
aboutthe magnitude offirms’marginal costs.

.0/msohtmlclip1/01/clip_image003.gif”>A,B,C,orD:

Question 34:
.0/msohtmlclip1/01/clip_image008.gif”>
Costeffectivenessisused
as
the allocation criterion
in large numberscasesbecause:
A. Costminimization isoften viewed asmore importantthan
economicefficiency.
B. Costeffectivenessismore consistentwith politicaleconomy
and distributive
equity considerations.
C. Information
regarding pollution controlbenefitsisoften
incomplete
or
highly uncertain.
D. Large numbersofindividualsprefercosteffectivenessovereconomicefficiency.

.0/msohtmlclip1/01/clip_image007.gif”>A,B,C,orD:

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