Question 1

SulfurDioxide  Discharged Tons)   Firm A  Firm B 10$8,000$9,000910,00012,000815,00018,000720,00027,000628,00037,000\begin{array}{|c|c|c|}\hline \begin{array}{c}	ext { SulfurDioxide } \	ext { Discharged Tons)  }\end{array} & 	ext { Firm A } & 	ext { Firm B } \\hline 10 & \$ 8,000 & \$ 9,000 \\hline 9 & 10,000 & 12,000 \\hline 8 & 15,000 & 18,000 \\hline 7 & 20,000 & 27,000 \\hline 6 & 28,000 & 37,000 \\hline\end{array} SulfurDioxide  Discharged Tons)  ​109876​ Firm A $8,00010,00015,00020,00028,000​ Firm B $9,00012,00018,00027,00037,000​​   Table 9.7
-Table 9.7 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If the two firms were to voluntarily trade pollution permits, how many permits would be swapped?

Accepted Answer

A)  1
B)  2
C)  3
D)  4 E) A) and B)
F) C) and D)

Question 2

Figure 9.6
-A firm that generates pollution is illustrated in Figure 9.6. Suppose the government is considering changing the pollution tax from P3 to P2. That new policy would

Accepted Answer

A)  increase the marginal benefit to firms of abating, and thus encourage greater abatement.
B)  increase the marginal benefit to firms of abating, causing them to generate more pollution.
C)  reduce the marginal benefit to firms of abating, causing them to generate more pollution.
D)  reduce the marginal benefit to firms of abating, and thus encourage greater abatement.E) B) and C)
F) C) and D)

Question 3

As long as two firms have different abatement costs, they:

Accepted Answer

A)  can benefit under a system of marketable pollution permits by trading the right to pollute.
B)  will prefer a pollution tax to a system of marketable pollution permits.
C)  will decrease the price of their product if taxed on the amount of pollution they emit.
D)  will not be able to benefit from trading the right to pollute under a system of marketable pollution permits.E) A) and B)
F) None of the above

Question 4

Figure 9.7
-Consider Figure 9.7, which depicts the supply and demand for coal. Assume coal production creates external costs. If PE and QE are the equilibrium price and quantity of coal without government regulation, a pollution tax on the production of coal would _______ the price of coal relative to PE and _______ the quantity of coal relative to QE.

Accepted Answer

A)  increase; decrease
B)  increase; not change
C)  decrease; not change
D)  decrease; decreaseE) B) and C)
F) A) and D) A

Question 5

Technological advances in pollution reduction

Accepted Answer

A)  reduce the demand for pollution permits.
B)  increase the demand for pollution permits.
C)  reduce the supply of pollution permits.
D)  increase the supply of pollution permits.E) B) and D)
F) A) and C)

Question 6

Figure 9.3
-Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality) used refrigerator and $100 for a lemon low-quality) used refrigerator. Initially buyers believe that 50% of used refrigerators in the market are lemons low quality) . Compared to the outcome with neutral expectations, how many fewer refrigerators are sold in equilibrium?

Accepted Answer

A)  50
B)  125
C)  175
D)  250E) B) and C)
F) B) and D)

Question 7

Suppose that there are two firms, each generating three tons of SO 2 . Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits the firm with the lower marginal abatement cost

Accepted Answer

A)  will abate exactly the same amount of SO2 as the firm with the higher marginal abatement cost.
B)  will abate less SO2 than the firm with the higher marginal abatement cost.
C)  will abate more SO2 than the firm with the higher marginal abatement cost.
D)  will sell its pollution permit to the firm with the higher marginal abatement cost.E) A) and C)
F) A) and B)

Question 8

Figure 9.6
-A firm that generates pollution is illustrated in Figure 9.6. The government has chosen to impose a pollution tax equal to P2. From the firmʹs point of view, the marginal benefit of abatement is

Accepted Answer

A)  avoiding the pollution tax imposed by the government.
B)  the positive publicity the firm will receive by having a ʺgreenʺ production plant.
C)  the reciprocal of the marginal cost of abatement.
D)  zero because abatement benefits the general public, not the firm.E) All of the above
F) B) and D)

Question 9

CARFAX is a company that compiles and sells histories of used cars. CARFAX reduces the:

Accepted Answer

A)  number of cars exchanged in the used car market.
B)  information asymmetry in the used car market.
C)  number of used cars offered for sale in the market.
D)  cost of used cars in the market.E) C) and D)
F) None of the above

Question 10

In markets with imperfect information

Accepted Answer

A)  buyers and sellers will use resources to acquire information before making decisions.
B)  buyers will use resources to acquire information before making a decision, but sellers do not need to acquire additional information before making a decision.
C)  sellers will use resources to acquire information before making a decision, but buyers do not need to acquire additional information before making a decision.
D)  neither buyers nor sellers will be able to acquire information in order to make decisions.E) B) and C)
F) All of the above

Question 11

Under a system of marketable pollution permits the government:

Accepted Answer

A)  chooses a level of pollution.
B)  distributes permits to polluting firms.
C)  allows firms to trade permits.
D)  all of the aboveE) C) and D)
F) A) and D)

Question 12

If a pollution tax imposed on a firm is greater than than its external cost,

Accepted Answer

A)  the externality will be fully internalized.
B)  the social production cost will increase by the amount of the pollution tax.
C)  the pollution tax will be efficient.
D)  the firm will be producing too little from a societyʹs point of view.E) A) and B)
F) A) and C)

Question 13

It is efficient to reduce pollution up until the marginal benefit from reducing the pollution equals the marginal cost of abatement.

Accepted Answer

A) True 
 B)False

Question 14

What are some of the ways a private group can overcome a free rider problem?

Accepted Answer

Giving a private gift with a contribution, arranging matching contributions and appealing to civic or moral responsibility by such methods as publicizing contributors.

Question 15

Figure 9.2
-Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality) used camera and $25 for a lemon low-quality) used camera. If buyers believe that 50% of used cameras in the market are lemons low quality) , how many lemons low quality) will be supplied by sellers?

Accepted Answer

A)  10
B)  15
C)  20
D)  25E) B) and D)
F) B) and C) D

Question 16

Figure 9.8
-Figure 9.8 depicts a market for electricity. Assume electricity production incurs external costs. If the government imposes a pollution tax $T per mega kilowatt,

Accepted Answer

A)  the supply curve will shift to the right.
B)  the supply curve will shift to the left.
C)  demand curve will shift to the right.
D)  demand curve will shift to the left.E) C) and D)
F) B) and C)

Question 17

SulfurDioxide  Discharged Tons)   Firm A  Firm B 10$8,000$9,000910,00012,000815,00018,000720,00027,000628,00037,000\begin{array}{|c|c|c|}\hline \begin{array}{c}	ext { SulfurDioxide } \	ext { Discharged Tons)  }\end{array} & 	ext { Firm A } & 	ext { Firm B } \\hline 10 & \$ 8,000 & \$ 9,000 \\hline 9 & 10,000 & 12,000 \\hline 8 & 15,000 & 18,000 \\hline 7 & 20,000 & 27,000 \\hline 6 & 28,000 & 37,000 \\hline\end{array} SulfurDioxide  Discharged Tons)  ​109876​ Firm A $8,00010,00015,00020,00028,000​ Firm B $9,00012,00018,00027,00037,000​​   Table 9.7
-Table 9.7 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. Suppose that Firm A has already sold a permit to Firm B. If Firm A contemplates selling a second permit to Firm B, what is Firm A?s willingness to accept?

Accepted Answer

A)  $5,000
B)  $6,000
C)  $7,000
D)  $8,000 E) A) and D)
F) A) and C)

Question 18

An example of a good that is non-rival in consumption is:

Accepted Answer

A)  a music CD.
B)  a radio broadcast of a song.
C)  a ticket to a concert.
D)  a guitar.E) A) and C)
F) A) and D)

Question 19

Protecting endangered species is NOT an example of a public good because there are no external benefits associated with it.

Accepted Answer

A) True 
 B)False

Question 20

Shows on broadcast TV, like ABC or NBC, are _______ and shows on cable TV, like MTV or HBO, are _______.

Accepted Answer

A)  nonexcludable, excludable
B)  excludable, nonexcludable
C)  rival, nonrival
D)  nonrival, nonexcludableE) A) and D)
F) B) and C)

Exam 9: Imperfect Information, External Benefits, and External Costs

Correct Answer
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Figure 9.6 -A firm that generates pollution is illustrated in Figure 9.6. Suppose the government is considering changing the pollution tax from P3 to P2. That new policy would

Correct Answer
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As long as two firms have different abatement costs, they:

Correct Answer
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Correct Answer
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A

Technological advances in pollution reduction

Correct Answer
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Suppose that there are two firms, each generating three tons of SO 2 . Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits the firm with the lower marginal abatement cost

Correct Answer
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Figure 9.6 -A firm that generates pollution is illustrated in Figure 9.6. The government has chosen to impose a pollution tax equal to P2. From the firmʹs point of view, the marginal benefit of abatement is

Correct Answer
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CARFAX is a company that compiles and sells histories of used cars. CARFAX reduces the:

Correct Answer
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In markets with imperfect information

Correct Answer
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Under a system of marketable pollution permits the government:

Correct Answer
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If a pollution tax imposed on a firm is greater than than its external cost,

Correct Answer
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It is efficient to reduce pollution up until the marginal benefit from reducing the pollution equals the marginal cost of abatement.

Correct Answer
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What are some of the ways a private group can overcome a free rider problem?

Correct Answer
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Giving a private gift with a contribution, arranging matching contributions and appealing to civic or moral responsibility by such methods as publicizing contributors.

Correct Answer
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D

Figure 9.8 -Figure 9.8 depicts a market for electricity. Assume electricity production incurs external costs. If the government imposes a pollution tax $T per mega kilowatt,

Correct Answer
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Correct Answer
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An example of a good that is non-rival in consumption is:

Correct Answer
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Protecting endangered species is NOT an example of a public good because there are no external benefits associated with it.

Correct Answer
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Shows on broadcast TV, like ABC or NBC, are _ and shows on cable TV, like MTV or HBO, are _.

Correct Answer
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Exam 9: Imperfect Information, External Benefits, and External Costs

Correct AnswerverifiedShow Answer

Figure 9.6 -A firm that generates pollution is illustrated in Figure 9.6. Suppose the government is considering changing the pollution tax from P3 to P2. That new policy would

Correct AnswerverifiedShow Answer

As long as two firms have different abatement costs, they:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Technological advances in pollution reduction

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that there are two firms, each generating three tons of SO 2 . Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits the firm with the lower marginal abatement cost

Correct AnswerverifiedShow Answer

Figure 9.6 -A firm that generates pollution is illustrated in Figure 9.6. The government has chosen to impose a pollution tax equal to P2. From the firmʹs point of view, the marginal benefit of abatement is

Correct AnswerverifiedShow Answer

CARFAX is a company that compiles and sells histories of used cars. CARFAX reduces the:

Correct AnswerverifiedShow Answer

In markets with imperfect information

Correct AnswerverifiedShow Answer

Under a system of marketable pollution permits the government:

Correct AnswerverifiedShow Answer

If a pollution tax imposed on a firm is greater than than its external cost,

Correct AnswerverifiedShow Answer

It is efficient to reduce pollution up until the marginal benefit from reducing the pollution equals the marginal cost of abatement.

Correct AnswerverifiedShow Answer

What are some of the ways a private group can overcome a free rider problem?

Correct AnswerverifiedGiving a private gift with a contribution, arranging matching contributions and appealing to civic or moral responsibility by such methods as publicizing contributors.

Correct AnswerverifiedD

Figure 9.8 -Figure 9.8 depicts a market for electricity. Assume electricity production incurs external costs. If the government imposes a pollution tax $T per mega kilowatt,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An example of a good that is non-rival in consumption is:

Correct AnswerverifiedShow Answer

Protecting endangered species is NOT an example of a public good because there are no external benefits associated with it.

Correct AnswerverifiedShow Answer

Shows on broadcast TV, like ABC or NBC, are _______ and shows on cable TV, like MTV or HBO, are _______.

Correct AnswerverifiedShow Answer

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A

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Giving a private gift with a contribution, arranging matching contributions and appealing to civic or moral responsibility by such methods as publicizing contributors.

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D

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Shows on broadcast TV, like ABC or NBC, are _ and shows on cable TV, like MTV or HBO, are _.

Correct Answer
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