Multiple Choice Questions:

1. If the production of a good generates a negative externality, then in equilibrium in a perfectly competitive market,

a. Marginal private cost > price.

b. Price > marginal private cost.

c. Marginal private cost > marginal social cost.

d. Marginal social cost > price.

2. Many harmful externalities occur because

a. Persons do not pay the full social cost of using a resource.

b. Persons do not pay the full private cost of using a resource.

c. Companies do not pay the market price for natural resources.

d. Companies pay more than the full social cost of using a resource.

3. A firm is generating harmful externalities when

a. Marginal social cost is less than marginal private cost.

b. Marginal social cost is the same as marginal private cost.

c. Marginal social cost is greater than marginal private cost.

d. The firm is not producing at the level of output where the MPC is minimized.

4. Pollution

a. Is an example of a positive externality.

b. Should be reduced to zero, the socially efficient level.

c. Is not an economic problem.

d. Is an example of a negative externality.

e. Is characterized by both b and d.

5. Pollution control costs lead to

a. Lower prices for goods and services produced by polluting firms.

b. Higher prices for goods and services produced by polluting firms.

c. A decrease in the cost of production by polluting firms.

d. An increase in production of output by polluting firms.

6. Which of the following statements is true?

a. The phasing out of leaded gasoline, which began in 1984, has not had a measurable impact on the levels of lead in our atmosphere.

b. The EPA’s main duty is to collect tax revenue to fund miscellaneous government programs.

c. Using a compliance standards approach, the EPA identifies and then enforces a standard equal to the maximum amount of pollution that firms can produce per unit of output per year.

d. Nonpecuniary costs are the out-of-pocket costs of medical bills and environmental cleanup imposed on third parties by polluters.

7. If emissions standards are made more stringent, the privately borne

a. Costs of production would decrease.

b. Costs of production would not be affected.

c. Costs of production would increase.

d. Output prices would decrease.