Multiple choice only

1. How much cast metal should Mercury Metals produce in order to maximize

social welfare?

A. 0 pounds per daythe firm should be shut down to reduce its pollution to zero.

B. 200 pounds per day.

C. 350 pounds per day.

D. At least 400 pounds per day.

Question 2

2. What is the marginal external cost of the foundry's emissions?

A. $3 per pound of cast metal.

B. $6 per pound of cast metal.

C. $9 per pound of cast metal.

D. $12 per pound of cast metal.

Question 3

3. When negative externalities like pollution exist, competition leads to

a. more production than would be efficient.

b. a socially efficient outcome.

c. a market equilibrium price that is too high.

d. too few goods being bought and sold.

Question 4

4. In order to achieve efficiency, the size of an effluent tax should be based on

a. the external cost created by the pollutant.

b. people's willingness to pay for a cleaner environment.

c. the expense of installing new "green" equipment.

d. the number of free riders in the industry.

Question 5

5. Government regulations that set an environmental goal and dictate how the goal will be achieved are called

a. effluent-offset regulations.

b. incentive-based regulations.

c. Coasian regulations.

d. command-and-control regulations.

Question 6

6. Sometimes regulations provide an incentive to keep assets past the efficient point. This occurrence is called

a. new-source bias.

b. Coasian inefficiency.

c. diminishing returns.

d. market failure.

Question 7

7. Suppose a firm wants to build a new factory that would add pollution to an already polluted area. Under an offset program, the firm must

a. install scrubbers and other government-mandated equipment.

b. purchase pollution permits from the government.

c. reduce or eliminate an old pollution source in the area.

d. pay a tax that depends on the amount of pollution created.

Question 8

8. According to the Coase Theorem, the private sector can achieve social efficiency if the government

a. establishes and enforces property rights.

b. imposes taxes to serve as proxies for external costs.

c. sets rigorous environmental standards.

d. encourages competition with antitrust laws.

Question 9

9. Transactions costs are defined to be the costs of

a. negotiating and enforcing contracts.

b. complying with environmental regulations

c. eliminating market and government failures.

d. finding and obtaining offsets.

Question 10

An individual who benefits from some transaction but does not have to pay is called a

a. Coasian consumer.

b. free rider.

c. good negotiator.

d. profit maximizer