Question : 5.2   Private Solutions to Externalities: The Coase Theorem 1) In economics, : 1387493

 

5.2   Private Solutions to Externalities: The Coase Theorem

 

1) In economics, the optimal level of pollution is

A) zero.

B) the level for which the total benefit from reducing the pollution is the greatest.

C) the level for which the marginal benefit from reducing the pollution is the greatest.

D) the level for which the net benefit from reducing the pollution is the greatest.

 

 

2) Economists argue that the level of pollution should be

A) reduced completely to zero because by definition, it is a negative external effect.

B) ignored because it has always been present since the beginning of history.

C) reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society.

D) best determined by elected officials who can speak on behalf of the public.

 

 

3) Because producers do not bear the external cost of pollution,

A) the economically efficient level of production is achieved.

B) private production is below the economically efficient level.

C) private production exceeds the economically efficient level.

D) the market price is too high.

 

 

4) If there is pollution in producing a product, then the market equilibrium price

A) is too high and equilibrium quantity is too low.

B) and equilibrium quantity are too low.

C) and equilibrium quantity are too high.

D) is too low and equilibrium quantity is too high.

 

Figure 5-7

 

 

5) Refer to Figure 5-7.  The marginal cost of reducing pollution curve is the same curve as

A) the supply of pollution reduction curve.

B) the demand for pollution reduction curve.

C) the negative externality curve.

D) the value of pollution reduction curve.

 

 

6) Refer to Figure 5-7.  The marginal benefit of reducing pollution curve is the same curve as

A) the supply of pollution reduction curve.

B) the demand for pollution reduction curve.

C) the positive externality curve.

D) the external benefit curve.

 

7) Refer to Figure 5-7.  What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

A) PE

B) the value of the area QBBEQE

C) PE × QE

D) the value of the area BEF

 

 

8) Refer to Figure 5-7.  What is the incremental benefit of increasing the quantity of pollution reduction from QB to QE units?

A) PF

B) PF × QE

C) the value of the area BEF

D) the value of the area QBBFQE

 

 

9) Refer to Figure 5-7.  Which of the following statements is true?

A) At QE the benefits of reducing pollution outweighs the cost of pollution reduction.

B) At QB society is under allocating resources to pollution reduction.

C) The optimal quantity of pollution reduction is QB.

D) The optimal quantity of pollution reduction is QE.

 

10) The Coase theorem states that

A) government intervention is always needed if externalities are present.

B) assigning property rights is the only thing the government should do in a market economy.

C) if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

D) a free market equilibrium is the best solution to address externalities.

 

 

 

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