Multiple Choice Questions:
1. The true extent of a negative externality may be difficult to measure because
a. Firms often keep poor records of their cash outlays.
b. Of the intricacies of accounting rules.
c. Certain costs may be nonpecuniary.
d. None of the above.
2. If the government were able to force a firm to internalize the external cost of its production, we would expect
a. The firm to produce more to make up for incurring a higher private cost.
b. The marginal social cost curve to shift up and the firm to produce more and charge a higher price as a result.
c. The firm to produce less and charge a higher price as a result of incurring higher marginal private costs.
d. The firm to lower its price to compensate for incurring a higher private cost.
3. If significant external costs are imposed on third parties by a polluting firm,
a. The marginal private cost curve overstates the relative importance of the product to society and output should increase.
b. The marginal private cost curve understates the relative importance of the product to society and output should increase.
c. The marginal private cost curve overstates the cost to society and output should increase.
d. The marginal private cost curve understates the cost to society and output should decrease.
e. the marginal private cost curve accurately reflects the cost to society and output should not change.
4. External costs created by polluting firms
a. Are paid by no one in society.
b. Are typically paid by the consumer purchasing the product.
c. May be paid by society in the form of nonpecuniary costs, higher medical bills, and/or cleanup costs.
d. Are typically paid by the producer of the pollution.
e. Are typically paid for by the government.
5. It is likely that the marginal cost of pollution abatement
a. Falls the more pollution is reduced.
b. Rises the more pollution is reduced.
c. Is constant as pollution is reduced more.
d. Equals zero.
6. Compliance standards for air pollution
a. Should be the same in Wyoming as in California, since pollution is harmful everywhere.
b. Should probably be stricter in Wyoming, where the marginal benefit of pollution reduction is likely greater than in California.
c. Should probably be stricter in California, where the marginal benefit of pollution reduction is likely greater than in Wyoming.
d. Have not been at all effective in reducing pollution levels.
7. Which of the following is the best example of a nonpecuniary external cost?
a. Wages paid to workers in a steel mill
b. The medical costs associated with increased asthma caused by steel mill pollution
c. The cost of repainting cars because of steel mill pollution damage
d. the cost to steel mill neighbors of suffering from the obnoxious odors from the pollution
e. Both b and c are good examples of nonpecuniary external costs.