ECON 2100 FINAL EXAM QUESTIONS & ANSWERS
True or False: If a market for a private good is perfectly competitive and there are no
externalities, allocative efficiency is achieved at the point where the profit-maximizing
firm produces. - Answer -True
Which of the following are characteristics of a public good?
A) rival in consumption
B) has excludable benefits
C) both of the above
D) none of the above - Answer -D. none of the above
- public goods - non-rival and non-excludable
Acid rain is an example of
A) natural pollution
B) global pollution
C) regional pollution
D) local pollution - Answer -C. Regional pollution
According to the Coase Theorem, under the assumptions that transactions are costless
and damages are accessible and measurable:
A) an efficient outcome is possible regardless of whether property rights exist
B) an efficient outcome is not possible in the presence of an environmental externality
C) an efficient outcome is possible if property rights exist, regardless of who holds those
rights
D) none of the above - Answer -C) an efficient outcome is possible if property rights
exist, regardless of who holds those rights
What are the assumptions of the Coase Theorem? - Answer -Transactions are costless
and damages are accessible and measurable
A technology-based standard
A) specifies a pollution limit to be achieved and allows polluters to choose the
technology to reach that limit
B) assures the use of the least-cost abatement technology
C) designates the equipment or method to be used for pollution abatement
D) is more flexible than a performance-based standard - Answer -C) designates the
equipment or method to be used for pollution abatement
If a standard is being achieved in a manner that is cost-effective then
, A) it is set at the point where MSC of abatement equals zero
B) it is set at the point where MSB of abatement equals zero
C) the standard is benefit-based
D) the standard is reached at minimum cost - Answer -D) the standard is reached at
minimum cost
It is highly unlikely that environmental standards are set at an efficient abatement level.
This is because of:
A) legislative constraints
B) the absence of full information about the marginal social benefit and marginal social
cost of abatement
C) differences in marginal social benefits and marginal social costs at the regional level
D) all of the above - Answer -D. all of the above
Assume there are two regions with the same marginal social cost curve for abatement
of pollution by mobile sources. Assume that for any given level of abatement, the
marginal social benefit of abatement is higher in Region A than in Region B. Compare
the efficient level of abatement in the two regions.
A) The efficient level of abatement is lower in Region A than in Region B.
B) The efficient level of abatement is higher in Region A than in Region B.
C) The efficient level of abatement is the same in both regions.
D) There is not enough information to tell. - Answer -B) The efficient level of abatement
is higher in Region A than in Region B.
When comparing a permit trading system to the use of an emission charge:
A) neither are capable of achieving a cost-effective solution
B) only the permit trading system is capable of achieving a cost-effective solution
C) only the emission charge is capable of achieving a cost-effective solution
D) both are capable of achieving a cost-effective solution - Answer -D) both are
capable of achieving a cost-effective solution
A Pigouvian tax is a charge on a good whose production generates a negative
externality, such that the charge is equal to:
A) the marginal external cost at the competitive equilibrium output level
B) the marginal private cost at the competitive equilibrium output level
C) the marginal external cost at the socially efficient output level D) the marginal social
cost at the socially efficient output level - Answer -C) the marginal external cost at the
socially efficient output level
*firms already account for marginal private cost, we just need them to also account for
the external cost they are generating
True or False: If a market for a private good is perfectly competitive and there are no
externalities, allocative efficiency is achieved at the point where the profit-maximizing
firm produces. - Answer -True
Which of the following are characteristics of a public good?
A) rival in consumption
B) has excludable benefits
C) both of the above
D) none of the above - Answer -D. none of the above
- public goods - non-rival and non-excludable
Acid rain is an example of
A) natural pollution
B) global pollution
C) regional pollution
D) local pollution - Answer -C. Regional pollution
According to the Coase Theorem, under the assumptions that transactions are costless
and damages are accessible and measurable:
A) an efficient outcome is possible regardless of whether property rights exist
B) an efficient outcome is not possible in the presence of an environmental externality
C) an efficient outcome is possible if property rights exist, regardless of who holds those
rights
D) none of the above - Answer -C) an efficient outcome is possible if property rights
exist, regardless of who holds those rights
What are the assumptions of the Coase Theorem? - Answer -Transactions are costless
and damages are accessible and measurable
A technology-based standard
A) specifies a pollution limit to be achieved and allows polluters to choose the
technology to reach that limit
B) assures the use of the least-cost abatement technology
C) designates the equipment or method to be used for pollution abatement
D) is more flexible than a performance-based standard - Answer -C) designates the
equipment or method to be used for pollution abatement
If a standard is being achieved in a manner that is cost-effective then
, A) it is set at the point where MSC of abatement equals zero
B) it is set at the point where MSB of abatement equals zero
C) the standard is benefit-based
D) the standard is reached at minimum cost - Answer -D) the standard is reached at
minimum cost
It is highly unlikely that environmental standards are set at an efficient abatement level.
This is because of:
A) legislative constraints
B) the absence of full information about the marginal social benefit and marginal social
cost of abatement
C) differences in marginal social benefits and marginal social costs at the regional level
D) all of the above - Answer -D. all of the above
Assume there are two regions with the same marginal social cost curve for abatement
of pollution by mobile sources. Assume that for any given level of abatement, the
marginal social benefit of abatement is higher in Region A than in Region B. Compare
the efficient level of abatement in the two regions.
A) The efficient level of abatement is lower in Region A than in Region B.
B) The efficient level of abatement is higher in Region A than in Region B.
C) The efficient level of abatement is the same in both regions.
D) There is not enough information to tell. - Answer -B) The efficient level of abatement
is higher in Region A than in Region B.
When comparing a permit trading system to the use of an emission charge:
A) neither are capable of achieving a cost-effective solution
B) only the permit trading system is capable of achieving a cost-effective solution
C) only the emission charge is capable of achieving a cost-effective solution
D) both are capable of achieving a cost-effective solution - Answer -D) both are
capable of achieving a cost-effective solution
A Pigouvian tax is a charge on a good whose production generates a negative
externality, such that the charge is equal to:
A) the marginal external cost at the competitive equilibrium output level
B) the marginal private cost at the competitive equilibrium output level
C) the marginal external cost at the socially efficient output level D) the marginal social
cost at the socially efficient output level - Answer -C) the marginal external cost at the
socially efficient output level
*firms already account for marginal private cost, we just need them to also account for
the external cost they are generating
