Principles of Economics 2e Chapter 12 Test Questions with Correct Answers Rated 100%
The supply and demand conditions facing a firm that makes widgets and generates a negative
externality by dumping a highly toxic sludge in a nearby river is given in the table below.
The equilibrium price and quantity when social costs are taken into account are
A. Price = $55, Quantity = 30
B. Price = $40, Quantity = 55
C. Price = $30, Quantity = 20
D. Price = $30, Quantity = 80 - Answers A
The term ____________ refers to a market exchange that affects a third party who is outside or external
to the exchange.
A. social costs
B. spillover
C. market failure
D. private costs - Answers B
Using the term "spillover" is a less formal means of describing
A. an externality.
B. social costs.
C. private costs.
D. market failure. - Answers A
____________________ describes a situation where a third party, outside the transaction, suffers from
a market transaction by others.
A. Negative externality
,B. Positive externality
C. A spillover
D. A market failure - Answers A
A positive externality arises in a situation where a third party, outside the transaction,
A. fails to allocate resources efficiently.
B. suffers from a market transaction by others.
C. benefits from a market transaction by others.
D. pays a pollution tax to balance social costs. - Answers C
_______________ include both the private costs incurred by firms and also costs incurred by third
parties outside the production process.
A. Social costs
B. Private costs
C. Market costs
D. External costs - Answers A
Market failure describes a situation in which the market itself ______________________ in a way that
balances social costs and benefits.
A. remains outside the transaction
B. incurs the costs outside the production process
C. fails to allocate resources efficiently
D. avoids externalities - Answers C
Command-and-control regulation is a body of law that
A. fails to consider private costs of firms.
, B. specifies allowable quantities of pollution.
C. details which pollution-control technologies must be used.
D. can include both b and c. - Answers D
A pollution charge is a form of tax imposed on
A. the quantity of pollution that a firm emits.
B. pollution control technologies.
C. every economy in the world.
D. low-income market-orientated industries. - Answers A
Property rights are the legal rights of ownership on which others are
A. allowed to infringe by paying the property owner's pollution tax.
B. able to enforce use of pollution-control technologies.
C. able to specify allowable quantities of pollution.
D. not allowed to infringe without paying compensation. - Answers D
Which of the following is used to describe the full spectrum of animal and plant genetic material?
A. ecodiversity
B. biodiversity
C. envirodiversity
D. duodiversity - Answers B
Which of the following have historically been more willing to sacrifice their environmental quality for
some additional economic output?
A. high-income, market-oriented economies
B. low incomes and command economies
The supply and demand conditions facing a firm that makes widgets and generates a negative
externality by dumping a highly toxic sludge in a nearby river is given in the table below.
The equilibrium price and quantity when social costs are taken into account are
A. Price = $55, Quantity = 30
B. Price = $40, Quantity = 55
C. Price = $30, Quantity = 20
D. Price = $30, Quantity = 80 - Answers A
The term ____________ refers to a market exchange that affects a third party who is outside or external
to the exchange.
A. social costs
B. spillover
C. market failure
D. private costs - Answers B
Using the term "spillover" is a less formal means of describing
A. an externality.
B. social costs.
C. private costs.
D. market failure. - Answers A
____________________ describes a situation where a third party, outside the transaction, suffers from
a market transaction by others.
A. Negative externality
,B. Positive externality
C. A spillover
D. A market failure - Answers A
A positive externality arises in a situation where a third party, outside the transaction,
A. fails to allocate resources efficiently.
B. suffers from a market transaction by others.
C. benefits from a market transaction by others.
D. pays a pollution tax to balance social costs. - Answers C
_______________ include both the private costs incurred by firms and also costs incurred by third
parties outside the production process.
A. Social costs
B. Private costs
C. Market costs
D. External costs - Answers A
Market failure describes a situation in which the market itself ______________________ in a way that
balances social costs and benefits.
A. remains outside the transaction
B. incurs the costs outside the production process
C. fails to allocate resources efficiently
D. avoids externalities - Answers C
Command-and-control regulation is a body of law that
A. fails to consider private costs of firms.
, B. specifies allowable quantities of pollution.
C. details which pollution-control technologies must be used.
D. can include both b and c. - Answers D
A pollution charge is a form of tax imposed on
A. the quantity of pollution that a firm emits.
B. pollution control technologies.
C. every economy in the world.
D. low-income market-orientated industries. - Answers A
Property rights are the legal rights of ownership on which others are
A. allowed to infringe by paying the property owner's pollution tax.
B. able to enforce use of pollution-control technologies.
C. able to specify allowable quantities of pollution.
D. not allowed to infringe without paying compensation. - Answers D
Which of the following is used to describe the full spectrum of animal and plant genetic material?
A. ecodiversity
B. biodiversity
C. envirodiversity
D. duodiversity - Answers B
Which of the following have historically been more willing to sacrifice their environmental quality for
some additional economic output?
A. high-income, market-oriented economies
B. low incomes and command economies
