260 MC PDF

Econ 260 Practice Multiple Choice Questions
Chapter 1
1. Suppose that power plants have taken actions, such as switching to low-sulfur
coal and installing scrubbers in their smokestacks, which have significantly
reduced the problem of acid rain. Power plants most likely took these actions
because:
a. of concern about the environment.
b. large firms in Canada feel the need to demonstrate a social conscience.
c. government policies provided power companies with incentives to take
these actions.
d. of both a and b.
2. Sarah tends to have more incentive to take care of her private property than public
property. This is because
a. when Sarah takes care of public property she benefits herself.
b. when Sarah takes care of her private property she benefits herself.
c. when other people take care of Sarahs private property they benefit Sarah.
d. when other people take care of public property they benefit Sarah.
3. Which of the following could eliminate the trade-off between environmental

quality and production of goods and services?
a) Discovery of more oil reserves
b) Improvements in abatement technology.
c) The sacrafice of a small amount of goods and services in order to help the
environment.
d) All of the above.
4. Which of the following statements best represents an economic approach to solving

environmental problems?
a. People should recycle more out of obligation toward preserving the planet
for future generations.
b. Reducing pollution does not generate as much social benefits as
production of goods and services.
c. Pollution from vehicles should be reduced by restricting the days per week
drivers are allowed to use the roads.
d. Making polluters pay for their pollution will help reduce pollution.
5. Which of the following policies would be most effective at reducing household

garbage?
a. Increase annual property taxes to cover garbage collection costs.
b. Charge a higher fee per kilogram of garbage.
c. Charge a higher fee per bag of garbage.
d. Educate people more about the importance of reducing garbage for the
environment.
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6. Consider the production possibility frontier for production of goods and services
(QG&S) and environmental quality (EQ). Which of the following will happen if there
is both an improvement in technology for production of goods and services and an
investment in cleaning up lakes and rivers?
a. There will be an increase in QG&S at each level of EQ.
b. There will be an increase in EQ at each level of QG&S.
c. EQmax will increase.
d. All of the above.
7. Why is free riding a problem for improving environmental quality?

a. Free riding leads to an insufficient allocation of resources toward
environmental quality.
b. Free riding is a rational choice for individuals.
c. Both a and b.
d. Neither a nor b.
8. Which of the following policies would be most effective at getting people to use
less water?
a. Create television commercials that educate people about the importance of
reducing water consumption.
b. Increase annual property taxes for everyone to cover the costs of high water
consumption.
c. Measure water consumption for each household and change a fee per litre.
d. Restrict the days per week that people can use water on their gardens.
9. Which of the following events would allow a society to be able to produce more
goods and services and also more environmental quality?
a. A technological improvement for production of goods and services
b. A technological improvement for production of goods and services and a
ban on depositing garbage in the oceans
c. A ban on depositing garbage in the oceans
d. Both (a) and (b)
e. All of (a), (b), and (c)
10. What is the main goal of environmental economics?

a. To identify and promote an efficient allocation of resources
b. To maximize output of goods and services from our environmental
resources
c. To eliminate any economic activity that harms the environment
d. All of the above
e. None of the above
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11. Which of the following will provide the strongest incentive for people to NOT do as
much of an activity?
a) Increase the fixed cost of the activity
b) Increase the marginal cost of the activity
c) Increase the variable cost of the activity
d) Both (b) and (c)
e) All of (a), (b), and (c)
12. Why are incentives important for improving the environment?

a. Changing peoples incentives will change peoples behavior, ideally in ways
that are better for the environment.
b. Incentives are necessary to change peoples behavior in situations when
people cannot be forced to change their behavior.
c. When people have the right incentives the government does not have to
monitor their behavior as much.
d. All of the above are true.
13. How can an economy have more goods and services and better environmental
quality?
a. This is not possible.
b. With better technology.
c. With investments in the environment, such as planting trees.
d. With better technology and investments in the environment, such as
planting trees.
e. Any of b, c, or d.
14. The term market failure refers to

a. a situation in which the market, on its own, fails to allocate resources efficiently.
b. an unsuccessful advertising campaign which reduces demand.
c. a situation in which competition among firms becomes ruthless.
d. a firm which is forced out of business because of losses.
15. Market failure can be caused by
a. free riding.
b. externalities.
c. non-excludability.
d. all of the above.
16. Market failure associated with the free-rider problem is a result of

a. a problem associated with pollution.
b. benefits that accrue to those who don't pay.
c. losses that accrue to providers of the product.
d. a project in which costs exceed benefits.
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17. A market economy, without any government regulation, will produce:
A) too little pollution.
B) too much pollution.
C) the social optimally quantity of pollution.
D) none of the above.
Answers: 1.c 2.d 3.b 4.d 5.b 6.d 7.c 8.c 9.e 10.a 11.d 12.d 13.e 14.a 15.d 16.b
17.b
Chapter 2
1. Noise pollution from a busy highway would be classified as what type of
pollutant?
a. Continuous
b. Spatially differentiated
c. Non-accumulative
d. All of the above
2. The first law of thermodynamics means that

a. humans need to learn to create matter, such as natural resources.
b. humans can never completely eliminate residuals.
c. matter can neither be discovered nor accumulated.
d. only more recycling can decrease residuals.
3. Which of the following would be an example of a non-point source pollutant?

a. Chemicals spilled on the ground that are now seeping into the nearby
river.
b. Oil washing up on a beach after an explosion at an off-shore refinery.
c. Toxic air pollutants from a factory that are spreading to areas up to 100km
from the factory.
d. A bad smell that is coming from a sewage treatment facility.
4. An oil spill from a damaged tanker on the ocean would be classified as what type
of pollutant?
a. Episodic
b. Uniformly mixed
c. Non-point source
d. All of the above
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5. Global warming is a challenging problem because one countrys greenhouse gas
emissions can lead to environmental damages in many other countries. Which of
the following is the characteristic of greenhouse gas emissions that underlies this
problem? Greenhouse gases are
a. Continuous
b. Episodic
c. spatially differentiated
d. uniformly mixed
6. Nuclear waste that leaked after an earthquake caused the walls of the containment
unit to crack would be classified as what type of pollutant?
a. Uniformly mixed
b. Non-point source
c. Episodic
d. All of the above
7. Bob is in the business of selling bottled water. Which of the following describes a
reduction in the residual intensity of producton?
a. Bob decreases his production of bottled water, thereby decreasing his
residuals.
b. Bob makes his bottles thinner so each bottle uses less plastic.
c. Bob starts flattening the empty bottles so they do not take up as much
room at the landfill.
8. Which of the following equations describes the link between the economy and the
environment?
a. M = G + Rp Rpr Rcr
b. M = G + Rp Rpd Rcd
c. M = G Rpr Rcr
d. None of the above.
9. Which of the following words/phrases best describes the bad smell from an animal
farm?
a. Uniformly mixed
b. Accumulative
c. Spatially differentiated
d. Regional
10. For which of the following residuals does the environment have the highest
assimilative capacity?
a. Food waste
b. Plastic
c. Metal
d. Visual pollution
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11. If a water pollutant has an unidentifiable source it is called a(n)
a) Invisible source pollutant
b) Non-uniform source pollutant
c) Non-point source pollutant
d) Non-source pollutant
Answers: 1.d 2.b 3.a 4.a 5.d 6.c 7.b 8.a 9.c 10.a 11.c
Chapter 3
1. Below is a demand schedule for Allan and Barry. Assuming that this demand
schedule represents their marginal willingness to pay for a private good, and the
marginal cost of the good is $4.00, what would be the efficient quantity?
Allan's Barry's
Quantity MWTP MWTP
1 $3.00 $5.00
2 $2.00 $4.00
3 $1.00 $3.00
4 $0.00 $2.00
a. 1
b. 2
c. 3
d. 4
The following is a demand curve for Izabelle:
$
10
2 D
0
0 20 40 60 80 100 Q
2. If there are four other people (five in total) with same demand curve as Izabelle, and
the demand curve is for apples, what would the socially efficient quantity be if MC = 4.
a. 240
b. 300
c. 92
d. 90
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3. If there are four other people (five in total) with same demand curve as Izabelle, and
the demand curve is for roads, what would the socially efficient quantity be if MC = 4.
a. 240
b. 300
c. 92
d. 90
4. Suppose that Mick and Cher are the only two members of society and are willing to pay
$10 and $8, respectively, for the third unit of a private good. Also, assume that the
marginal cost of the third unit is $17. We can conclude that:
a. the third unit should not be produced.
b. the third unit should be produced.
c. zero units should be produced.
d. 4 units should be produced.
$
Figure 1:
P3
a
P2
b c
P1
d e f D
0 Q1 Q2 Q3 Quantity
5. Refer to Figure 1 above, which illustrates demand for a city park. The city is
currently charging a fee of P1 for entrance to the park, but is considering eliminating
the fee. If the city eliminates the fee, decreasing the price from P1 to 0, what area
describes the benefit to park visitors from this price change?
a. abc
b. def
c. f
d. de
6. Willingness to pay can be a misleading measure of utility from environmental

goods when comparing different individuals because
a. People do not normally pay for environmental goods.
b. Different people have different preferences.
c. Different people have different incomes.
d. Both b and c.
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7. The demand curve illustrated below is the aggregate demand for jackets in a
market that contains 20 consumers with identical individual demand curves. If MC =
$40 for jackets and the population in the market doubles, how many jackets will each
person buy?
$
100
AD
100 Q
a. 0
b. 3
c. 6
d. 700
8. Which of the following would likely increase peoples marginal willingness to pay
for an environmental good?
a. Higher prices for complementary goods
b. Weaker preferences for the good
c. A decrease in average incomes
d. Fewer substitutes for the environmental good
9. What affects individuals marginal willingness to pay for environmental goods?

a) Availability of substitutes
b) Income
c) Preferences
d) Prices of complements
e) All of the above
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10. Suppose the quantity of city parks in Parksville increases from 10 to 15. Which
area would represent the benefit from the extra parks to residents of the town?
$
b c MWTP
d e f
10 15 QParks
a) abcde
b) bc
c) ce
d) bcde
11. Individual demand for a private good is given by P = 5 0.2Q. If there is a

total of five individuals with the same demand, which of the following will be the
aggregate demand function?
a. P = 25 Q
b. P = 5 0.04Q
c. P = 5 0.008Q
d. P = 125 Q
e. None of the above.
12. Individual demand for a private good is given by P = 5 0.2Q. If there is a

total of five individuals with the same demand, which of the following will be the
a) Q = 25 P
b) Q = 125 25P
c) Q = 25 25P
d) Q = 125 P
e) None of the above.
13. Individual supply for a private good is given by P = 10 + 0.2Q. If there is a
total of ten individuals with the same supply, which of the following will be the
aggregate supply function?
a) P = 100 + 2Q
b) P = 10 + 2Q
c) P = 100 + 0.2Q
d) Q = 5P - 500
e) Q = 50P 500
Answers: 1.b 2.b 3.c 4.a 5.b 6.c 7.b 8.d 9.e 10.c 11.b 12.b 13.e
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Chapter 4
schedule represents their marginal willingness to pay for a public good, and the
Allan's Barry's
Quantity MWTP MWTP
1 $3.00 $5.00
2 $2.00 $4.00
3 $1.00 $3.00
4 $0.00 $2.00
a. 1
b. 2
c. 3
d. 4
2. Which of the following activities would generate a non-rival benefit?
a. Cindy buys some ice cream to share with her friends.
b. Cindy donates blood to the Red Cross.
c. Cindy donates to cancer research.
d. Both b and c are correct.
3. An externality is said to exist when:
a. individuals impose costs or benefits on others, but have no incentive to
take these costs and benefits into account.
b. individuals impose costs or benefits on others, and the market provides
incentives to take these costs and benefits into account.
c. individual actions are affected by external forces; for example, the loss of
Canadian jobs due to competition from abroad is an externality.
d. individual actions are affected by government policies (such as taxes) that
are externally imposed on the market.
4. Consider the market for pigs and assume there is a marginal external cost
associated with raising (producing) pigs. Without government regulation, at the
market equilibrium quantity of pigs:
a. too few pigs will be raised.
b. the marginal private cost will be less than the marginal benefit.
c. the marginal social cost will be less than the marginal benefit.
d. the marginal private cost will be less than the marginal social cost.
5. Clean water in a river is non-excludable in that:
a. the supplier cannot prevent consumption by people who do not pay for it.
b. more than one person can consume the same unit of the good at the same
time.
c. individuals ignore the effect their use has on the amount of the resource
remaining for others.
d. the market suffers from inefficiently low consumption.
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6. For which of the following goods or services is the marginal social benefit
necessarily greater than the marginal private benefit from consumption?
a. driving lessons
b. forests
c. organically grown food
d. all of the above
7. Which of the following is an example of a negative externality?
a. high prices for necessities such as drinking water in the aftermath of a
natural disaster
b. the risks posed to nonsmokers due to second-hand smoke
c. the increased risk of a traffic accident to an individual who uses a cell
phone while driving
d. unemployment in the steel industry caused by low prices of imported steel
8. Which of the following is an example of an activity generating a positive
externality?
a. You buy a new car and then find $5,000 in the door panel.
b. Your next-door neighbour mows the lawn at 6 am.
c. Your next-door neighbour installs a bat house and the bats eat mosquitoes.
d. After Joe buys health insurance, he decides to quit smoking.
9. A homeowner decides to buy three large dogs that sleep outdoors and howl at the
moon. An externality associated with this decision is
a. the increased work for the homeowner in yard cleanup.
b. the veterinary costs of keeping the dogs healthy.
c. the neighbours' lost sleep.
d. the homeowner's lost sleep.
e. the cost of purchasing the dogs.
10. Consider a rival good. At the socially optimal level of provision of this good, the
marginal
a. sacrifice society needs to make to supply the last unit of the good is more
than each consumer's marginal willingness to pay.
b. cost of provision of the last unit of the good is more than all consumers'
combined marginal willingness to pay.
c. cost of provision of the last unit of the good is equal to all consumers'
d. cost of provision of this good is zero.
e. cost of provision of the last unit of the good is equal to the consumers'
marginal willingness to pay.
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11. Consider a non-rival good. At the socially optimal provision of this good, the
marginal
a. cost of provision of the last unit of the good is equal to all consumers'
b. cost of provision of this good is zero.
c. sacrifice society needs to make to supply the last unit of the good is more
d. cost of provision of the last unit of the good is more than all consumers'
e. cost of provision of the last unit of the good is equal to the consumers'
12. A good example of a product that is both nonexcludable and nonrivalrous is

a. natural gas.
b. grazing land.
c. food.
d. electricity.
e. public information.
13. If a negative externality is associated with the production of some good, then
a. marginal social cost minus marginal private cost is negative.
b. the price is equal to firms' marginal private cost.
c. the marginal social cost is less than the marginal social benefit.
d. too little of the good is being produced by the firm.
e. marginal social cost minus marginal private cost is positive.
14. Suppose the production of DVDs generates sulfur dioxide, an air pollutant. Then
the equilibrium market quantity of DVDs produced and consumed:
a. equals the socially optimal quantity.
b. may be more than, less than, or equal to the socially optimal quantity.
c. is less than the socially optimal quantity.
d. is more than the socially optimal quantity.
15. Which of the following is an example of an activity generating a negative

externality?
a. After Jane bought health insurance, she began racing motorcycles on the
weekends.
b. You buy a new car, then discover it needs a new transmission.
c. Your next-door neighbour mows the lawn at 6 am.
d. The only two coffee shops in town conspire to raise prices.
16. Which of the following is an example of a non-excludable good?

a. coast-guard services
b. police protection
c. national defence
d. all of the above
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17. An external benefit is a(n):
a. benefit that accrues to foreign (external) firms due to the actions of
domestic firms.
b. benefit that individuals or firms confer on others without receiving
compensation.
c. example of a negative externality.
d. benefit that accrues to domestic firms due to the actions of foreign
(external) firms.
18. Television programs are non-rival because:

a. the market suffers from inefficiently low consumption.
b. the supplier cannot prevent consumption by people who do not pay for
them.
c. more than one person can consume the same unit of the good at the same
time.
d. individuals ignore the effect their use has on the amount of the resource
19. A good example of a product that is both nonexcludable and nonrivalrous is

a. knowledge from scientific research.
b. the earths oil reserves.
c. going to the movie theatre.
d. electricity.
20. Suppose that Mick and Cher are the only two members of society and are willing to pay
$10 and $8, respectively, for the third unit of a public good. Also, assume that the
marginal cost of the third unit is $17. We can conclude that:
a. the third unit should not be produced.
b. the third unit should be produced.
c. zero units should be produced.
d. 4 units should be produced.
21. No individual is willing to pay for providing the efficient level of a public good
since the:
a. individual's marginal benefit is less than the marginal social benefit.
b. marginal benefit of allowing one more individual to consume the good is
zero.
c. marginal cost of production is zero.
d. good will be non-rival, and thus underconsumed.
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22. If common resource use is determined by the free market, the:
a. resource may not be efficiently allocated, but society will be better off
than if the government intervened and tried to improve the situation, since
government intervention always makes a bad situation worse.
b. resource will be underused, since the marginal benefit will be equated to
the marginal private cost of production, which is greater than the marginal
social cost.
c. resource will be overused, since the marginal benefit will be equated to the
marginal private cost of production, which is less than the marginal social
cost.
d. resource will be overused, since the marginal benefit will be equated to the
marginal private cost of production, which is greater than the marginal
social cost.
Figure: Traffic Lights in Sleepytown
23. (Figure: Traffic Lights in Sleepytown) Sleepytown has 1,000 residents, and the
accompanying figure shows the marginal social benefit and marginal cost of
traffic lights in town. We know that each of the residents has the same individual
marginal benefit per traffic light. Without government intervention, the town will
have _____ traffic lights.
a. 12
b. 4
c. 8
d. 0
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traffic lights in town. We know that each of the residents has the same individual
marginal benefit per traffic light. If the government provides traffic lights, the
socially efficient quantity is:
a. 12.
b. 8.
c. 4.
d. 0.
traffic lights in town. We know that each resident has the same individual
marginal benefit per traffic light. If the town's population doubles, and the new
residents share the identical individual marginal benefit of the existing residents,
the socially efficient quantity of traffic lights will rise to:
a. 16.
b. 10.
c. 6.
d. 0.
26. Which of the following is an example of an activity that generates an externality?

a. Bob's Service Station dumps used oil in the river.
b. Bob renovates a run-down house in the neighbourhood.
c. Bob occasionally drives while drunk.
d. All of the above are examples.
27. The difference between the marginal social cost curve and the marginal cost of
production curve is the:
a. marginal external cost.
b. producer's supply curve.
c. marginal external benefit.
d. Either a) or c).
28. Consider a rival good. At the socially optimal level of provision of this good, the
marginal
a. sacrifice society needs to make to supply the last unit of the good is more
b. cost of provision of the last unit of the good is equal to the consumers'
c. cost of provision of the last unit of the good is equal to all consumers'
d. cost of provision of this good is zero.
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schedule represents their marginal willingness to pay for a private good, and the
Allan's Barry's
Quantity MWTP MWTP
1 $3.00 $5.00
2 $2.00 $4.00
3 $1.00 $3.00
4 $0.00 $2.00
a. 1
b. 2
c. 3
d. 4
30. Which of the following activities would generate a non-rival benefit?
a. Cindy buys some orange juice to share with her friends.
b. Cindy donates blood to the Red Cross.
c. Cindy volunteers at a wildlife rescue hospital.
d. Both b and c are correct.
31. Which of the following goods best fits the characteristics of a private good?
a. national defence
b. clean water
c. a pizza
d. police protection
32. Suppose the cost of a park in the town of Grayville would be $300,000, and each
person in the town has a marginal willingness to pay of $500. Which of the
following statements is NOT true?
a. In a market equilibrium, the park would not be provided.
b. The marginal social benefit for the park would be greater than $500.
c. If the government tries to get people to pay individually for the park there
may be a free rider problem.
d. The park should only be provided if there is a population of at least 500
people.
33. A homeowner decides to buy three cats that go outdoors to hunt and kill
endangered songbirds. An externality associated with this decision is
a. the homeowner's lost sleep when the cats run around inside the house.
b. the decrease in the songbird population.
c. the extra cost to feed the cats on days when they do not get any birds.
d. the increased work for the homeowner to clean up bird feathers.
34. Which of the following goods best fits the characteristics of a private good?
a. a professor giving a lecture in a large classroom
b. an ice-cream cone
c. fire protection
d. disease prevention
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35. Market failure occurs with public goods because
a. of the free rider problem.
b. individuals' marginal willingness to pay is more than the marginal social
benefit.
c. the marginal cost of provision is more than the marginal social benefit.
d. Both a and c are correct.
36. The right and efficient amount of a government provided public good will be
produced when:
a. the government produces up to the quantity where marginal revenue =
marginal benefit.
b. the government makes the highest level of profit from producing it.
c. the government can exclude the payers from non-payers.
d. the government produces up to the quantity where marginal benefit =
marginal cost.
37. If left totally to the free market, the amount of police protection provided in a city
would be _____ than it is now, and free-riders would pay _____ for police
protection.
a. more; more
b. more; nothing
c. less; nothing
d. less; a higher price
38. Public goods should be produced up to the point where the marginal cost of
production equals:
a. the maximum price any individual is willing to pay for that unit.
b. the sum of the individual marginal benefits from all consumers of that
unit.
c. zero, which is the marginal cost of allowing another individual to consume
the good.
d. the highest marginal benefit from any individual consumer of the good.
39. The problem with common resources is similar to the problem with negative
externalities because:
a. both issues deal with natural resources.
b. the marginal social benefit from producing another unit exceeds the
individual's marginal benefit.
c. the marginal social cost from producing another unit exceeds the
individual's marginal cost.
d. the marginal cost of producing another unit exceeds the individual's
marginal benefit.
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40. If drivers decide to make phone calls without considering the costs imposed on
others, the:
a. number of phone calls made while driving will be above the socially
optimal quantity.
b. number of phone calls made while driving will be below the socially
optimal quantity.
c. marginal social cost curve will lie below the marginal cost of production
curve.
d. marginal social benefit curve will lie below the marginal social cost curve.
41. Suppose the production of roses generates a positive externality in that travelers
enjoy the scenic rural vistas. Then the market price of roses:
a. is less than the marginal social cost of roses.
b. is more than the marginal social cost of roses.
c. equals the marginal social benefit of roses.
d. may be more than, less than, or equal to the marginal social benefit of
roses.
42. When Joe watched a television movie, his viewing was _____ in consumption
because other people _____ able to view the movie at the same time Joe did.
a. non-rival; were
b. rival; were
c. rival; were not
d. non-rival; were not
43. For a good to be efficiently provided by a market economy, which of the
following characteristics is essential?
a. It is rival in consumption.
b. It is excludable.
c. It is a common resource.
d. Both a and b are essential.
44. Suppose the small town of Falls Valley estimates the marginal cost of providing
one more treatment for mosquito control at $100,000. The town should provide
the additional mosquito control only if the marginal:
a. benefit for any individual citizen is at least $100,000.
b. benefit for all individual citizens adds up to at least $100,000.
c. social cost of mosquito control is more than $100,000.
d. social cost of mosquito control is less than $100,000.
45. Common resources tend to be overused because:

a. individuals tend to ignore the cost their use of the resource has on others.
b. the individual marginal cost is greater than the marginal social cost.
c. common resources are non-rival and non-excludable.
d. the marginal cost of allowing 1 more unit of consumption is zero.
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46. Common resources tend to be overused when not regulated by the government
because common resources
a. are non-excludable.
b. are non-rival.
c. cause a negative externality when consumed.
d. Both a and c.
47. Which of the following would be considered a private good?

a. Wildlife
b. Water
c. A cell phone
d. A sidewalk
48. Which of the following events would create benefits that have the same
characteristics as a public good?
a. Susan decides to grow her own vegetables.
b. Mike catches a thief, who then goes to jail.
c. Nelson invites a large group of friends over for dinner.
d. None of the above have the same characteristics as a public good.
49. Which of the following goods or services would be considered non-rival?

a. Students at a massage therapy school offer free massages to seniors.
b. The sky train system.
c. An outdoor music concert

a. the market suffers from inefficiently low consumption.
b. more than one person can consume the same unit of the good at the same
time.
c. the supplier cannot prevent consumption by people who do not pay for
them.
d. individuals ignore the effect their use has on the amount of the resource
51. Free riding

a. is rational from an individuals perspective.
b. happens when people experience positive externalities.
c. can lead to an under-allocation of resources toward the good.
52. Individual demand curves should be summed horizontally only when the good is
a. rival
b. non-rival
c. excludable
d. non-excludable
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53. Consider the market for cows and assume there is a marginal external cost
associated with raising (producing) cows. Without government regulation, at the
market equilibrium quantity of cows:
a. too few cows will be raised.
b. the marginal private cost will be less than the marginal social cost.
c. the marginal private cost will be less than the marginal benefit.
d. the marginal social cost will be less than the marginal benefit.
54. Chanterelles are a delicious wild mushroom that can be picked in forests around
the lower mainland in the fall. Over the past decade mushroom pickers have
noticed a decline in the mushroom population, which they blame on over-
harvesting. This problem arises because the chanterelles are
a. non-excludable
b. non-rival
c. public goods
d. all of the above
55. Individual demand curves should be summed vertically only when the good is
a. rival
b. non-rival
c. excludable
d. non-excludable
56. Street racing is considered a social problem because it is dangerous. Sky diving is
also dangerous, but not considered a social problem. Why?
a. With sky diving the marginal private benefits are greater than the marginal
social benefits, while for street racing the marginal private benefits are less
than the marginal social benefits.
b. With sky diving the marginal private benefits are greater than the marginal
social benefits, while for street racing the marginal private benefits equal
the marginal social benefits.
c. With sky diving the marginal private benefits equal the marginal social
benefits, while for street racing the marginal private benefits are greater
d. With sky diving the marginal private benefits equal than the marginal
social benefits, while for street racing the marginal private benefits are less
57. The major difficulty in asking people to pay voluntarily what a government program is
worth to them is:
a. the free-rider problem.
b. people have poor judgment.
c. the fact that people don't know what programs they want.
d. we would increase government expenditures too much.
20
58. The right and efficient amount of a government provided public good will be
produced when:
a. the government produces up to the quantity where marginal benefit =
marginal cost.
b. the government produces up to the quantity where marginal revenue =
marginal benefit.
c. the government makes the highest level of profit from producing it.
d. the government can exclude the payers from non-payers.
59. A market equilibrium when the market contains a positive externality will
a. Overproduce if it is a positive consumption externality.
b. Overproduce if it is a positive production externality.
c. Overproduce only if there is both a positive consumption externality and a
positive production externality.
d. Not overproduce.
60. When a positive production externality exists in a market (no consumption

externality) the market equilibrium is not efficient because at that quantity
a. Marginal social benefit marginal social cost
b. Marginal private benefit marginal private cost
c. Marginal private cost < marginal social cost
d. Marginal private cost < marginal social benefit
61. Jason is on a diet. He wants to lose 10 lbs before swimsuit season, but his biggest
weakness is bacon and he lives right above a breakfast restaurant. The delicious
smell of sizzling bacon drifts into his windows, making Jason upset that he cannot
have any. Jason is experiencing a
a. Negative consumption externality.
b. Negative production externality.
c. Positive consumption externality.
d. Positive production externality.
62. Sharon lives in an area that gets a lot of mosquitoes in the summer. She buys a
powerful mosquito repellant that keeps the mosquitoes away for up to 1 km.
Sharon is providing her neighbours with
a. A non-excludable benefit.
b. A non-rival benefit.
c. A positive externality.
63. Joe buys organic vegetables, which are better for the environment than regular
vegetables. What kind of externality is involved?
a. Positive consumption
b. Positive production
c. Negative consumption
d. Negative production
21
64. Which of the following would be an example of a private good?
a. trees
b. shoes
c. money
d. internet
e. all of the above
65. Which of the following would be an example of a public good?
a. air
b. sunlight
c. oil
d. all of the above
e. only a and b
66. Which of the following would be an example of a common resource?
a. oil
b. sunlight
c. air
d. all of the above
e. only a and b
67. Which of the following would be an example of a congestible public good?
a. a bridge
b. streetlights
c. military protection
d. a clean-up at a public beach
e. none of the above are examples
68. What is the difference between a public good and a common resource?
a. Public goods are rival while common resources are nonrival.
b. Public goods are nonrival while common resources are rival.
c. Access to public goods is controlled by the government while access
to common resources is not controlled.
d. Provision of public goods generates a negative externality while
consumption of common resources generates a positive externality.
69. How is a congestible public good different from a public good?
a. Congestible public goods are excludable while public goods are
nonexcludable.
b. Congestible public goods are nonexcludable while public goods are
excludable.
c. Congestible public goods are always rival while public goods are
sometimes nonrival.
d. Congestible public goods are sometimes rival while public goods are
always nonrival.
22
70. A market contains a negative consumption externality and a positive production
externality, but the consumption externality is stronger than the production externality.
What should the government do to correct the market failure?
a) Nothing; the market will correct itself over time.
b) The government should take control of production of the good to
eliminate the externalities.
c) The government should subsidize producers.
d) The government should tax consumers.
71. A market contains a negative consumption externality and a positive production

externality, but the production externality is stronger than the consumption externality.
What should the government do to correct the market failure?
a) Nothing; the market will correct itself over time.
b) The government should take control of production of the good to
eliminate the externalities.
c) The government should subsidize producers.
d) The government should tax consumers.
Figure'B:'The'following'diagram'illustrates'the'market'for'a'good.''Use'the'diagram'
to'answer'the'following'questions.'
'
'''''''''''''''''''''''''''$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''MPC'
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'
''''''''''''''''''''''''''''b'''''''''''''''''''e''''''''''''''''''''''f'''''''''''''''''''''''''''''''''''''''''MSC'
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'
72. According to figure B, what types of externalities exist in this market?

a. A negative consumption externality and a negative production externality.
b. A negative consumption externality and a positive production externality.
c. A positive consumption externality and a negative production externality.
d. A positive consumption externality and a positive production externality.
23
73. According to figure B, which quantity would be the market equilibrium quantity?
a) Q1
b) Q2
c) Q3
d) Q4
74. According to figure B, which quantity would be the socially efficient equilibrium
quantity?
a) Q1
b) Q2
c) Q3
d) Q4
75. According to figure B, which is the social surplus at the market equilibrium
quantity?
a) a e l d
b) a i d
c) b h c
d) (b h c) (g h m)
e) (b h c) - (f h n)
76. According to figure B, which is the social surplus at the socially efficient
equilibrium quantity?
a) b h c
b) b k d
c) a i d
d) a g c
e) (a g c) (g f i)
77. According to figure B, which is the loss of social surplus at the market
equilibrium quantity?
a) g i j
b) g h m
c) f g i
d) f h n
e) e i l
78. Individual demand for a public good is given by P = 5 0.2Q. If there is a total
of five individuals with the same demand, which of the following will be the
a) Q = 25 P
b) Q = 125 25P
c) Q = 25 25P
d) Q = 125 P
e) None of the above.
24
79. If a negative externality is associated with the production of some good, then
a) marginal social cost minus marginal private cost is negative.
b) the price is equal to firms' marginal private cost.
c) the marginal social cost is less than the marginal social benefit.
d) too little of the good is being produced by the firm.
e) marginal social cost minus marginal private cost is positive.
80. Which of the following goods would best be defined as a private good?
a) A coat
b) A lake
c) A traffic light
d) The internet
81. Which of the following goods would best be defined as a common resource?
b) A park
c) A beautiful view of the mountains
d) A lake used for drinking water
e) An endangered animal species (hunting is prohibited)
82. Which of the following statements incorrectly describes the difference between a
market equilibrium and a socially efficient equilibrium?
a) A market equilibrium is derived from private interests, while a socially
efficient equilibrium is derived from social interests.
b) Total surplus is always maximized at the market equilibrium, but not
necessarily at the socially efficient equilibrium.
c) The market equilibrium and the socially efficient equilibrium will be
the same for a private good in the absence of externalities.
d) None; all of the above statement are correct.
83. In which of the following situations would there most likely be market failure?
a) A good has a positive consumption externality and the government is
subsidizing consumers.
b) A good has both a positive consumption externality and a negative
production externality of equal value.
c) A good is non-excludable and being provided through markets.
d) None of the above
84. In which of the following situations would total surplus be maximized at Qx?
a) At Qx MSB > MSC
b) At Qx MSB > MPB
c) At Qx MPC = MPB
d) At Qx MSB = MSC
25
85. Stanley Park and Deer Lake Park are examples of:
a) Environmental goods
b) Substitutes
c) Congestible public goods
d) All of the above
86. Which of the following would generate a positive consumption externality?

a. A book made from recycled paper
b. A good packaged in biodegradable plastic
c. Bread baked using only solar power
d. All of the above
87. Which of the following goods would best be defined as a public good?
a. Knowledge about history
b. A history book
c. A film about history playing at a movie theatre
d. All of the above
88. Which of the following results when a good is non-excludable?

a) Free riding
b) A positive externality
c) Market failure
d) Marginal social benefits are greater than marginal private benefits
e) All of the above
89. Which of the following would generate a negative consumption externality?

a) Vegetable grown with the use of harmful chemicals
b) Furniture made from an endangered tree species
c) Cigarettes
d) All of the above
90. For which of the following goods would there NOT be market failure?
a) A good has a negative production externality and the government taxes the
good at a rate equal to the marginal external cost
b) A good is non-rival and non-excludable
c) A good has both a positive consumption and a positive production
externality
d) A good has a negative production externality and the government
subsidizes the good at a rate equal to the marginal external cost
91. In which of the following situations should the government tax a good in order to
improve market efficiency?
a) When a good has a negative consumption externality
b) When a good has a positive production externality
c) When a good is non-rival
d) When a good is rival
e) Both (a) and (d)
26
92. In which of the following situations will total surplus necessarily NOT be maximized at Qx?
a) At Qx TB > TC
b) At Qx MSB > MSC
c) At Qx MSB MSC = 0
d) At Qx MSB = MSC
e) None of the above are correct
93. A congestible public good differs from a public good in that it is sometimes
a) Rival
b) Excludable
c) Non-rival
d) Non-excludable
94. An externality exists when

a. the government intercedes in the operation of private markets by forcing the market to adjust to
the balance of supply and demand.
b. markets are not able to reach equilibrium.
c. a firm sells its product in a foreign market.
d. a person engages in an activity that influences the well-being of a bystander and yet neither pays
nor receives payment for that effect.
e. None of the above are correct.
95. Private markets fail to account for externalities because

a. externalities don't occur in private markets.
b. sellers include costs associated with externalities in the price of their product.
c. decisionmakers in the market fail to take account of the external effects of their
behaviour.
d. the government can easily correct any adverse effect on the market that externalities
may cause.
e. All of the above are correct.
96. If 10 units of a good are being produced and consumed, and for the 11th good the
marginal private benefit exceeds the marginal social cost, then the 11th good should
a) be produced and consumed.
b) not be produced and consumed.
c) only be produced and consumed if there is a negative consumption externality.
d) The answer cannot be determined.
97. A tax designed to correct market failure in a market with a negative production externality
should
a) Be equal to the marginal external cost
b) Be equal to the difference between the marginal social cost and marginal private
cost at the socially efficient quantity.
c) Be equal to the difference between the marginal social cost and marginal private
benefit at the socially efficient quantity.
d) All of the above are correct.
e) Only (a) and (b) are correct.
27
98. When a market experiences a positive consumption externality,
a. the demand curve does not reflect the value to society of the good.
b. The supply curve does not reflect the value to society of the good.
c. too much of the good is being produced.
d. the government can correct the market failure by imposing a tax on the product.
e. the private value is greater than the social value.
99. When a good is excludable it means that

a. one person's use of the good diminishes another person's ability to use it.
b. people can be prevented from using the good.
c. no more than one person can use the good at the same time.
d. everyone will be excluded from obtaining the good.
100. If one person's use of a good diminishes another person's enjoyment of it, the good is
a. rival.
b. excludable.
c. normal.
d. exhaustible.
101. Which of the following would NOT be considered a private good?

a. tennis shoes
b. pizza
c. french fries
d. cable TV
102. Water is considered

a. excludable but not rival.
b. rival but not excludable.
c. both excludable and rival.
d. neither excludable nor rival.
103. The government provides public goods because

a. private markets would not produce any of the good.
b. private markets would not produce the efficient quantity of the good.
c. private markets would charge too high a price for the good.
d. the government produces public goods more efficiently than private markets can.
Table: The Socially Optimal Quantity of Widgets
Price& QD& QS&

20& 15& 5&
26& 12& 7&
28& 11& 8&
32& 9& 9&
36& 7& 10&
38& 5& 11&
28
104. (Table: The Socially Optimal Quantity of Widgets) The accompanying table lists
several values for price (P), quantity demanded (QD) and quantity supplied (QS) from
the market demand and supply curves for widgets. Suppose that the production of
widgets generates a marginal external cost equal to $10. The socially optimal quantity of
widgets will be:
A) 5.
B) 7.
C) 9.
D) 11.
105. Suppose the production of roses generates a positive externality in that travelers
enjoy the scenic rural vistas. Then at the market equilibrium the market price of roses:
A) is less than the marginal social benefit of roses.
B) is more than the marginal social benefit of roses.
C) equals the marginal social benefit of roses.
D) may be more than, less than, or equal to the marginal social benefit of
roses.

A) the supplier cannot prevent consumption by people who do not pay for
them.
B) more than one person can consume the same unit of the good at the same
time.
C) individuals ignore the effect their use has on the amount of the resource
D) the market suffers from inefficiently low consumption.
107. For a good to be efficiently provided by a market economy, which of the following
characteristics is essential?
A) It is rival in consumption.
B) It is excludable.
C) It is a common resource.
D) Both a and b are essential.
108. Which of the following is used to provide most public goods?

A) voluntary contributions
B) taxes
C) self-interested business firms
D) all of the above
109. In which of the following cases is the marginal social benefit necessarily greater
than the marginal private benefit?
A) public goods
B) common resources
C) private goods
D) none of the above
29
110. Consider an economy with just two citizens. If Jim's marginal benefit from
mosquito control is $10 while Jane's marginal benefit is $25, then the optimal level of a
public good like mosquito control occurs when the marginal cost of mosquito control is:
A) $25.
B) $17.50.
C) $10.
D) $35.
The following diagram shows the aggregate demand and supply for good X. There are a
total of 10 consumers in the market. Use this diagram to answer questions 10 12.
$
100
20 AS
AD
0
0 50 Q
111. If good X is a private good and the number of consumers decreases from 10 to 5,
what will be the new equilibrium quantity in the market?
A. 0
B. 10
C. 20
D. 30
E. 40
112. If good X is a private good and the number of consumers decreases from 10 to 5,
what will be the new equilibrium quantity in the market?
A. 0
B. 10
C. 20
D. 30
E. 40
113. Suppose good X is a public good, but it is being sold through a market. What
would the market equilibrium quantity be?
A. 0
B. 10
C. 20
D. 30
E. 40
30
Answers: 1.c 2.c 3.a 4.d 5.a 6.a 7.b 8.c 9.c 10.e 11.a 12.e 13.e 14.d 15.c 16.d
17.b 18.c 19.a 20.b 21.a 22.c 23.d 24.b 25.b 26.d 27.d 28.b 29.b 30.c 31.c 32.d
33.b 34.b 35.a 36.d 37.c 38.b 39.c 40.a 41.b 42.a 43.d 44.b 45.a 46.d 47.c 48.b
49.c 50.b 51.d 52.a 53.b 54.a 55.b 56.c 57.a 58.a 59.d 60.a 61.b 62.d 63.b 64.b
65.e 66.a 67.a 68.b 69.d 70.d 71.c 72.d 73.a 74.d 75.a 76.c 77.e 78.a 79.e 80.a 81.d 82.b
83.c 84.d 85.d 86.b 87.a 88.e 89.c 90.a 91.a 92.b 93.a 94.d 95.c 96.d 97.e 98.a 99.b
100.a 101.d 102.b 103.b 104.b 105.c 106.b 107.d 108.b 109.a 110.d 111.c 112.d 113.a
Chapter 5
1. Suppose that for all levels of emissions for a pollutant the marginal damage is less
than the marginal abatement cost, then the socially optimal level of emissions is
a. as much as people want.
b. greater than 0 but less than Emax.
c. 0.
d. This is not possible.
2. The optimal amount of pollution abatement is generally less than 100 percent.
Complete (100 percent ) abatement would be optimal if
a. the marginal cost of abatement is positive but less than the marginal
benefit of abatement.
b. the marginal cost of abatement exceeds the marginal benefit of abatement
at all levels of abatement.
c. the marginal cost of abatement is always zero.
d. the marginal benefit of abatement is zero.
e. none of the above -- we cannot even imagine a situation in which
complete abatement would be optimal.
3. In general, the economist's view on allocating resources to reduce pollution is that
a. the reduction of pollution should proceed up to the point where the
marginal cost of pollution reduction equals the marginal benefit to society.
b. all forms of water and air pollution should be eliminated.
c. the extent of pollution reduction should be based only on a comparison of
total costs and total benefits to the environment.
d. it is not allocatively efficient to reduce pollution.
e. government policies to reduce pollution have zero opportunity cost.
4. In the absence of government action, polluters will pollute up to the point at
which the marginal social benefit of pollution abatement is:
a. maximized.
b. equal to the marginal social cost of pollution.
c. zero.
d. greater than the marginal social cost of pollution.
31
5. The marginal benefit to society of reducing pollution declines with increases in pollution
abatement because of the law of:
a. increasing costs.
b. diminishing returns.
c. diminishing marginal utility.
d. conservation of matter and energy
6. Which graph illustrates the marginal damage caused by an accumulative

pollutant?
A B $ C
Ambient Concentration
MD MD MD
Emissions Emissions Emissions

D $ E
MD MD
Emissions Emissions
a. A
b. B
c. C
d. D
e. E
7. In the absence of any government regulations or laws, polluters will pollute up to the
point at which the marginal abatement costs
a. are maximized.
b. are equal to the marginal damage.
c. equal zero.
d. minimize the total damages.
32
8. Suppose at the current amount of pollution, the marginal damage from pollution is
less than the marginal abatement cost, then:
a. there is too little pollution.
b. there is too much pollution.
c. society is achieving the optimal amount of pollution.
d. None of the above occurs.
9. Suppose that for all levels of emissions for a pollutant the marginal damage is
greater than the marginal abatement cost, then the socially optimal level of
emissions is:
a. Emax.
b. greater than Emax.
c. 0.
d. This is not possible.
10. The benefit from pollution reduction can be measured using

a. the marginal willingness to pay for abatement.
b. the marginal damage function.
c. the change in total damages.
11. Suppose at the current amount of pollution, the marginal damage from pollution is
greater than the marginal abatement cost, then:
a. there is too little pollution.
b. there is too much pollution.
c. society is achieving the optimal amount of pollution.
d. None of the above occurs.
12. Which of the following would NOT affect the slope of the marginal damage
function?
a. A change in weather for an air pollutant.
b. A change in the level of emissions.
c. A change from biodegradable to non-biodegradable emissions.
d. A change in population.
13. Given that there is general agreement that pollution is undesirable and social
welfare is increased by reducing pollution, the optimal level of pollution in a
society is:
a. zero.
b. that level which reduces marginal social costs of pollution to zero.
c. the level of pollution at which the marginal abatement cost is equal to the
marginal benefit of pollution abatement.
d. none of the above.
33
14. Which of the following statements about the marginal damage/marginal
abatement cost model is NOT true?
a. The marginal cost of abatement increases as abatement increases.
b. The marginal damage function can represent the marginal benefit of
abatement reduction.
c. The socially efficient level of emissions could be zero.
d. At the socially efficient level of emissions total social costs are minimized.
15. Which of the following is an example of a non-market value associated with

environmental damage?
a. Smog makes it difficult to see distant mountains.
b. A decline in the polar bear population causes a loss of revenue for the
tourism industry in northern Canada.
c. Asthma sufferers have to take more medication when air pollution
increases, but the medication is paid for by the government.
d. There are no non-market values associated with environmental damage.
16. If the marginal abatement cost is less than the marginal damage at the current
level of emissions, then
a. the pollutant must be non-accumulative.
b. the emission level should be lowered.
c. it would be efficient to pollute more.
d. total social costs have been minimized.
17. Improvements in pollution abatement technology will

a. shift the marginal abatement cost curve right.
b. lower the socially efficient level of emissions.
c. cause the marginal damage curve to rotate down.
d. Both b and c.
18. If the marginal abatement cost exceeds the marginal damage at the current level
of emissions, then
a. the pollutant must be non-accumulative.
b. the emission level should be lowered.
c. it would be efficient to pollute more.
d. total social costs have been minimized.
19. Suppose the level of pollutant X is at E*, but then there is a decrease in emissions.
Which of the following would be true?
a. The new emission level is efficient as long as the total damages are less
than the total abatement cost.
b. The new emission level is efficient as long as the total damages are less
then or equal to the total abatement cost.
c. The total social costs will increase.
d. The total social costs will decrease.
34
20. The marginal cost to society of reducing pollution rises with increases in pollution
a. diminishing marginal utility.
b. conservation of matter and energy.
c. demand.
d. diminishing marginal product.
21. It is efficient to decrease emissions when

a. Total damages > total abatement costs.
b. Marginal damages > marginal abatement costs.
c. Total social costs are not maximized.
22. A socially efficient level of emissions will minimize

a. Total social costs.
b. Emissions.
c. Damages.
23. When pollution increases, the total net benefit to society is

a. TD TAC
b. TAC TD
c. TAC + TD
d. There is no benefit when pollution increases, and therefore no net benefit.
24. Which of the following would be considered a market value associated with
damage from air pollution?
a. The air pollution causes some people with lung diseases to go to the
hospital more often.
b. The air pollution is shortening the life expectancy of song birds.
c. The air pollution means some people cannot open the windows at home,
so they cannot enjoy the fresh air.
d. People are dismayed because the air pollution is causing the air to look
dark and grey instead of bright.
35
Figure'A:'The'following'diagram'illustrates'the'marginal'damage'and'marginal'
abatement'cost'for'emissions'of'a'toxic'chemical.''Use'this'diagram'to'answer'the'
following'questions.'
'
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'
''''''''''''''''''''''''''''''''i''''''''''''''''''''''j'''''''''''''''''''''''''''''''''''''''''''''''''''''k'
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''MAC'
''''''''''''''''''''''''''''''''''''''''''''
'''''''''''''''''''''''''''''''''0''''''''''''''''''E1''''''''''''''''''''''E*'''''''''''''''''''''''''''E2'''''''''''''EMAX'''''Emissions'
'
25. In figure A the total abatement cost at E = 0 is area

a. There is no total abatement cost at E = 0.
b. (0 a g) (b g EMAX)
c. 0 b EMAX
d. 0 g EMAX
e. 0 a Emax
26. In figure A the total damage at E = E2 is area

a. 0 e E2
b. g k E2
c. 0 a k E2
d. E2 k EMAX
e. E2 e b EMAX
27. In figure A the total abatement cost at E = E* is area
a. 0 g EMAX
b. 0 a g E*
c. E* g b EMAX
d. E* g EMAX
e. 0 g E*
28. In figure A the total damage at E = E* is area
a) 0 g EMAX
b) E* g EMAX
c) a g 0
d) 0 g E*
e) 0 f g E*
36
29. In figure A the total social cost when E = E* is area
a) b g EMAX
b) 0 b EMAX
c) 0 g EMAX
d) a g E* 0
30. In figure A the total social cost when E = 0 is area

a) 0 b EMAX
b) a 0 EMAX
c) 0 g EMAX
d) There is no total social cost when E = 0.
31. In figure A the net benefit of increasing emissions from E = 0 to E = E1 is area

a. i c d j
b. (0 j E1) (0 a d E1)
c. 0 j E1
d. 0 a d E1
e. 0 a d j
32. In figure A the net benefit of decreasing emissions from E = EMAX to E = E2 is

area
a. (E2 e b EMAX) (E2 k EMAX)
b. (e b EMAX k)
c. E2 e b EMAX
d. E2 k EMAX
e. g b EMAX
33. In figure A the total social cost when E = EMAX is area

a) 0 b EMAX
b) a 0 EMAX
c) 0 g EMAX
d) b g EMAX
34. In figure A the net benefit of increasing emissions from E = E2 to E = EMAX is

area
a. (e b EMAX E2) (E2 k EMAX)
b. (e b EMAX k)
c. E2 k EMAX
d. E2 e b EMAX
e. None of the above
35. In figure A the total social cost when E = EMAX is area
a. E* g e E2
b. E* g k E2
c. 0 b EMAX
d. (E* g k E2) (E* g e E2)
e. E* g b EMAX
37
36. In figure A the total abatement cost at E = EMAX is area
a. There is no total abatement cost at E = EMAX.
b. 0 a EMAX
c. 0 b EMAX
d. E* g EMAX
e. 0 g EMAX
37. In figure A the total damage at E = E1 is area
a. a d j 0
b. a g 0
c. 0 j E1
d. E1 j b EMAX
e. E1 d EMAX
38. In figure A the total social cost when E = E* is area
a. b g EMAX
b. 0 b EMAX
c. 0 g EMAX
d. a g E* 0
39. In figure A the total social cost when E = E2 is area
a. k EMAX E2
b. 0 e E2
c. 0 e k EMAX
d. e g k
40. In figure A the net benefit of increasing emissions from E = E1 to E = E2 is area
a. (E1 d k E2) (E1 j g k E2)
b. (e g k) (d g j)
c. (E1 d k E2) (E1 j e E2)
d. E1 j g k E2
e. E1 j e E2
41. In figure A the net benefit of decreasing emissions from E = E1 to E = 0 is area

a. (0 a EMAX) (E1 d EMAX)
b. d g j
c. (0 a d E1) - (0 j E1)
d. (0 j E1) (0 a d E1)
e. a d j 0
42. Individual marginal abatement cost for a polluter is given by MAC = 20 0.5E.
If there is a total of twenty polluters, all with the same MAC function, which of the
following would be the aggregate MAC function?
a. E = 800 2MAC
b. E = 800 40MAC
c. MAC = 400 10E
d. MAC = 20 10E
e. MAC = 400 0.5E
38
43. Suppose at the current amount of pollution, the marginal benefit of abatement is
greater than the marginal cost of abatement, then:
A) there is too little pollution.
B) there is too much pollution.
C) society is achieving the optimal amount of pollution.
D) None of the above occurs.
44. The marginal benefit to society of reducing pollution declines with increases in pollution
A) increasing costs.
B) diminishing returns.
C) diminishing marginal utility.
D) conservation of matter and energy.
Answers: 1.a 2.c 3.a 4.a 5.c 6.e 7.c 8.a 9.c 10.d 11.b 12.b 13.c 14.b 15.a 16.b
17.b 18.c 19.c 20.d 21.b 22.a 23.b 24.a 25.e 26.a 27.d 28.d 29.c 30.b 31.e 32.a 33.a
34.b 35.c 36.a 37.c 38.c 39.c 40.c 41.d 42.b 43.b 44.c
Chapter 6
1. A new pollution tax is going to require all drivers to pay $1000 per year. This tax
would be characterized as:
a. Proportional
b. Progressive
c. Regressive
d. There is not enough information to answer the question.
2. A new environmental project will provide Dora, whose income is $80,000, with
$800 of benefits; and Sam, whose income is $60,000, with $700 of benefits. Dora
will have to pay $250 toward the project, and Sam will have to pay $200. This
project would be characterized as:
a. Horizontal
b. Proportional
c. Progressive
d. Regressive
3. An important problem in evaluating public projects through the use of cost-
benefit analysis is that:
a. Real costs cannot be stated in monetary terms.
b. One must decide whether to compare total costs and total benefits or marginal
costs and marginal benefits.
c. Non-market costs and benefits associated with such projects may be difficult to
measure.
d. The funding of such projects is inherently inflationary.
39
The following table shows data for a series of increasingly extensive flood control projects:
Plan Options Total Cost per year Total benefit per year
Plan A--levees $10,000 $16,000
Plan B--small reservoir $24,000 $36,000
Plan C--medium reservoir $44,000 $52,000
Plan D--large reservoir $72,000 $64,000
4. Refer to the above data. On the basis of cost-benefit analysis government should:
a. undertake Plan D.
b. undertake Plan C.
c. undertake Plan B.
d. undertake Plan A.
5. The town of Cedar Valley has imposed a property tax that is a fixed amount, so
everyone pays $2000. This tax would be defined as
a. Horizontal.
b. Proportional.
c. Progressive.
d. Regressive.
6. A new public project is going to provide Stella with a benefit of $500 and Steve a
benefit of $400. Stella will have to pay $300 and Steve will have to pay $200.
Stellas income is $75,000 and Steves is $75,000. This project would be defined
as
a. Horizontal.
b. Proportional.
c. Progressive.
d. Both a and b.
7. In the town of Cedar Valley, Stella has an income of $100,000 and pays a
property tax of $3000, while Steve has an income of $75,000 and pays a property
tax of $2000. This tax would be defined as
a. Horizontal.
b. Proportional.
c. Progressive.
d. Regressive.
Stellas income is $100,000 and Steves is $75,000. This project would be
defined as
a. Horizontal.
b. Proportional.
c. Progressive.
d. Regressive.
40
9. In order to pay for a project the government is going to charge everyone a new
tax. Stella has an income of $100,000 and pays a tax of $5000, while Steve has an
income of $75,000 and pays a tax of $2000. This tax would be defined as
a. Horizontal.
b. Proportional.
c. Progressive.
d. Regressive.
Stellas income is $100,000 and Steves is $75,000. This project would be
defined as
a. Horizontal.
b. Proportional.
c. Progressive.
d. Regressive.
11. The Canadian government wants to fund the vaccinations of poor children in
Africa. In order to use the funds most efficiently they should use
a. Benefit cost analysis.
b. Cost effectiveness analysis.
c. Distribution analysis.
d. Sensitivity analysis.
12. A new environmental project is going to provide Erin with $600 of benefits and
Melissa with $800 of benefits. If Erins income is $40,000 per year and Melissas
income is $50,000 per year, what type of distribution will the project create?
a. Proportional equity
b. Progressive equity
c. Regressive equity
d. Cannot be determined.
13. A logging company is considering moving to a new area. They have estimated
the following information about revenues and costs in four different locations.
Assume that both revenues and costs are annual and begin at t = 0. Use a discount
rate of 3% to determine which location they should choose.
Location Duration Revenue per year Costs per year

A t = 0, , 11 $10 million $8 million
B t = 0, , 8 $14 million $11 million
C t = 0, , 15 $12 million $10 million
D t = 0, , 19 $9 million $8 million
a. A
b. B
c. C
d. D
41
14. An economist has done a benefit cost analysis of a government project and
obtained the following results:
Using r = 0.02 NPV = $2.84 million
Using r = 0.06 NPV = - $1.21 million
Based on these results, what should the economist conclude?

a. The project might not be worthwhile.
b. The government should choose a 2% discount rate.
c. The government should choose a 6% discount rate.
d. The project should be completed.
15. Cost-benefit analysis attempts to:

a. compare the real worth, rather than the market values, of various goods
and services.
b. compare the relative desirability of alternative distributions of income.
c. determine whether it is better to cut government expenditures or reduce
taxes.
d. compare the benefits and costs associated with any economic project or
activity.
16. Which of the following statements is TRUE about the relationship between a
given marginal benefit function and total benefits?
a. Total benefits will only increase when marginal benefits increase.
b. Total benefits are maximized when marginal benefits equal zero.
c. The marginal benefit curve is the inverse of the slope of the total benefit
curve.
d. None of the above are true.
17. Which of the following statements is TRUE about the relationship between a
given marginal cost function and total costs?
a. Total costs will increase as quantity increases when marginal costs are
constant as quantity increases.
b. Total costs are maximized when marginal costs are minimized.
c. The marginal cost curve is the inverse of the slope of the total cost curve.
18. The city of Coquitlam is going to impose a $100 annual vehicle tax on all
residents who own a vehicle (per vehicle) to help pay for the new Skytrain line.
This tax would be defined as
a. Horizontal.
b. Proportional.
c. Progressive.
d. Regressive.
42
19. The government needs to choose between two environmental projects, A and B.
The government should choose A as long as
a. (present value of the costs of A) (present value of the benefits of A) 0
b. The ratio of the present value of benefits to the present value of the costs
is greater for A than B.
c. The net present value of A is greater than the net present value of B.
20. The municipality of Burnaby wants to purchase land for a new park and is asking
residents to contribute money. Sams willingness to pay is $600 and Carols
willingness to pay is $500. Carol has an income of $40,000 and is asked to
contribute $300, while Sam has an income of $50,000 and is asked to contribute
$400. What kind of equity will this generate?
a. Horizontal
b. Proportional
c. Progressive
d. Regressive
21. The benefits of improvements to the environment can be measured using
a. consumer surplus.
b. the decrease in total damage.
c. the decrease in total social costs.
22. Which of the following can result from uncertainty in benefit cost analysis?
a. A lower probability of future benefits can lower the net present value.
b. A higher probability of future benefits can lower the net present value.
c. A lower probability of future costs can lower the net present value.
d. A higher probability of future costs can increase the net present value.
23. Ryan is receiving $6000 of benefits from and paying $4000 towards a government
project. His income is $100,000 per year. Stephanie is paying $5000 towards the project
and earns $120,000 per year. Which statement is TRUE?
a. If Stephanie receives $8000 of benefits from the project the distribution will be
regressive.
b. If Stephanie receives $7200 of benefits from the project the distribution will be
proportional.
c. If Stephanie receives more than $7200 of benefits from the project the distribution
will be regressive.
24. Economists use at least two different discount rates when performing a benefit
cost analysis to
a. calculate a net discount value.
b. calculate the benefit cost ratio.
c. perform a risk analysis.
d. perform a sensitivity analysis.
43
25. An economist doing a benefit cost analysis of a highway construction project uses
two different values for future labour costs. This is an example of
a. an expected value.
b. an uncertainty ratio.
c. a cost effectiveness analysis.
d. a sensitivity analysis.
26. A firm is trying to decide whether or not to purchase new capital in order to
expand production. The expansion could greatly increase profits, but the firm is
uncertain whether or not it will be worthwhile. In making a decision the firm
should use:
a. Cost effectiveness analysis
b. Benefit analysis
c. Sensitivity analysis
d. Both b and c.
27. In which situation should an economist use cost effectiveness analysis?

a. When an economist can only calculate the private costs, and not the social
costs.
b. When an economist can only calculate the total costs, and not the marginal
costs.
c. When an economist can only calculate the total costs, and not the total
benefits.
d. When there are no benefits.
28. Which of the following is NOT TRUE about the total cost/total benefit model
compared to the marginal cost/marginal benefit model?
a. Total net benefits can be calculated using either a TC/TB model or a
MC/MB model.
b. The efficient quantity can be determined using either a TC/TB model or a
MC/MB model.
c. The MC and MB represent the slope of the TC and TB respectively.
d. The efficient quantity is at the equilibrium of both the TC/TB curves and
the MC/MB curves.
29. Suppose a business does a benefit cost analysis of a proposed project using three
different discount rates: 3%, 5%, and 7%. Their results are, respectively, $10.2
million, $4.7 million, and -$0.3 million. What should they conclude?
a. They should choose a 3% discount rate.
b. There will be a better outcome if the interest rate remains low for the
duration of the project.
c. They will profit from the project no matter what the interest rate is in the
future.
d. Both a and b.
44
30. Polluters are more likely to disobey environmental laws if
a. There is little to no monitoring.
b. There is little to no sanctioning.
c. The expected cost is low.
31. When performing a benefit cost analysis of different options to provide clean
water to a community, the option that should be chosen is the option that
a. Maximizes the total net benefit.
b. Maximizes the marginal net benefit.
c. Maximizes the benefit to cost ratio.
32. Why should economists use sensitivity analysis in a benefit cost analysis?
a. It will help minimize calculation errors.
b. It will ensure that all people affected by a project are taken into account.
c. It will help determine how sensitive the environment is to different kinds
of emissions.
d. It will help identify a range of possible outcomes, depending on different
possible future variables.
33. If you are faced with an offer in which you must pay a cost today, but the benefits
are both uncertain and in the future, which of the following would make you more
likely to accept the offer?
a. A lower probability of the future benefit.
b. A longer time period before the benefits occur.
c. A lower discount rate.
d. A higher benefit to cost ratio.
34. An environmental project in which everyone receives exactly the same net
benefits will create what type of equity?
a. Horizontal
b. Proportional
c. Progressive.
d. Both a and c.
35. Which of the following statements best defines the net present value? The net
present value is
a. The sum of all future net benefits for each year of a project.
b. The sum of the present value of all future net benefits for each year of a
project.
c. The total benefits in present value terms plus the total costs in present
value terms.
d. The net value of all present benefits and costs, excluding any future
benefits and costs.
45
36. Which of the following best defines net present value?
a) Present value of total costs present value of total benefits
b) Present value of total benefits present value of total costs
c) Present value of marginal costs present value of marginal benefits
d) Present value of marginal benefits present value of marginal costs
37. Which quantity would be the most efficient?
a. The quantity where the difference between total benefits and total costs is
minimized.
b. The quantity where the difference between total benefits and total costs is
maximized.
c. The quantity where total benefits and total costs are equal.
d. The quantity where the marginal net benefit is maximized.
e. Both b and d
38. What is the purpose of sensitivity analysis?
a. To test how sensitive the public is to the effects of an environmental project.
b. To gain confidence about whether or not an environmental project will be
worthwhile.
c. To compare the net present values of different environmental projects.
d. To test whether or not any errors were made during a benefit cost analysis.
39. Under what circumstances is benefit cost analysis more useful than marginal
analysis (comparing marginal costs and benefits)?
a. When a decision involves deciding yes or no rather than how many or how
much.
b. When it is possible to assess incremental quantities.
c. When a decision requires finding the socially efficient quantity.
40. How should uncertain future costs and benefits be included in a benefit cost
analysis?
a. Costs and benefits that are uncertain should not be included.
b. Costs and benefits that are uncertain should only be included if the probability
of their occurrence is significant.
c. Costs and benefits that are uncertain should not be included if they cause the
net present value to change either from positive to negative or from negative
to positive.
d. Costs and benefits that are uncertain should be multiplied by their
probabilities of occurrence before being included.
41. Which of the following are important factors to consider when deciding whether
or not an environmental project is worthwhile?
a. The net present value.
b. The distribution of the costs and benefits.
c. The presence of risk.
46
42. For which of the following projects would you likely use cost effectiveness
analysis rather than benefit cost analysis?
a. Apple is considering developing a new type of smart phone.
b. The government is considering building a new toll bridge (a toll is the price
the drivers would have to pay when crossing the bridge).
c. A school is considering providing free lunches to poor children whose
families cannot afford to pay for food.
d. The government is considering taking steps to reduce water pollution because
the pollution is causing wild salmon populations to decline.
43. What information do you need in order to decide whether an environmental

project is proportional, progressive, or regressive?
a. The benefits of the project.
b. The costs of the project.
c. The incomes of people who will be affected by the project.
d. Only a and b.
e. All of a, b, and c.
44. Each of the following explain why cost-benefit analysis is difficult EXCEPT
a. there is no price with which to judge the value of a public good.
b. surveys are often biased and unreliable.
c. it is difficult to identify all factors that influence costs and benefits of
public goods.
d. government projects rarely have sufficient funding to complete projects on
time.
45. To increase safety at a bad intersection, you must decide whether to install a traffic
light in your hometown at a cost of $10,000. If the traffic light reduces the risk of fatality
by 0.5 % and the value of a human life is about $10 million, you should
a) install the light because the expected benefit of $50,000 is greater than the cost.
b) install the light because the expected benefit of $20,000 is greater than the cost.
c) not install the light because the expected benefit of $10,000 is only equal to the
cost.
d) not install the light because the expected benefit of $5,000 is less than the cost.
46. A town engineer comes to the town council with a proposal to build a traffic light at
a certain intersection that currently has a stop sign. The benefit of the traffic light is
increased safety and will reduce the incidence of fatal traffic accidents by 50 percent per
year. Which of the following statements is true?
a) The project should definitely be accepted.
b) The decision to install the light is likely to require a complex evaluation of the
trade-off between the worth of human life and the lost time waiting for the
light to change signals.
c) The full cost of the traffic light will be relatively small since it only includes
the purchase and installation costs.
d) The cost will invariably outweigh the benefit.
47
The following information is for four highway programs of increasing scope.
All figures are in millions of dollars.
Program Total cost Total benefit
A $2 $9
B 6 16
C 12 21
D 20 23
47. On the basis of the above data we can say that:

a) Program D is the most efficient on economic grounds.
b) Program C is the most efficient on economic grounds.
c) Program B is the most efficient on economic grounds.
d) Program A is the most efficient on economic grounds.
48. Suppose the costs of a project must be paid today but the benefits will not be
received until the future. The costs are uncertain (the probability of having to pay the
costs is less than 100%) but the benefits are certain (the probability of receiving the
benefits is 100%). What would increase the net present value?
a) A longer time between paying the costs and receiving the benefits
b) A higher probability of paying the costs
c) A higher discount rate
d) An increase in the benefits
e) All of the above
49. How should an economist decide what discount rate to use in a benefit cost
analysis?
a) The discount rate should be close to the predicted future interest rate.
b) The discount rate should be chosen to maximize the net present value.
c) The discount rate should reflect the social values people have for the
project.
d) All of the above are true.
50. Suppose that installing an overhead pedestrian walkway would cost a college town $100,000. If
the walkway is expected to reduce the risk of fatality by 2 percent and the cost of a human life was
estimated at $10 million, the town would
a. install the walkway because the estimated benefit is twice the cost.
b. install the walkway because the estimated benefit equals the cost.
c. not install the walkway, since the cost is twice the estimated benefit.
d. install the walkway, since the cost of even a single life is too great.
51. When an infinite value is placed on human life, policymakers who rely on cost-benefit analysis
a. would pursue any project in which a single human life is saved.
b. are likely to make decisions that optimally allocate society's scarce resources.
c. would not pursue any public project that would not save human life.
d. would be forced to rely on private markets to provide the project.
48
Answers: 1.d 2.c 3.c 4.c 5.d 6.d 7.c 8.d 9.c 10.c 11.b 12.d 13.c 14.a 15.d 16.b
17.a 18.d 19.c 20.c 21.d 22.a 23.a 24.d 25.d 26.c 27.c 28.d 29.b 30.d 31.a 32.d
33.c 34.d 35.b 36.b 37.b 38.b 39.a 40.d 41.d 42.c 43.e 44.d 45.a 46.b 47.c 48.d 49.a
50.a 51.a
Chapter 7
1. A travel cost survey is done to estimate peoples willingness to pay for grizzly
bears. Which of the following is a possible problem with using the travel cost
approach?
a. People may spend more than they want to in order to see the grizzly bears.
b. The surveyors may get eaten by the grizzly bears they are trying to
interview.
c. Travel costs will include a lot of non-market values.
d. Some people would really like to see the grizzly bears in the wild but are
too afraid of being eaten, and therefore choose to stay home.
2. An economist is measuring differences in house prices between areas close to a park and
areas far from any park. This methodology would be classified as
a. A direct approach.
b. A hedonic approach.
c. A mitigating expenditures approach.
d. Contingent valuation.
3. Which of the following is one of the challenges to using the preventative expenditures
approach?
a. People may exaggerate their willingness to pay if they feel strongly about using
preventative expenditures to improve environmental quality.
b. It is unclear whether time should be counted as a cost or a benefit.
c. Differences in demand for goods in different locations could be related to
differences in incomes.
d. Differences in demand for goods in different locations could be related to
differences in pollution levels.
4. An example of a good that could be analyzed for hedonic estimation is

a. bottled water.
b. condominiums.
c. gasoline.
5. The benefit from pollution reduction can be measured using

a. the marginal willingness to pay for abatement.
b. the marginal damage function.
c. the change in total damages.
49
6. Which of the following is an example of an economist using the direct approach?
a. The economist uses contingent valuation to estimate demand for wildlife.
b. The economist measures the loss of producer surplus due to pollution
regulations.
c. The economist gathers data on peoples purchases of bottled water in an
area with water pollution.
7. Which of the following is an example of an economist using the indirect

approach?
a. The economist measures the loss of producer surplus due to pollution
regulations.
b. The economist measures the change in abatement costs after new pollution
regulations are imposed.
c. The economist uses contingent valuation to estimate demand for wildlife.
8. When the market price of goods is affected by environmental quality we can use
which approach to estimate the benefits of environmental quality?
a. Direct approach.
b. Preventative expenditures approach.
c. Hedonic estimation.
d. Surrogate market approach.
9. Sarah is being asked what she would be willing to pay to preserve the Flathead
River Valley in British Columbia. Which of the following examples illustrates
why this approach may not create very accurate estimates?
a. Sarah isnt sure how she would benefit from preserving the Flathead River
Valley.
b. Sarah does not care about environmental issues, so she estimates that her
willingness to pay is $0.
c. Sarah is a student with no income, so she is unable to contribute money
toward any environmental issue.
d. Both b and c.
10. An economist wants to estimate peoples demand for visual quality and has
gathered data on rental prices for different apartments in Kitsilano. Some
apartments have good visual quality and some do not. The economist will likely
use this data to
a. build a surrogate market model.
b. build a hedonic demand function.
c. build a mitigating expenditures model.
50
11. Jordan is being asked what he would be willing to pay to preserve the South
Okanagan grassland region in British Columbia. Which of the following
examples illustrates why this approach may not create very accurate estimates?
a. Jordan isnt sure what he is willing to pay since he has never been to the area.
b. Jordan does not care about environmental issues, so he estimates that his
willingness to pay is $0.
c. Jordan is a student with no income, so he is unable to contribute money
toward any environmental issue.
d. Both b and c.
12. A travel cost survey is done to estimate peoples willingness to pay for preserving
the endangered Western rattle snake population in the South Okanagan. The
surveyors question people visiting areas with rattle snakes about their travel costs.
Which of the following is a possible problem with using the travel cost approach?
a. Most people would really like the snake population to be saved, but avoid
areas with rattle snakes if they travel to the South Okanagan.
b. People may spend more money than they want travelling to see the rattle snakes.
c. Since the snakes are very rare most travelers who are looking for them
may not get to see one.
d. Travel costs will include a lot of non-market values.
13. Which of the following is not one of the problems with using contingent
valuation?
a. It can only be used to estimate the costs, and not the benefits, of
environmental goods.
b. It will not provide a good estimate of the ecological value of an
environmental good.
c. It is based on a hypothetical market.
d. Some people will not provide their true willingness to pay.
14. Which of the following is true when an economist is using house prices to
estimate the benefits from an environmental good?
a. This is not possible. House prices cannot be used to estimate the benefits
from an environmental good.
b. The economist should use prices of houses that are a variety of different
sizes, ages, and levels of quality.
c. The economist is using the Coase theorem approach.
d. Differences in the house prices can be used to represent the marginal
benefit for the environmental good.
15. What is the difference between the direct approach and the indirect approach to
estimating the benefits of environmental goods?
a. The direct approach measures marginal benefits while the indirect approach
measures total benefits.
b. The direct approach uses only present values while the indirect approach uses
both present and future values.
c. The direct approach is based on previously estimated values while the indirect
approach is based on values that still need to be estimated.
51
16. Ella is being asked what her willingness to pay is to preserve the population of the
endangered Banff Springs snail. Which of the following statements is TRUE?
a. This approach is called hedonic estimation.
b. This approach may underestimate the real value of the snails since most
people do not really like snails.
c. The travel cost approach would work better to estimate the value of the
snails since Banff is so far away.
d. Ella may overstate her true willingness to pay if she is worried she may
actually have to help pay in the future to save the snails.
17. If an economist is gathering data on purchases of home air cleaning systems they
are most likely going to be evaluating pollution damages using the
a. Direct approach.
b. Preventative measures approach.
c. Contingent valuation approach.
d. Hedonic estimation approach.
18. When a communitys water supply becomes polluted there will be an increase in
demand for bottled water. Which of the following statements would NOT be
true?
a. There will be an increase in consumer surplus from the bottled water,
assuming the price remains constant.
b. The change in consumer surplus reflects how much the people value clean
water.
c. The increase in expenditure reflects how much the people value clean
water.
19. Which of the following is one of the problems with using the travel cost approach
to estimate the value of wild penguins?
a. A lot of people who travel to see penguins will also go see polar bears on
the same trip.
b. The results may be an underestimate of the total value of penguins if there
are also existence values.
c. Some people like traveling while others do not.
d. All of the above could be problems.
20. Which of the following would be considered an indirect approach?
a. Moral suasion
b. Liability laws
c. Hedonic estimation
d. Sensitivity analysis
21. The indirect approach in benefit cost analysis is used to
a. Estimate the value of non-market goods.
b. Avoid confrontation over sensitive issues.
c. Estimate the value of a range of possible outcomes.
d. Identify all the possible indirect effects of a project.
52
22. Suppose you are measuring the value of damage caused by a pollutant. The
pollutant has caused some people to become ill and they are no longer able to
work or do other physical activities. The method you should use to estimate the
value is the
a. Direct approach.
b. Indirect approach.
c. Both a and b.
d. Neither a nor b.
23. Jennifer is being asked what she would be willing to pay to help save the few
remaining spotted owls in British Columbia. Which of the following will make
her answer possibly inaccurate?
a. She does not know anything about spotted owls.
b. She is afraid of all types of owls and would prefer if all owls went extinct.
c. Jennifer is a student, so her income is very low.
d. Jennifer has been told that spotted owls taste really good.
24. For what type of environmental project would you use the preventative or
mitigating measures approach to estimate the benefits?
a. A project that will protect wildlife.
b. A project that will reduce pollution.
c. A project that will prevent regressive equity.
d. A project that will mitigate an equitable distribution of the costs and benefits.
25. When people do not know their preferences for environmental goods as well as
they know their preferences for private goods, this is a potential problem for
a. Green goods.
b. Hedonic estimation.
c. Contingent valuation.
d. Liability laws.
26. When there are existence values for an environmental good the ____________
approach will ____________ the benefits of the environmental good.
a. Hedonic estimation; overestimate
b. Hedonic estimation; underestimate
c. Travel cost; overestimate
d. Travel cost; underestimate
27. When demand for an environmental good is estimated using Hedonic estimation
the results will
a. Likely be inaccurate because it is based on a hypothetical market.
b. Likely underestimate the true benefits if people think they may actually have
to pay for the environmental good in the future.
c. Be based on differences in home prices.
53
28. The following graph shows demand for an environmental good that is free, but the
quantity available is limited to Q1. Which area would represent the consumer surplus?
$
b c
D
Q1 Q
a. abca
b. a
c. ab
d. bc
e. b
29. Respondents to contingent valuation surveys about an environmental project

a) are unable to evaluate the effect of the project on their personal
satisfaction.
b) are typically not benefited directly by government projects.
c) have a difficult time identifying explicit costs.
d) have little incentive to tell the truth.
30. Which of the following statements is FALSE?

a) One weakness of the travel cost approach is that it is based on a hypothetical
market.
b) One weakness of the travel cost approach is that it includes existence values.
c) One weakness of the travel cost approach is that it fails to account for
differences in peoples incomes.
d) All of the above are false.
31. Which of the following statements is TRUE?

a. The preventative or mitigating expenditures approach estimates the benefit
people derive from pollution reduction by comparing total expenditures for
preventative goods between polluted and non-polluted areas.
b. The preventative or mitigating expenditures approach estimates the costs of
pollution reduction by comparing total abatement costs between polluted and
non-polluted areas.
c. The preventative or mitigating expenditures approach estimates the benefit
people derive from pollution reduction by comparing the total willingness to pay
for abatement between polluted and non-polluted areas.
54
32. When using the travel cost approach the travel cost per trip to an environmental
good is treated as the price of the environmental good. This statement is
a) False because environmental goods are free and therefore have a price of
$0.
b) False if the travellers are visiting more than one place on their trip.
c) True as long as the travel cost includes the existence values.
d) True because the travel costs are calculated from hypothetical markets.
33. Which approach would work best to estimate how much people value a nice view
from their home?
a) Preventative or mitigating measures approach
b) Travel cost approach
c) Contingent valuation
d) Hedonic estimation approach
e) None of the above
34. If an economist is using the preventative or mitigating measures approach to

estimate a value, what value are they estimating?
a) The resources that are required to prevent or mitigate against pollution
damages
b) The cost of preventing or mitigating against pollution damage
c) The benefit of abatement
d) The net benefit of abatement
Answers: 1.d 2.b 3.c 4.b 5.d 6.b 7.c 8.c 9.a 10.b 11.a 12.a 13.a 14.d 15.d 16.b
17.b 18.c 19.d 20.c 21.a 22.c 23.a 24.b 25.c 26.d 27.c 28.c 29.d 30.d 31.d 32.b
33.d 34.c
Chapter 8
1. Which of the following is an example of a no-cost improvement in environmental

quality?
a. Volunteers cleaning up garbage at a beach
b. Increasing a tax for a polluting industry
c. Removing a subsidy to organic farmers
d. None of the above
2. Which of the following are examples of the possible impacts from pollution
regulations imposed on an entire industry?
a. Consumers may experience rising consumer surplus.
b. Workers may lose their jobs or face reduced hours.
c. Smaller firms may have to decrease prices to remain competitive.
55
3. Which of the following would be true of the impacts on markets of pollution
regulations imposed on an industry?
a. Producers of abatement technology will experience rising producer
surplus.
b. Consumers may experience rising consumer surplus.
c. Consumers will experience no change in consumer surplus.
d. Smaller firms may have to decrease prices to remain competitive.
4. No-cost improvements in environmental quality are possible when
a. Volunteers do the labour.
b. The improvements occur because of policy changes.
c. The government pays for the improvements.
d. No-cost improvements are not possible.
5. The government has imposed pollution regulations on all the producers of
Snuggies. Which of the following is likely to create a long run impact on the
Snuggy industry?
a. A few of the smaller Snuggies producers shut down because of the higher
costs.
b. The decrease in production of Snuggies leads to lay-offs for some
employees.
c. Snuggy producers are forced to update their production technology in
order to lower emissions.
6. Which of the following would not be considered a cost for an environmental

project?
a. A tax increase to help pay for the project.
b. A hospital expansion project that had to be given up to help pay for the
environmental project.
c. The salvage value of materials.
d. Both a and c.
e. All of the above (a, b, and c).
7. A no-cost improvement in environmental quality

a. Is impossible.
b. Is done through volunteer labour.
c. Can be done through policy changes that encourage polluters to change
their behavior.
d. Is a very ineffective way to reduce pollution.
8. If pollution regulations lead to an increase in the marginal costs of production for
a price-taking firm, which change will count as the social cost of the pollution
regulation?
a. The change in the total costs of production for the firm.
b. The change in the total revenue for the firm.
c. The change in consumer surplus.
d. The change in producer surplus.
56
9. Which of the following would NOT be considered a cost to society?
a. Pollution regulations increase total abatement costs.
b. A pollution tax increases the price of gasoline.
c. Loss of wildlife leads to a decrease in consumer surplus.
d. The change in total surplus when the marginal costs of production
increase.
10. Which of the following statements about subsidies for abatement costs is NOT
TRUE?
a. Subsidies will increase the number of polluters that abate.
b. There will be an opportunity cost for the government revenue used for the
subsidies.
c. Polluters will likely try hard to use the subsidy money in the most efficient
way.
d. Most taxpayers will not be happy to see their money going to polluters.
11. An old water treatment facility is being torn down, but all the copper pipes are
being saved. The old pipes will be sold to help pay for the new facility. The
pipes are an example of
a. Salvage value.
b. Expected value.
c. Future value.
d. Restructuring value.
12. The subsidizing of total abatement costs by governments
a) Increases abatement by polluters.
b) Leads to inefficient abatement by polluters.
c) Would have no effect on abatement by polluters.
d) Will lead to lower abatement costs in the long run.
e) Both a and b are correct.
13. Suppose pollution regulations increase production costs for a price taker. The social cost of
the pollution regulations would be estimated as the
a) Loss of consumer surplus.
b) Loss of producer surplus.
c) Increase in production costs for the producer.
d) All of the above would be included in the estimate.
Answers:1.b 2.b 3.a 4.b 5.c 6.d 7.c 8.d 9.b 10.c 11.a 12.e 13.b
57
Chapter 9
1. Which of the following is NOT one of the desirable characteristics for
environmental policy?
a. Policies should give polluters incentive to abate to an emission level that is
even less than the efficient level.
b. People must consider a policy to be equitable.
c. Policies should encourage efficient use of resources.
d. Policies should be enforceable.
2. Which of the following environmental policies would provide the strongest
incentive for polluters to invent and use better abatement technology?
a. The government requires the polluters to compensate pollutees for
damages incurred, as well as pay for abatement.
b. The government requires polluters to pay their own abatement costs.
c. The government helps the polluters by paying for part of their abatement
costs.
3. Which of the following is NOT one of the challenges to international
environmental policy, such as the Kyoto Protocol?
a. Some world leaders believe the policy is unfair.
b. It is difficult to enforce international policy.
c. Developing countries will be required to abate more than developed
countries, even though developed countries emit more pollution.
d. Compliance is voluntary.
4. To increase compliance with environmental laws the government should
a. Use more scarce resources to monitor people.
b. Increase the expected value of getting caught not complying.
c. Sanction people who are caught not complying.
5. Allyssa sees a car with a bumper sticker that reads Show you care, dont pollute
the air and finds it a little ironic. The bumper sticker is an example of using
a. Green goods
b. Coase theorem
c. Contingent valuation
d. Moral suasion
6. A polluter is required to pay for damages to the pollutees, but only if she gets
caught. If the government strengthens enforcement, thereby increasing her
probability of getting caught, which of the following would not happen?
a. The polluter will choose a higher level of emissions.
b. Total damages will decrease.
c. Enforcement costs will increase.
d. None of the above (all will happen).
58
7. What should be one of the goals of environmental policy?
a) Efficiently using resources
b) Eliminating environmental damage
c) Maximizing abatement
d) All of the above
Answers: 1. a 2.a 3.c 4.d 5.d 6.a 7.a
Chapter 10
1. Near an ocean beach, a high-rise building is being constructed that will block the scenic
view of the ocean by the residents of a low-rise building. The Coase Theorem suggests
that this type of dispute between the owners of high-rise and low-rise buildings would
best be resolved by:
a. the owners themselves.
b. city government officials.
c. a zoning ordinance restricting high-rise buildings.
d. a government fine for the builder of the high-rise.
2. Which one of the following is NOT one of the conditions to be able to use property rights
to solve environmental problems?
a. The ownership of property is clearly defined.
b. The number of people involved is small.
c. The amount of money disputed is minor.
d. The costs of bargaining are negligible.
3. Which of the following is NOT a reason why establishment of property rights can
help solve environmental problems?
a. Property rights will allow people to negotiate.
b. With property rights no one has authority to make decisions about an
environmental good.
c. Without property rights, users of the environmental good lack incentive to
maintain it.
d. Property owners can profit from their environmental good.
4. Kevin owns a plot of forest from which he generates income by selectively

logging each year. He tries to cut the wood at the same rate as it grows in order to
maintain a steady income. Which of the following must be true in order for Kevin
to make socially efficient decisions about his property?
a. Kevin must be able to prevent thieves from cutting his trees.
b. Kevin must receive a high price for his trees.
c. Kevin must own the property for a long time.
d. The trees must grow fast enough to ensure Kevin can earn a decent
income.
59
5. Allysa sees a car with a bumper sticker that reads Show you care, dont pollute
the air and finds it a little ironic. The bumper sticker is an example of using
a. Green goods
b. Coase theorem
d. Moral suasion
6. Which one of the following is NOT one of the conditions to be able to use property rights
to solve environmental problems?
a. The ownership of property is clearly defined.
b. The environmental damage involved is minimal.
c. The transaction costs are minimal.
d. The property owners must be able to sell their property in the future.
7. Which of the following is not one of the conditions that must be satisfied in order for
property rights to work for solving an environmental problem?
a. Property owner must be able to sell their property in the future.
b. Property owners should consider only their private costs and benefits
when making decisions.
c. Property boundaries must be clear.
d. Property rights must be protected.
8. Steve wants to increase recycling at his workplace. He arranges for more

recycling containers and prints posters that read Recycle today for a better
tomorrow. Which of the following is TRUE?
a. Steve is taking what is called the preventative or mitigating approach.
b. Steves posters will encourage more recycling by decreasing the costs of
recycling for his coworkers.
c. Steve is hoping his coworkers will begin to derive more utility from
recycling.
d. Less of Steves coworkers will cooperate if there is a large spill-over
effect.
9. A worker for an oil company accidentally hit an oil pipeline with a truck, causing
oil to spill into a small lake. The lake is the water source for the nearby town.
Which of the following is true?
a. If there are no liability laws the oil company will only pay for the damages
if they want to.
b. A strict liability law means the worker will be punished by the oil
company.
c. Even with strict liability laws it may be difficult for the town to get
compensation since the oil will be a non-point source pollutant.
d. A negligence liability law means that compensation will have to be paid to
the town only if it can be proven that the worker was following safety
regulations.
60
10. Which of the following is one of the problems with using moral suasion?
a. Enforcement is costly.
b. The spill over effect can lead to an increase, rather than a decrease, in
pollution.
c. The expected cost of not complying is zero.
d. The free riding problem is worse when compliance takes very little effort.
11. A polluter has marginal abatement costs given MAC1, and now has an
opportunity to purchase new abatement technology that would lower their costs to
MAC2. Which of the following policies would provide the polluter with the
largest incentive to purchase the new technology?
$
MAC1
MD
MAC2
E2* E1* Emax E

a. Moral suasion.
b. Government subsidies for abatement technology (old or new).
c. Liability laws.
d. Abatement targets (required abatement levels) set at E2*.
12. A polluter has marginal abatement costs given MAC1, and now has an
opportunity to purchase new abatement technology that would lower their costs to
MAC2. Which of the following policies would provide the polluter with incentive
to lower emissions after purchasing the new technology?
$
MAC1
MAC2
Emax E
a. Property rights and negotiation
b. Liability laws
c. Both a and b
d. Neither a nor b
61
13. Which of the following is NOT TRUE? The availability of green goods
a. Will not improve environmental quality unless the total amount of goods
and services in the economy decreases.
b. Will lead to a larger decrease in environmental damage if the good is
similar to its non-green version.
c. Makes it possible for economies to grow without causing more damages to
the environment.
14. Liability laws work best to solve environmental problems when

a. Damages consist of mostly market values.
b. There are multiple possible causes to choose from for the damage
involved.
c. The pollutant is non-point source.
d. The value of the damage is small.
15. A polluter is sued for damages related to an emissions leak into a local river. The
judge decides that since the polluter was following all safety guidelines the
damage was not their fault, and they should not have to pay any money. Which
policy is being used in this scenario?
a. Benefit cost analysis
b. Moral suasion
c. Negligence liability
d. Property rights
16. Consider a small forest next to a road. Which of the following is an example of
one of the reasons why a property rights system may NOT result in the efficient
outcome for the forest?
a. The forest provides benefits in terms of visual beauty to people driving by.
b. The forest owner plans to sell the forest in the future.
c. Neighbours have tried to negotiate with the owner to not cut down the
trees, but since they did not offer the owner any money the owner refused
and continued to cut down trees.
17. An environmental group is trying to convince people not to buy bottled water
because of all the plastic waste. They are hoping that if people reduce the amount
of bottled water they buy they will also reduce the amount of other plastic
products that they buy. This is an example of what kind of policy?
a. Green goods
b. Moral suasion
d. Salvage valuation
62
18. Which policy involves negotiation between the polluter and the pollutee?
a) Green goods
b) Moral suasion
c) Property rights
d) Liability laws
e) None of the above
19. Which of the following illustrates a spill-over effect?
a) Greenpeace distributes a game that teaches children about the
importance of planting trees for birds. Some children decide to plant
trees, and some also plant flowers for the bees.
b) Water pollution in Okanagan Lake is spreading to Skaha Lake through
the river channel connecting the two lakes.
c) Even though the biggest emitters of greenhouse gases are the United
States and China, the whole world is going to feel the effects of global
warming.
d) None of the above.
20. If a pollutee has property rights, why would the polluter offer them money?
a) The polluter feels bad about the damages they have caused.
b) The polluter does not want to be held liable for the damages caused.
c) The polluter wants to save money.
d) None of the above.
21. A judge decides that pollution emitted from Pams Paper Company caused the
nearby families to become sick, and Pam has to compensate the families even though
the pollution was released accidentally. The type of policy being used here is
a. Property rights
b. Strict liability laws
c. Negligence liability laws
d. Moral suasion
e. Green goods
22. Which of the following is necessary in order for the establishment of property
rights to lead to an efficient allocation of resources?
a. Property owners need to be able to protect their property from thieves.
b. The property rights need to be given to the pollutees.
c. There must be external benefits associated with the property.
d. The property must be excludable.
e. All of the above.
23. Which policy can be used to make a polluter pay for the pollution damages they
cause?
a. Green goods
b. Moral suasion
c. Property rights
d. Liability laws
e. Both c and d
63
24. Steve owns an empty plot of land in the city. Since he is not using it he has
allowed the neighbourhood children to use it as a place to play for free. Which of the
following explains a reason why Steve may not make a socially efficient choice about
the future use of his land?
a. Because the kids play for free Steve is not earning any revenue from
his land.
b. Biologists have discovered a very rare and endangered flower species
growing on the land. As a result Steve is no longer allowed to build on
the land, nor is he allowed to sell it in the future.
c. Because Steve is not allowed to build anything, not even a fence, his
property has been repeatedly vandalized.
d. All of the above are reasons.
25. Which policy involves encouraging people to change their behavior but without
monetary incentives?
a. Moral suasion
b. Liability laws
c. Property rights
d. None; all of the above involve monetary incentives.
26. The statement that most closely defines the Coase Theorem is:
a) government should impose taxes on firms which generate external costs.
b) taxes should be imposed such that they change private behavior as little as possible.
c) bargaining between private parties will remedy environmental problems if property
rights are clearly defined and transaction costs are small.
d) trading of votes to secure favorable voting outcomes may increase efficiency.
27. Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.
The benefit to Chad of lower utility bills is about $300. The cost to Amy of having her lawn
cleaned and reseeded is $350. Based on the Coase theorem
a) Amy should pay Chad $325 to cut down the tree.
b) Chad should pay Amy $350 to have her lawn repaired and cleaned.
c) Chad should pay Amy $400 to keep the tree.
d) Amy should build a higher fence.
28. A local laundry advertises that clothes it washes smell "sunshine fresh" because it line
dries everything outside. Then a steel factory moves in next door and emits black smoke
which stains the clothes drying at the laundry. According to theory of property rights,
granting the
a) steel factory the right to pollute would be efficient, but granting the laundry the
right to clean air would be equitable.
b) laundry the right to clean air would be efficient, but granting the steel factory the
right to pollute would be equitable.
c) steel factory the right to pollute has the same effect on equity as granting the
laundry the right to clean air.
d) steel factory the right to pollute has the same effect on efficiency as granting the
laundry the right to clean air.
64
29. If property owners pay all social costs associated with their property and can receive
all social benefits associated with their property, then
a) The assignment of property rights will not improve social efficiency.
b) The assignment of property rights can lead to social efficiency.
c) The assignment of property rights is no longer necessary for social efficiency.
d) The assignment of property rights is no longer possible.
e) None of the above answers are correct.
30. If property rights are assigned to the pollutee but the marginal damage is greater
than the marginal abatement cost for all levels of emissions, then
a) The efficient emission level cannot be reached.
b) The pollutee will allow the polluter to emit the maximum.
c) The polluter will not be willing to offer the pollutee enough money in
order for the pollutee to allow emissions.
d) The pollutee will not be able to enforce their property rights.
31. Why would the assignment of property rights to a polluting factory help improve air
quality?
a) The assignment of property rights would not improve air quality.
b) This is not possible since air is non-excludable.
c) It means air pollution reduction would change from a public good to a private
good, and resources would therefore be allocated more efficiently.
d) It means the polluters and pollutees can negotiate.
32. Suppose that a large tree on Shawn's property is blocking Sam's view of the lake below.
Shawn accepts Sam's offer to pay Shawn $100 for the right to cut down the tree. This situation
describes the idea of:
A) the Coase Theorem.
B) liability laws.
C) expected values.
D) distributional fairness.
33. One condition for individual negotiating to be successful in solving problems according to
the Coase Theorem is that there must be:
A) clearly defined property rights.
B) many people affected and involved.
C) government intervention to establish negotiating.
D) government creation of a market for externalities.
Answers: 1.a 2.c 3.b 4.a 5.d 6.b 7.b 8.c 9.a 10.c 11.d 12.c 13.a 14.a 15.c 16.a
17.b 18.c 19.a 20.c 21.b 22.a 23.e 24.d 25.a 26.c 27.a 28.d 29.b 30.c 31.d 32.a 33.a
65
Chapter 11
No questions available
Chapter 12
Chapter 13
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Econ 260 Practice Multiple Choice Questions

3. Which of the following could eliminate the trade-off between environmental

4. Which of the following statements best represents an economic approach to solving

5. Which of the following policies would be most effective at reducing household

7. Why is free riding a problem for improving environmental quality?

10. What is the main goal of environmental economics?

12. Why are incentives important for improving the environment?

14. The term market failure refers to

16. Market failure associated with the free-rider problem is a result of

2. The first law of thermodynamics means that

3. Which of the following would be an example of a non-point source pollutant?

The following is a demand curve for Izabelle:

6. Willingness to pay can be a misleading measure of utility from environmental

9. What affects individuals marginal willingness to pay for environmental goods?

11. Individual demand for a private good is given by P = 5 0.2Q. If there is a

12. Individual demand for a private good is given by P = 5 0.2Q. If there is a

12. A good example of a product that is both nonexcludable and nonrivalrous is

15. Which of the following is an example of an activity generating a negative

16. Which of the following is an example of a non-excludable good?

18. Television programs are non-rival because:

19. A good example of a product that is both nonexcludable and nonrivalrous is

Figure: Traffic Lights in Sleepytown

26. Which of the following is an example of an activity that generates an externality?

45. Common resources tend to be overused because:

47. Which of the following would be considered a private good?

49. Which of the following goods or services would be considered non-rival?

50. Television programs are non-rival because:

51. Free riding

60. When a positive production externality exists in a market (no consumption

71. A market contains a negative consumption externality and a positive production

72. According to figure B, what types of externalities exist in this market?

86. Which of the following would generate a positive consumption externality?

88. Which of the following results when a good is non-excludable?

89. Which of the following would generate a negative consumption externality?

94. An externality exists when

95. Private markets fail to account for externalities because

99. When a good is excludable it means that

101. Which of the following would NOT be considered a private good?

102. Water is considered

103. The government provides public goods because

Table: The Socially Optimal Quantity of Widgets

Price& QD& QS&

106. Television programs are non-rival because:

108. Which of the following is used to provide most public goods?

6. Which graph illustrates the marginal damage caused by an accumulative

Emissions Emissions Emissions

10. The benefit from pollution reduction can be measured using

15. Which of the following is an example of a non-market value associated with

17. Improvements in pollution abatement technology will

21. It is efficient to decrease emissions when

22. A socially efficient level of emissions will minimize

23. When pollution increases, the total net benefit to society is

25. In figure A the total abatement cost at E = 0 is area

26. In figure A the total damage at E = E2 is area

30. In figure A the total social cost when E = 0 is area

31. In figure A the net benefit of increasing emissions from E = 0 to E = E1 is area

32. In figure A the net benefit of decreasing emissions from E = EMAX to E = E2 is

33. In figure A the total social cost when E = EMAX is area

34. In figure A the net benefit of increasing emissions from E = E2 to E = EMAX is

41. In figure A the net benefit of decreasing emissions from E = E1 to E = 0 is area

Location Duration Revenue per year Costs per year

Based on these results, what should the economist conclude?

15. Cost-benefit analysis attempts to: