Multiple Choice Quiz


1	An economist would answer the question "How clean is clean enough?" with something akin to
		A)	when everything is as clean as it can be.
		B)	when then total benefit of cleanliness is maximized.
		C)	when the total benefit of cleanliness is equal to the total cost of cleaning.
		D)	when the last dollar spent on cleaning yields a dollar worth of cleanliness benefits.


2	Pollution coming from a factory is an example of what economists call
		A)	justifiable destruction.
		B)	third-party payment.
		C)	externalities.
		D)	side benefits.


3	When economists look at market outcomes using consumer and producer surplus, the argument they use to make the point that the market equilibrium outcome "works for everyone" is that
		A)	consumer surplus is maximized at equilibrium.
		B)	the sum of consumer and producer surplus is maximized.
		C)	producer surplus is maximized.
		D)	consumer surplus minus producer surplus is maximized.


4	When external costs are present, economists suggest that
		A)	the supply curve understates true costs.
		B)	the demand curve understates true benefits.
		C)	the supply curve overstates true costs.
		D)	the demand curve overstates true benefits.


5	In the presence of external costs, untaxed or unregulated production is said to be ____ with a price that is _____ .
		A)	too high; too high
		B)	too high; too low
		C)	too low; too high
		D)	too low; too low


6	The notion that assigning property rights to people or companies in strategic ways can negate the need for regulation of particular industries is part of
		A)	Keynes' Law.
		B)	Machiavelli's Principle.
		C)	Coase's Theorem.
		D)	Allen's Truth.


7	Inspired by Coase, economists are less concerned about pollution on private property than they are about pollution of
		A)	real property.
		B)	common property.
		C)	financial property.
		D)	distinct property.


8	Of the following environmental problems, which has been effectively tackled using emission permits
		A)	water pollution
		B)	air pollution
		C)	acid rain
		D)	species extinction


9	Measures of environmental quality show that
		A)	the environment is cleaner today than it was prior to the existence of man.
		B)	the air and water are cleaner today than they were prior to the existence of man but there has been extinction of species.
		C)	the air and water are cleaner today than they were 40 years ago but global warming is a potential threat.
		D)	every measure of environmental quality has deteriorated over the last 40 years.


10	One means of correcting the market outcome when there are negative externalities (e.g. pollution) is to
		A)	subsidize the demand for the good.
		B)	set a per-unit tax equal to the private costs of the good.
		C)	set a per-unit tax equal to the per-unit external cost of the good.
		D)	subsidize the production of the good.

2003 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.