Question 1

If the social value of producing a good is always higher than the private value of producing it,then there is a

Accepted Answer

A)   negative externality associated with the production of the good,and the market equilibrium quantity of the good is less than the socially optimal quantity.
B)   negative externality associated with the production of the good,and the socially optimal quantity of the good is less than the market equilibrium quantity.
C)   positive externality associated with the production of the good,and the market equilibrium quantity of the good is less than the socially optimal quantity.
D)   positive externality associated with the production of the good,and the socially optimal quantity of the good is less than the market equilibrium quantity.E) A) and B)
F) A) and C)

Question 2

When a market experiences a positive externality,

Accepted Answer

A)   the demand curve does not reflect the value to society of the good.
B)   too much of the good is being produced.
C)   the government can internalize the externality by imposing a tax on the product.
D)   the private value is greater than the social value.E) A) and B)
F) A) and C)

Question 3

An externality is

Accepted Answer

A)   the costs that parties incur in the process of agreeing and following through on a bargain.
B)   the uncompensated impact of one person's actions on the well-being of a bystander.
C)   the proposition that private parties can bargain without cost over the allocation of resources.
D)   a market equilibrium tax.E) A) and B)
F) A) and C)

Question 4

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 5

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A)   it is hard to estimate the market demand curve and thus charge the "right" corrective tax.
B)   selling pollution permits create a net increase in pollution.
C)   Corrective taxes distort incentives.
D)   Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.E) C) and D)
F) None of the above

Question 6

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Accepted Answer

A)   the externalities that are present are positive,not negative.
B)   government assigns property rights to the harmed party.
C)   private parties can bargain with sufficiently low transaction costs.
D)   businesses determine an appropriate level of production.E) A) and B)
F) A) and C)

Question 7

In some circumstances,selling pollution permits may be better than levying a corrective tax.

Accepted Answer

A) True 
 B)False

Question 8

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity,the government is effectively

Accepted Answer

A)   alleviating the negative externalities that are associated with charitable giving.
B)   imposing a negative externality on those who do not pay income taxes.
C)   encouraging a private solution to a positive-externality problem.
D)   encouraging a private solution to a negative-externality problem.E) C) and D)
F) A) and C)

Question 9

Figure 10-9   
-Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in

Accepted Answer

A)   Panel (a) .
B)   Panel (b) .
C)   Panel (c) .
D)   Both (b) and (c) are correct.E) A) and D)
F) None of the above

Question 10

Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 11

Before the flu season begins,Jeremy gets a flu shot.As a result,Jeremy and several of his friends and relatives avoid the flu for the entire flu season.It would make sense to argue that

Accepted Answer

A)   flu shots provide a positive externality,and that flu shots should be subsidized.
B)   if flu shots are not subsidized,then the number of people getting flu shots will be smaller than the socially optimal number.
C)   the externality generated by flu shots is more like the externality generated by education than the externality generated by pollution.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 12

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 13

To produce honey,beekeepers place hives of bees in the fields of farmers.As bees gather nectar,they pollinate the crops in the fields,which increases the yields of these fields at no additional cost to the farmer.What might be a reasonable private solution to this externality,and how might the solution be reached?

Accepted Answer

One solution would be to have one person...

Question 14

Emma is a writer who works from her home.Emma lives next door to Clay,the drummer for a local band.Clay needs lots of practice to earn his share of the band's profit,which will amount to $250.Emma gets distracted by Clay's drumming but needs to get her writing done to earn $500 for her current article.If Emma needs to hire a lawyer to help her reach an agreement with Clay,then what price is Emma willing to pay the lawyer?

Accepted Answer

A)   less than $250
B)   less than $450
C)   less than $500
D)   less than $750E) C) and D)
F) B) and D)

Question 15

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Accepted Answer

A)   social costs equal private costs at the private market solution.
B)   private costs exceed social costs at the private market solution.
C)   social costs exceed private costs at the private market solution.
D)   they internalize externalities.E) C) and D)
F) B) and C)

Question 16

Figure 10-4 1. B)  Q2. C)  Q3. D)  Q4." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) A) and C)
F) A) and B)

Question 17

The supply curve for a product reflects the

Accepted Answer

A)   willingness to pay of the marginal buyer.
B)   quantity buyers will ultimately purchase of the product.
C)   cost to sellers of producing the product.
D)   seller's profit from producing the product.E) A) and B)
F) A) and C)

Question 18

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A)   the government should ban all transportation.
B)   the government should ban all pollution.
C)   society has to weigh the cost and benefits when deciding how much pollution to allow.
D)   refrain from intervening because the market can best solve this problem.E) All of the above
F) C) and D)

Question 19

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward.The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2.Is there an externality associated with this market? If your answer is "Yes," is the externality positive or negative?

Accepted Answer

There is a positive ...

Question 20

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Correct Answer
verified

In some circumstances,selling pollution permits may be better than levying a corrective tax.

Correct Answer
verified

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity,the government is effectively

Correct Answer
verified

The supply curve for a product reflects the

Correct Answer
verified

Correct Answer
verified
There is a positive ...
View Answer

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Correct Answer
verified

Since almost all forms of transportation produce some type of pollution,

Correct Answer
verified

Before the flu season begins,Jeremy gets a flu shot.As a result,Jeremy and several of his friends and relatives avoid the flu for the entire flu season.It would make sense to argue that

Correct Answer
verified

When a market experiences a positive externality,

Correct Answer
verified

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Correct Answer
verified

Government intervention is necessary to correct all externalities.

Correct Answer
verified

An externality is

Correct Answer
verified

Correct Answer
verified
One solution would be to have one person...
View Answer

A technology spillover is a type of negative externality.

Correct Answer
verified

Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Correct Answer
verified

Correct Answer
verified

If the social value of producing a good is always higher than the private value of producing it,then there is a

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in

Correct Answer
verified

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct Answer
verified

Exam 10: Externalities

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Correct AnswerverifiedShow Answer

In some circumstances,selling pollution permits may be better than levying a corrective tax.

Correct AnswerverifiedShow Answer

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity,the government is effectively

Correct AnswerverifiedShow Answer

The supply curve for a product reflects the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThere is a positive ...View AnswerShow Answer

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Correct AnswerverifiedShow Answer

Since almost all forms of transportation produce some type of pollution,

Correct AnswerverifiedShow Answer

Before the flu season begins,Jeremy gets a flu shot.As a result,Jeremy and several of his friends and relatives avoid the flu for the entire flu season.It would make sense to argue that

Correct AnswerverifiedShow Answer

When a market experiences a positive externality,

Correct AnswerverifiedShow Answer

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Correct AnswerverifiedShow Answer

Government intervention is necessary to correct all externalities.

Correct AnswerverifiedShow Answer

An externality is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedOne solution would be to have one person...View AnswerShow Answer

A technology spillover is a type of negative externality.

Correct AnswerverifiedShow Answer

Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the social value of producing a good is always higher than the private value of producing it,then there is a

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in

Correct AnswerverifiedShow Answer

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct AnswerverifiedShow Answer

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Correct Answer
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There is a positive ...
View Answer

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One solution would be to have one person...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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