Question 1

Transaction costs

Accepted Answer

A)  can keep private parties from solving externality problems.
B)  are incurred in the production process due to externalities.
C)  increase when taxes are imposed to correct negative externalities.
D)  are eliminated when the government intervenes in a market with externalities.E) None of the above
F) B) and D)

Question 2

Figure 10-9   
-Refer to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Accepted Answer

A)  Panel (a) .
B)  Panel (b) .
C)  Panel (c) .
D)  Both (b)  and (c)  are correct.E) B) and D)
F) A) and D)

Question 3

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Accepted Answer

A)  Externalities lead to government intervention in markets, which exacerbates the problems associated with externalities.
B)  Externalities result in prices that are too high for many consumers to pay.
C)  Markets fail to produce the maximum total benefit to society when positive or negative externalities are present.
D)  Markets produce too little of a good when positive or negative externalities are present.E) None of the above
F) All of the above

Question 4

When the government uses a command-and-control policy to solve an externality, it

Accepted Answer

A)  is usually the most effective policy option available.
B)  creates policies that directly regulate behavior.
C)  usually involves taxing the consumption of a commodity.
D)  typically refers to the Coase theorem to structure the policy.E) A) and C)
F) None of the above

Question 5

Industrial policy aims to

Accepted Answer

A)  reduce pollution by requiring factories to reduce their pollution by a certain number of tons per year.
B)  reduce pollution by levying a tax on factories of a certain number of dollars for every ton of pollution that the factory emits.
C)  encourage business firms to subsidize continuing education for their employees.
D)  promote technology-enhancing industries.E) B) and D)
F) All of the above

Question 6

Market failure can be caused by

Accepted Answer

A)  too much competition.
B)  externalities.
C)  low consumer demand.
D)  scarcity.E) C) and D)
F) B) and D)

Question 7

Figure 10-11 th unit is equal to the cost incurred by the seller of the 240th unit. B) 240 units, since the value to society of the 240th unit is equal to the cost incurred by the seller of the 240th unit. C) 420 units, since the value to the buyer of the 420th unit is equal to the cost incurred by the seller of the 420th unit. D) 420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-11. The socially optimal quantity of output is

Accepted Answer

A)  240 units, since the value to the buyer of the 240th unit is equal to the cost incurred by the seller of the 240th unit.
B)  240 units, since the value to society of the 240th unit is equal to the cost incurred by the seller of the 240th unit.
C)  420 units, since the value to the buyer of the 420th unit is equal to the cost incurred by the seller of the 420th unit.
D)  420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit.E) All of the above
F) A) and B)

Question 8

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)  an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)  an adverse effect on a bystander who is compensated by the person who causes the effect.
C)  a beneficial effect on a bystander who pays the person who causes the effect.
D)  a beneficial effect on a bystander who does not pay the person who causes the effect.E) B) and C)
F) B) and D)

Question 9

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Accepted Answer

A) True 
 B)False

Question 10

Briefly explain how research into new technologies gives rise to a positive externality.

Accepted Answer

Research into new technologies...

Question 11

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 12

In the absence of externalities, the "invisible hand" leads a market to maximize

Accepted Answer

A)  producer profit from that market.
B)  total benefit to society from that market.
C)  both equality and efficiency in that market.
D)  output of goods or services in that market.E) B) and C)
F) B) and D)

Question 13

When negative externalities are present in a market

Accepted Answer

A)  private costs will be greater than social costs.
B)  social costs will be greater than private costs.
C)  only government regulation will solve the problem.
D)  the market will not be able to reach any equilibrium.E) None of the above
F) A) and B)

Question 14

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A)  taxing goods that have negative externalities
B)  subsidizing goods that have positive externalities
C)  The government cannot improve upon the outcomes of private markets.
D)  Both a and b are correct.E) A) and C)
F) B) and C)

Question 15

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Accepted Answer

A)  They are equal.
B)  The equilibrium quantity is greater than the socially optimal quantity.
C)  The equilibrium quantity is less than the socially optimal quantity.
D)  There is not enough information to answer the question.E) C) and D)
F) B) and D)

Question 16

Table 10-4 
-Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Accepted Answer

A)  a tax of $4 per unit of output
B)  a subsidy of $4 per unit of output
C)  a tax of $6 per unit of output
D)  a subsidy of $6 per unit of outputE) A) and B)
F) B) and C)

Question 17

Negative externalities occur when one person's actions

Accepted Answer

A)  cause another person to lose money in a stock market transaction.
B)  cause his or her employer to lose business.
C)  reveal his or her preference for foreign-produced goods.
D)  adversely affect the well-being of a bystander who is not a party to the action.E) A) and C)
F) B) and D)

Question 18

One reason that private solutions to externalities do not always work is that

Accepted Answer

A)  government intervention negates the benefits of positive externalities.
B)  some people benefit from externalities.
C)  interested parties incur costs in the bargaining process.
D)  charities are not well organized.E) None of the above
F) C) and D)

Question 19

Figure 10-9   
-Refer to Figure 10-9. Which graph represents a market with a positive externality?

Accepted Answer

A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  Both (b)  and (c)  are correct.E) A) and D)
F) B) and C)

Question 20

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...

Exam 10: Externalities

Industrial policy aims to

Correct Answer
verified

When the government uses a command-and-control policy to solve an externality, it

Correct Answer
verified

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Correct Answer
verified

One reason that private solutions to externalities do not always work is that

Correct Answer
verified

Market failure can be caused by

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a positive externality?

Correct Answer
verified

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Correct Answer
verified

In the absence of externalities, the "invisible hand" leads a market to maximize

Correct Answer
verified

Table 10-4 -Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Correct Answer
verified

Negative externalities occur when one person's actions

Correct Answer
verified

Briefly explain how research into new technologies gives rise to a positive externality.

Correct Answer
verified
Research into new technologies...
View Answer

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

Figure 10-11 -Refer to Figure 10-11. The socially optimal quantity of output is

Correct Answer
verified

Which of the following represents a way that a government can help the private market to internalize an externality?

Correct Answer
verified

Transaction costs

Correct Answer
verified

A positive externality arises when a person engages in an activity that has

Correct Answer
verified

Government intervention is necessary to correct all externalities.

Correct Answer
verified

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Correct Answer
verified

When negative externalities are present in a market

Correct Answer
verified

Exam 10: Externalities

Industrial policy aims to

Correct AnswerverifiedShow Answer

When the government uses a command-and-control policy to solve an externality, it

Correct AnswerverifiedShow Answer

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Correct AnswerverifiedShow Answer

One reason that private solutions to externalities do not always work is that

Correct AnswerverifiedShow Answer

Market failure can be caused by

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a positive externality?

Correct AnswerverifiedShow Answer

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Correct AnswerverifiedShow Answer

In the absence of externalities, the "invisible hand" leads a market to maximize

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Correct AnswerverifiedShow Answer

Negative externalities occur when one person's actions

Correct AnswerverifiedShow Answer

Briefly explain how research into new technologies gives rise to a positive externality.

Correct AnswerverifiedResearch into new technologies...View AnswerShow Answer

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

Figure 10-11 -Refer to Figure 10-11. The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

Which of the following represents a way that a government can help the private market to internalize an externality?

Correct AnswerverifiedShow Answer

Transaction costs

Correct AnswerverifiedShow Answer

A positive externality arises when a person engages in an activity that has

Correct AnswerverifiedShow Answer

Government intervention is necessary to correct all externalities.

Correct AnswerverifiedShow Answer

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Correct AnswerverifiedShow Answer

When negative externalities are present in a market

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Research into new technologies...
View Answer

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

Correct Answer
verified

Correct 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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Correct Answer
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