Question 1

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) A) and B)
F) A) and C)

Question 2

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 B)
F) A) and C)

Question 3

Technology spillover occurs when

Accepted Answer

A)  a firm passes the high costs of technical research on to society through higher prices.
B)  a firm's research yields technical knowledge that is used by society as a whole.
C)  the government subsidizes firms engaged in high-tech research.
D)  copyright laws prohibit firms from profiting from the research of others.E) A) and D)
F) C) and D)

Question 4

When firms internalize a negative externality, the market supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 5

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Accepted Answer

A)  $1.90 and 38 units, respectively.
B)  $1.80 and 35 units, respectively.
C)  $1.60 and 42 units, respectively.
D)  $1.35 and 58 units, respectively.E) B) and C)
F) A) and C)

Question 6

Technology spillover is one type of

Accepted Answer

A)  negative externality.
B)  positive externality.
C)  subsidy.
D)  producer surplus.E) C) and D)
F) A) and B)

Question 7

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

Accepted Answer

Research into new technologies...

Question 8

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 9

In many cases the Coase theorem does not work well because

Accepted Answer

A)  there are too few parties at the negotiation table.
B)  the government does not know about the Coase theorem.
C)  transaction costs are too high.
D)  transaction costs are too low.E) A) and D)
F) A) and C)

Question 10

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Accepted Answer

A)  even if private parties experience substantial costs of bargaining.
B)  even if the initial distribution of legal rights is skewed in favor of some private parties over others.
C)  only when there is a large number of private parties that engage in bargaining.
D)  All of the above are correct.E) C) and D)
F) A) and D)

Question 11

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Accepted Answer

Since Liz's cost exceeds Tyler's benefit...

Question 12

Table 10-4 
-Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible) . The maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $29.
B)  $35.
C)  $40.
D)  $46.E) None of the above
F) All of the above

Question 13

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

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) B) and D)
F) None of the above

Question 14

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is not correct?

Accepted Answer

A)  Corrective taxes can be used to place a price on the right to pollute.
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution.
C)  Corrective taxes provide incentives to develop cleaner technologies.
D)  Corrective taxes require the government to set a target level of pollution.E) All of the above
F) None of the above

Question 16

Positive externalities

Accepted Answer

A)  result in a larger than efficient equilibrium quantity.
B)  result in smaller than efficient equilibrium quantity.
C)  result in an efficient equilibrium quantity.
D)  can be internalized with a corrective tax.E) B) and D)
F) B) and C)

Question 17

Figure 10-19 
-Refer to Figure 10-19. Which of the following decreases as the quantity of the good is increased?

Accepted Answer

A)  the private cost of the good
B)  the social cost of the good
C)  the private value of the good
D)  the external benefit of the goodE) All of the above
F) A) and D)

Question 18

Figure 10-10 
-Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Accepted Answer

A)  move the market from a socially efficient outcome to a socially inefficient outcome.
B)  reduce the external cost per unit of output.
C)  increase total economic well-being.
D)  not be an action of which a benevolent social planner would approve.E) C) and D)
F) B) and C)

Question 19

Figure 10-11 
-Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Accepted Answer

A)  $3,850.
B)  $4,320.
C)  $4,980.
D)  $5,530.E) B) and D)
F) B) and C)

Question 20

Which of the following is an example of a positive externality?

Accepted Answer

A)  Sue not catching the flu because she got a flu vaccine
B)  Mary not catching the flu from Sue because Sue got a flu vaccine
C)  Sue catching the flu because she did not get a flu vaccine
D)  Mary catching the flu from Sue because Sue did not get a flu vaccineE) B) and C)
F) A) and D)

Exam 10: Externalities

Government intervention is necessary to correct all externalities.

Correct Answer
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Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Correct Answer
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Which of the following is an example of a positive externality?

Correct Answer
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If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

Correct Answer
verified

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Correct Answer
verified
Since Liz's cost exceeds Tyler's benefit...
View Answer

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

Correct Answer
verified

Technology spillover occurs when

Correct Answer
verified

Correct Answer
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Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

Positive externalities

Correct Answer
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Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Correct Answer
verified

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

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

Which of the following statements is not correct?

Correct Answer
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The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Correct Answer
verified

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

Correct Answer
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When firms internalize a negative externality, the market supply curve shifts to the left.

Correct Answer
verified

In many cases the Coase theorem does not work well because

Correct Answer
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Figure 10-19 -Refer to Figure 10-19. Which of the following decreases as the quantity of the good is increased?

Correct Answer
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Technology spillover is one type of

Correct Answer
verified

Exam 10: Externalities

Government intervention is necessary to correct all externalities.

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Correct AnswerverifiedShow Answer

Which of the following is an example of a positive externality?

Correct AnswerverifiedShow Answer

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

Correct AnswerverifiedShow Answer

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Correct AnswerverifiedSince Liz's cost exceeds Tyler's benefit...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Technology spillover occurs when

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible) . The maximum total surplus that can be achieved in this market is

Correct AnswerverifiedShow Answer

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

Positive externalities

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedResearch into new technologies...View AnswerShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When firms internalize a negative externality, the market supply curve shifts to the left.

Correct AnswerverifiedShow Answer

In many cases the Coase theorem does not work well because

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. Which of the following decreases as the quantity of the good is increased?

Correct AnswerverifiedShow Answer

Technology spillover is one type of

Correct AnswerverifiedShow Answer

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Since Liz's cost exceeds Tyler's benefit...
View Answer

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

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