Question 1

The tax on gasoline causes deadweight losses,as is the case with all taxes.

Accepted Answer

A) True 
 B)False

Question 2

Figure 10-15
 
-Refer to Figure 10-15.The supply of pollution permits is

Accepted Answer

A)   elastic and represented by line A.
B)   inelastic and represented by line A.
C)   elastic and represented by line F
D)   inelastic and represented by line F.E) B) and D)
F) B) and C)

Question 3

The difference between social cost and private cost is a measure of the

Accepted Answer

A)   loss in profit to the seller as the result of a negative externality.
B)   cost of an externality.
C)   cost reduction when the negative externality is eliminated.
D)   cost incurred by the government when it intervenes in the market.E) A) and C)
F) A) and B)

Question 4

Figure 10-5
 
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Accepted Answer

A)   P0 and Q1.
B)   P2 and Q1.
C)   P1 and Q0.
D)   P2 and Q0.E) A) and C)
F) A) and B)

Question 5

Figure 10-10
 
-Refer to Figure 10-10.Which of the following statements is correct?

Accepted Answer

A)   The private cost of producing the 160th unit of output is $16.
B)   The social cost of producing the 160th unit of output is $22.
C)   The external cost of producing the 160th unit of output is $6.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 6

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 7

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Accepted Answer

A) True 
 B)False

Question 8

Monte owns a dog; the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)   Teresa pays Monte $150 to give the dog to his parents who live on an isolated farm.
B)   Monte pays Teresa $350 for her inconvenience.
C)   Teresa pays Monte $300 to give the dog to his parents who live on an isolated farm.
D)   There is no private transaction that would improve this situation.E) None of the above
F) A) and C)

Question 9

Which of the following is a difference between corrective taxes and tradable pollution permits?

Accepted Answer

A)   Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy.
B)   With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution.
C)   With corrective taxes firms pay for pollution; with tradable pollution permits firms do not.
D)   Corrective taxes internalize the pollution externality while tradable pollution permits do not.E) All of the above
F) B) and C)

Question 10

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

Accepted Answer

A)   private benefit equals the social benefit at the private market solution.
B)   private cost exceeds the private benefit at the private market solution.
C)   social value exceeds the private value at the private market solution.
D)   private cost exceeds the social benefit at the private market solution.E) B) and C)
F) A) and B)

Question 11

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)   Producers will choose not to produce any pollution.
B)   Producers will internalize the cost of the pollution.
C)   Producers will maximize production.
D)   The value to consumers at market equilibrium will exceed the social cost of production.E) B) and D)
F) All of the above

Question 12

The goal of industrial policy should be that

Accepted Answer

A)   industries yielding the largest positive externalities should receive the biggest subsidies.
B)   any industry that produces negative externalities should be heavily taxed.
C)   any production process that produces negative externalities should be shut down.
D)   all industries that produce positive externalities should be equally subsidized.E) All of the above
F) A) and D)

Question 13

Figure 10-9

-Refer to Figure 10-9,Panel (c) .The market equilibrium price is

Accepted Answer

A)   P4a.
B)   P4b.
C)   P5.
D)   P4a - P4b.E) A) and D)
F) B) and D)

Question 14

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

Question 15

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub.Further suppose that the local government offers a $7 per-shrub subsidy to planters.The number of shrubs that are planted is then

Accepted Answer

A)   less than the socially optimal quantity.
B)   greater than the socially optimal quantity.
C)   equal to the socially optimal quantity.
D)   There is not enough information to answer the question.E) B) and D)
F) None of the above

Question 16

Figure 10-2. The graph depicts the market for plastic.
 
-Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.What is the socially optimal quantity of plastic?

Accepted Answer

A)   200 units
B)   450 units
C)   500 units
D)   650 unitsE) A) and C)
F) All of the above

Question 17

Most taxes distort incentives and move the allocation of resources away from the social optimum.Why do corrective taxes avoid the disadvantages of most other taxes?

Accepted Answer

A)   Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol.
B)   Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders.
C)   Corrective taxes provide incentives for the conservation of natural resources.
D)   Corrective taxes do not affect deadweight loss.E) All of the above
F) A) and D)

Question 18

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the remedy for climate change that is overwhelmingly supported by economists is

Accepted Answer

A)   a "cap and trade" system in which the government would give away permits to emit carbon.
B)   an expansion of regulations on carbon emissions.
C)   stricter enforcement of existing regulations on carbon emissions.
D)   a tax on carbon emissions.E) B) and D)
F) B) and C)

Question 19

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million,the policy would be considered a

Accepted Answer

A)   regulation.
B)   corrective tax.
C)   subsidy.
D)   market-based policy.E) A) and B)
F) All of the above

Question 20

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality.
 
-Refer to Table 10-2.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)   $3
B)   $5
C)   $7
D)   $9E) C) and D)
F) A) and B)

Exam 10: Externalities.

Most taxes distort incentives and move the allocation of resources away from the social optimum.Why do corrective taxes avoid the disadvantages of most other taxes?

Correct Answer
verified

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.What is the socially optimal quantity of plastic?

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9,Panel (c) .The market equilibrium price is

Correct Answer
verified

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Correct Answer
verified

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

Monte owns a dog; the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

Correct Answer
verified

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Correct Answer
verified

The tax on gasoline causes deadweight losses,as is the case with all taxes.

Correct Answer
verified

Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Correct Answer
verified

Figure 10-10 -Refer to Figure 10-10.Which of the following statements is correct?

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

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub.Further suppose that the local government offers a $7 per-shrub subsidy to planters.The number of shrubs that are planted is then

Correct Answer
verified

An optimal tax on pollution would result in which of the following?

Correct Answer
verified

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

Correct Answer
verified

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million,the policy would be considered a

Correct Answer
verified

Figure 10-15 -Refer to Figure 10-15.The supply of pollution permits is

Correct Answer
verified

The difference between social cost and private cost is a measure of the

Correct Answer
verified

The goal of industrial policy should be that

Correct Answer
verified

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct Answer
verified

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the remedy for climate change that is overwhelmingly supported by economists is

Correct Answer
verified

Exam 10: Externalities.

Most taxes distort incentives and move the allocation of resources away from the social optimum.Why do corrective taxes avoid the disadvantages of most other taxes?

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.What is the socially optimal quantity of plastic?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9,Panel (c) .The market equilibrium price is

Correct AnswerverifiedShow Answer

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Correct AnswerverifiedShow Answer

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

Monte owns a dog; the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

Correct AnswerverifiedShow Answer

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Correct AnswerverifiedShow Answer

The tax on gasoline causes deadweight losses,as is the case with all taxes.

Correct AnswerverifiedShow Answer

Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10.Which of the following statements is correct?

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

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub.Further suppose that the local government offers a $7 per-shrub subsidy to planters.The number of shrubs that are planted is then

Correct AnswerverifiedShow Answer

An optimal tax on pollution would result in which of the following?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million,the policy would be considered a

Correct AnswerverifiedShow Answer

Figure 10-15 -Refer to Figure 10-15.The supply of pollution permits is

Correct AnswerverifiedShow Answer

The difference between social cost and private cost is a measure of the

Correct AnswerverifiedShow Answer

The goal of industrial policy should be that

Correct AnswerverifiedShow Answer

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct AnswerverifiedShow Answer

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the remedy for climate change that is overwhelmingly supported by economists is

Correct AnswerverifiedShow Answer

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

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