Question 1

Figure 10-16
 
-Refer to Figure 10-16.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.In the absence of a pollution permit system,the quantity of pollution would be

Accepted Answer

A)   25
B)   50
C)   75
D)   100E) None of the above
F) A) and B)

Question 2

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

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

Question 3

Which of the following statements is not correct?

Accepted Answer

A)   Private markets tend to over-produce products with negative externalities.
B)   Private markets tend to under-produce products with positive externalities.
C)   Private parties can bargain to efficient outcomes even in the presence of externalities.
D)   Private parties are usually more successful in achieving efficient outcomes than government policies.E) B) and C)
F) A) and D)

Question 4

To determine the optimal level of output in a market with negative externalities,a benevolent social planner would look for the level of output at which private cost equals private value.

Accepted Answer

A) True 
 B)False

Question 5

When market activity generates a negative externality,the level of output in the market equilibrium is lower than the socially optimal level.

Accepted Answer

A) True 
 B)False

Question 6

Figure 10-1
 
-Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   no externalities.
D)   no equilibrium in the market.E) None of the above
F) C) and D)

Question 7

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)   Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly.
B)   Command-and-control policies rely on taxes, whereas market-based policies rely on quotas.
C)   Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior.
D)   Command-and-control policies are efficient, whereas market-based policies are inefficient.E) A) and D)
F) None of the above

Question 8

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the farmer has the right to compensation for any damage that his crops suffer.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)   The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)   The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)   The farmer will incur $1,500 in damages to his crops.
D)   The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) B) and D)
F) B) and C)

Question 9

The Coase theorem asserts that,in the presence of externalities,

Accepted Answer

A)   private economic actors sometimes can reach a bargain that produces an efficient outcome.
B)   private economic actors always can reach a bargain that makes everyone better off.
C)   private solutions cannot be very effective.
D)   corrective taxes cannot be very effective.E) None of the above
F) A) and D)

Question 10

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Accepted Answer

A)   is always needed because private solutions can never be attained.
B)   is needed when private solutions fail to arise.
C)   will be needed only to correct for positive externalities.
D)   will be needed only to correct for negative externalities.E) All of the above
F) B) and C)

Question 11

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $15 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots 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) B) and C)

Question 12

Figure 10-19
 
-Refer to Figure 10-19.Note that the lines labeled "Demand" and "Social Value"are parallel.Also,the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed,and (2) private cost increases by $1.40 with each additional unit of the good that is produced.Thus,when the 59th unit of the good is produced and consumed,social well-being increases by

Accepted Answer

A)   $28.00.
B)   $31.40.
C)   $33.60.
D)   $36.00.E) C) and D)
F) All of the above

Question 13

Figure 10-17
 
-Refer to Figure 10-17.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)   An amount equal to P' minus P.
B)   An amount equal to P'.
C)   An amount equal to P.
D)   An amount equal to the external cost.E) C) and D)
F) B) and C)

Question 14

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is not correct?

Accepted Answer

A)   Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level.
B)   Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution.
C)   Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.
D)   Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.E) A) and C)
F) All 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) A) and C)
F) All of the above

Question 17

Which of the following is a way to address an externality problem?

Accepted Answer

A)   command and control solution
B)   corrective tax
C)   corrective subsidy
D)   all of the above.E) All of the above
F) None of the above

Question 18

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Accepted Answer

A)   social cost
B)   opportunity cost of technology
C)   internalization of an externality
D)   technology spilloverE) B) and C)
F) A) and D)

Question 19

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a positive externality exists,the ...

Question 20

Which of the following is not an advantage of corrective taxes?

Accepted Answer

A)   They raise revenues for the government.
B)   They enhance economic efficiency.
C)   They subsidize the production of goods with positive externalities.
D)   They move the allocation of resources closer to the social optimum.E) None of the above
F) B) and D)

Exam 10: Externalities.

When market activity generates a negative externality,the level of output in the market equilibrium is lower than the socially optimal level.

Correct Answer
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What is the difference between command-and-control policies and market-based policies toward externalities?

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Correct Answer
verified

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct Answer
verified

Correct Answer
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Figure 10-16 -Refer to Figure 10-16.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.In the absence of a pollution permit system,the quantity of pollution would be

Correct Answer
verified

Which of the following is not an advantage of corrective taxes?

Correct Answer
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Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Correct Answer
verified
When a positive externality exists,the ...
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Which of the following is a way to address an externality problem?

Correct Answer
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Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $15 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct Answer
verified

To determine the optimal level of output in a market with negative externalities,a benevolent social planner would look for the level of output at which private cost equals private value.

Correct Answer
verified

Correct Answer
verified

The Coase theorem asserts that,in the presence of externalities,

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

Figure 10-17 -Refer to Figure 10-17.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct Answer
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Positive externalities

Correct Answer
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Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Correct Answer
verified

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Correct Answer
verified

Exam 10: Externalities.

When market activity generates a negative externality,the level of output in the market equilibrium is lower than the socially optimal level.

Correct AnswerverifiedShow Answer

What is the difference between command-and-control policies and market-based policies toward externalities?

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Correct AnswerverifiedShow Answer

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-16 -Refer to Figure 10-16.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.In the absence of a pollution permit system,the quantity of pollution would be

Correct AnswerverifiedShow Answer

Which of the following is not an advantage of corrective taxes?

Correct AnswerverifiedShow Answer

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Correct Answerverified When a positive externality exists,the ...View AnswerShow Answer

Which of the following is a way to address an externality problem?

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $15 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct AnswerverifiedShow Answer

To determine the optimal level of output in a market with negative externalities,a benevolent social planner would look for the level of output at which private cost equals private value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Coase theorem asserts that,in the presence of externalities,

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

Figure 10-17 -Refer to Figure 10-17.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct AnswerverifiedShow Answer

Positive externalities

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Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Correct AnswerverifiedShow Answer

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Correct AnswerverifiedShow Answer

Correct Answer
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When a positive externality exists,the ...
View Answer

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