Question 1

Figure 10-15 
-Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Accepted Answer

A)   PB must be equivalent to the corrective tax.
B)   QA must be equivalent to the amount of pollution allowed to the pollution permit holders.
C)   The equilibrium price and quantity of pollution must be the same in both graphs.
D)   The amount of pollution emitted by each firm must be the same.E) A) and B)
F) A) and C)

Question 2

The term market failure refers to

Accepted Answer

A)   a market that fails to allocate resources efficiently.
B)   an unsuccessful advertising campaign which reduces demand.
C)   ruthless competition among firms.
D)   a firm that is forced out of business because of losses.E) B) and C)
F) A) and B)

Question 3

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0fire extinguisher entails the following:
-a private cost of $10;
-an external cost of $0;
-a private value of $9;
-an external benefit of $3.
-
-Refer to Scenario 10-4. Is the market-equilibrium quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^t^hfire extinguisher, ...

Question 4

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 D)
F) B) and D)

Question 5

As a means of dealing with pollution, do economists generally prefer corrective taxes or do they prefer regulations?

Accepted Answer

Economists generally...

Question 6

Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000th gallon?

Accepted Answer

For each gallon, the social co...

Question 7

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Accepted Answer

The answer of In some situations, private economic actors cannot...

Question 8

If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

Accepted Answer

A)   the market for good x is characterized by an externality, but we cannot determine whether the externality is positive or negative from this fact alone.
B)   the market for good x is characterized by a positive externality.
C)   the market for good x is characterized by a negative externality.
D)   the demand curve for good x fails to reflect the value to society of that good.E) A) and D)
F) None of the above

Question 9

An externality is an example of

Accepted Answer

A)   a corrective tax.
B)   a tradable pollution permit.
C)   a market failure.
D)   Both a and b are correct.E) None of the above
F) All of the above

Question 10

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Accepted Answer

A) True 
 B)False

Question 11

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
 
-Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

Accepted Answer

A)   1 unit
B)   2 units
C)   3 units
D)   4 unitsE) A) and B)
F) B) and C)

Question 12

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.  Multiple Choice - Section 02: Public Policies toward Externalities
-Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Accepted Answer

A)   social optimum has been reached.
B)   market equilibrium has been reached.
C)   negative externality associated with plastics has been eliminated.
D)   positive externality associated with plastics has been eliminated.E) All of the above
F) B) and D)

Question 13

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

Question 14

Markets are often inefficient when negative externalities are present because

Accepted Answer

A)   private costs exceed social costs at the private market solution.
B)   externalities cannot be corrected without government regulation.
C)   social costs exceed private costs at the private market solution.
D)   production externalities lead to consumption externalities.E) A) and B)
F) A) and C)

Question 15

Figure 10-3 
-Refer to Figure 10-3. The social cost curve is above the supply curve because

Accepted Answer

A)   it takes into account the external costs imposed on society by the concert.
B)   it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods.
C)   concert tickets are likely to cost more than the concert actually costs the organizers.
D)   residents in the surrounding neighborhoods get to listen to the concert for free.E) C) and D)
F) A) and C)

Question 16

Figure 10-4 
-Refer to Figure 10-4. This market

Accepted Answer

A)   has no need for government intervention.
B)   would benefit from a tax on the product.
C)   would benefit from a subsidy for the product.
D)   would maximize total well-being at Q3.E) A) and D)
F) A) and B)

Question 17

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Accepted Answer

A)   reflect the fact that restored historic buildings convey a positive externality.
B)   reflect the fact that the destruction of historic buildings conveys a positive externality.
C)   are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings.
D)   are likely to decrease the well-being of society as a whole.E) A) and B)
F) None of the above

Question 18

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were

Accepted Answer

A)   provided a subsidy of $0.30 per gallon of gasoline sold.
B)   provided a subsidy of $0.45 per gallon of gasoline sold.
C)   required to pay a tax of $0.45 per gallon of gasoline sold.
D)   required to pay a tax of $0.30 per gallon of gasoline sold.E) C) and D)
F) A) and C)

Question 19

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Accepted Answer

A)   their respective markets would move closer to the social optimum.
B)   their respective markets would move further away from the social optimum.
C)   total surplus in their respective markets would decrease.
D)   the merger would serve as an example of a misguided public policy toward externalities.E) B) and C)
F) C) and D)

Question 20

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Accepted Answer

A)   Karen should pay Danny $400 so that she may keep her cat.
B)   Karen should pay Danny $350 for tissues and allergy medication.
C)   Danny should pay Karen $325 to give away her cat.
D)   Danny should move.E) A) and B)
F) C) and D)

Exam 10: Externalities

Correct Answer
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For the 500^t^hfire extinguisher, ...
View Answer

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Correct Answer
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Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

Correct Answer
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Correct Answer
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Figure 10-3 -Refer to Figure 10-3. The social cost curve is above the supply curve because

Correct Answer
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An externality is an example of

Correct Answer
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Markets are often inefficient when negative externalities are present because

Correct Answer
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The term market failure refers to

Correct Answer
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Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000th gallon?

Correct Answer
verified
For each gallon, the social co...
View Answer

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Correct Answer
verified

As a means of dealing with pollution, do economists generally prefer corrective taxes or do they prefer regulations?

Correct Answer
verified
Economists generally...
View Answer

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Correct Answer
verified

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Correct Answer
verified

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Correct Answer
verified

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4. This market

Correct Answer
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Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

Correct Answer
verified

Exam 10: Externalities

Correct AnswerverifiedFor the 500th fire extinguisher, ...View AnswerShow Answer

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-3 -Refer to Figure 10-3. The social cost curve is above the supply curve because

Correct AnswerverifiedShow Answer

An externality is an example of

Correct AnswerverifiedShow Answer

Markets are often inefficient when negative externalities are present because

Correct AnswerverifiedShow Answer

The term market failure refers to

Correct AnswerverifiedShow Answer

Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000th gallon?

Correct AnswerverifiedFor each gallon, the social co...View AnswerShow Answer

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Correct AnswerverifiedShow Answer

As a means of dealing with pollution, do economists generally prefer corrective taxes or do they prefer regulations?

Correct AnswerverifiedEconomists generally...View AnswerShow Answer

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Correct AnswerverifiedShow Answer

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Correct AnswerverifiedShow Answer

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Correct AnswerverifiedShow Answer

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. This market

Correct AnswerverifiedShow Answer

Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

Correct AnswerverifiedShow Answer

Correct Answer
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For the 500^t^hfire extinguisher, ...
View 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
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For each gallon, the social co...
View Answer

Correct Answer
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Correct Answer
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Economists generally...
View Answer

Correct Answer
verified

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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Correct Answer
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