Question 1

Which of the following is not an effective method to reduce negative externalities?

Accepted Answer

A)   relying on voluntary compliance
B)   taxing the output of industries that pollute
C)   creating legal environmental standards
D)   increasing public spending on cleanup and reduction of pollutionE) A) and B)
F) A) and C)

Question 2

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Accepted Answer

A)   a situation in which the Coase theorem fails to explain the lawn mowing arrangement.
B)   an improper allocation of resources.
C)   a private solution to a negative externality problem.
D)   an exploitation of a common resource.E) A) and C)
F) A) and B)

Question 3

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies 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) A) and D)
F) A) and B)

Question 5

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

Accepted Answer

A)   A college student buys a new car when she graduates.
B)   The mayor of a small town plants flowers in the city park.
C)   Local high school teachers have pizza delivered every Friday for lunch.
D)   An avid fisherman buys new fishing gear for his next fishing trip.E) None of the above
F) C) and D)

Question 6

Table 10-3
 
-Refer to Table 10-3.Taking into account private and external costs,the maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $18.
B)   $38.
C)   $46.
D)   $55.E) C) and D)
F) All of the above

Question 7

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) All of the above
F) B) and C)

Question 8

Which of the following statements is not correct?

Accepted Answer

A)   Patents help internalize the externalities associated with technological advances.
B)   Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution.
C)   Allowing firms to trade pollution permits will lower the total cost of reducing pollution.
D)   A big impediment to implementing the Coase theorem in many cases is high transactions costs.E) B) and C)
F) None of the above

Question 9

Figure 10-9   
-Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

A)   Q2 to point Q3.
B)   Q3 to point Q2.
C)   Q4 to point Q5.
D)   Q5 to point Q4.E) B) and C)
F) None of the above

Question 10

Figure 10-8 
-Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Accepted Answer

A)   less than $2
B)   $2
C)   more than $2
D)   The size of the subsidy cannot be determined from the figure.E) A) and B)
F) None of the above

Question 11

Table 10-5
The following table shows the marginal costs for each of four firms (A,B,C,and D) to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $54,and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
 
-Refer to Table 10-5.Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal.Which of the following is a likely auction price of the permits?

Accepted Answer

A)   $69
B)   $81
C)   $83
D)   $97E) C) and D)
F) B) and D)

Question 12

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Accepted Answer

A)   maximize attorney fees.
B)   reduce the incentive of attorneys to file class action lawsuits.
C)   reduce the transaction costs of finding a private solution to an externality.
D)   regulate attorney fees.E) All of the above
F) A) and B)

Question 13

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Accepted Answer

A)   the externalities that are present are positive,not negative.
B)   government assigns property rights to the harmed party.
C)   private parties can bargain with sufficiently low transaction costs.
D)   businesses determine an appropriate level of production.E) A) and B)
F) None of the above

Question 14

Which of the following statements is correct?

Accepted Answer

A)   Government should tax goods with either positive or negative externalities.
B)   Government should tax goods with negative externalities and subsidize goods with positive externalities.
C)   Government should subsidize goods with either positive or negative externalities.
D)   Government should tax goods with positive externalities and subsidize goods with negative externalities.E) A) and B)
F) All of the above

Question 15

Altering incentives so that people take account of the external effects of their actions

Accepted Answer

A)   is called internalizing the externality.
B)   can be done by imposing a corrective tax.
C)   is the role of government in markets with externalities.
D)   all of the above.E) B) and C)
F) B) and D)

Question 16

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $5 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) A) and B)
F) A) and D)

Question 17

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves,without government intervention,regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Accepted Answer

A)   A well-maintained yard conveys a positive externality because it increases the home's market value.
B)   A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner.
C)   A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.
D)   A well-maintained yard cannot provide any type of externality.E) B) and D)
F) None of the above

Question 19

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Accepted Answer

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

Question 20

The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

Accepted Answer

A)   the private market will reach an equilibrium in which resources are allocated inefficiently.
B)   the private market will reach an equilibrium in which resources are allocated efficiently.
C)   the private market cannot reach an equilibrium.
D)   a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.E) B) and D)
F) A) and C)

Exam 10: Externalities

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $5 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

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Correct Answer
verified

Which of the following is not an effective method to reduce negative externalities?

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Correct Answer
verified

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves,without government intervention,regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Table 10-3 -Refer to Table 10-3.Taking into account private and external costs,the maximum total surplus that can be achieved in this market is

Correct Answer
verified

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct Answer
verified

Government intervention is necessary to correct all externalities.

Correct Answer
verified

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Correct Answer
verified

The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

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

Which of the following statements is not correct?

Correct Answer
verified

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Correct Answer
verified

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

Correct Answer
verified

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct Answer
verified

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Correct Answer
verified

Altering incentives so that people take account of the external effects of their actions

Correct Answer
verified

Correct Answer
verified

Figure 10-8 -Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Correct Answer
verified

Exam 10: Externalities

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $5 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

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Correct AnswerverifiedShow Answer

Which of the following is not an effective method to reduce negative externalities?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves,without government intervention,regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3.Taking into account private and external costs,the maximum total surplus that can be achieved in this market is

Correct AnswerverifiedShow Answer

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct AnswerverifiedShow Answer

Government intervention is necessary to correct all externalities.

Correct AnswerverifiedShow Answer

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Correct AnswerverifiedShow Answer

The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

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

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct AnswerverifiedShow Answer

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Correct AnswerverifiedShow Answer

Altering incentives so that people take account of the external effects of their actions

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-8 -Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Correct AnswerverifiedShow Answer

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