Question 1

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Accepted Answer

A)   social value = private value = private cost 
B)   private cost 
C)   social cost = private cost = private value 
D)   social cost = private cost = private value = social value.E) A) and C)
F) A) and B)

Question 2

When the social cost curve is above a product's supply curve,

Accepted Answer

A)   the government has intervened in the market.
B)   a negative externality exists in the market.
C)   a positive externality exists in the market.
D)   the distribution of resources is unfair.E) C) and D)
F) A) and C)

Question 3

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Accepted Answer

The phenomenon of ex...

Question 4

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go...

Question 5

Figure 10-3 
-Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Accepted Answer

A)   profit margin of each concert.
B)   cost of spillover effects from the concert (e.g., noise and traffic) .
C)   value of concerts to society as a whole.
D)   amount by which the city should subsidize the concert organizers.E) B) and D)
F) A) and B)

Question 6

A corrective tax

Accepted Answer

A)   can be used to internalize a negative externality.
B)   imposed on sellers shifts the supply curve to the left.
C)   imposed on buyers shifts the demand curve to the left.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 7

When externalities cause markets to be inefficient,

Accepted Answer

A)   government action is always needed to solve the problem.
B)   private solutions can be developed to solve the problem.
C)   given enough time, externalities can be solved through normal market adjustments.
D)   there is no way to eliminate the problem of externalities in a market.E) A) and B)
F) All of the above

Question 8

Figure 10-8 
-Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Accepted Answer

A)   introduce a subsidy of $2 per unit.
B)   impose a tax of $2 per unit.
C)   introduce a subsidy of $4 per unit.
D)   impose a tax of $4 per unit.E) C) and D)
F) A) and C)

Question 9

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a...

Question 10

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 11

The Golden Rule is an example of a private solution for

Accepted Answer

A)   subsidizing higher education.
B)   internalizing externalities.
C)   increasing production.
D)   reducing scarcity.E) All of the above
F) C) and D)

Question 12

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A)   taxing goods that have negative externalities
B)   subsidizing goods that have positive externalities
C)   The government cannot improve upon the outcomes of private markets.
D)   Both a and b are correct.E) A) and B)
F) A) and C)

Question 13

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Accepted Answer

A) True 
 B)False

Question 14

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Question 15

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 16

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Accepted Answer

We call th...

Question 17

Figure 10-4 
-Refer to Figure 10-4. At Q3

Accepted Answer

A)   the marginal consumer values this product less than the social cost of producing it.
B)   every consumer values this product less than the social cost of producing it.
C)   the cost to society is equal to the value to society.
D)   the marginal consumer values this product more than the private cost.E) A) and B)
F) B) and C)

Question 18

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Accepted Answer

A)   At the current output level, the marginal social benefit exceeds the marginal private benefit.
B)   The current output level is inefficiently low.
C)   A per-shot subsidy could turn an inefficient situation into an efficient one.
D)   All of the above are correct.E) B) and D)
F) All of the above

Question 19

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Accepted Answer

A)   the equilibrium quantity of education will be equal to the socially optimal quantity of education.
B)   the equilibrium quantity of education will be greater than the socially optimal quantity of education.
C)   the equilibrium quantity of education will be less than the socially optimal quantity of education.
D)   There is not enough information to answer the question.E) C) and D)
F) B) and D)

Question 20

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

When externalities cause markets to be inefficient,

Correct AnswerverifiedShow Answer

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Correct AnswerverifiedThe production of go...View AnswerShow Answer

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Correct AnswerverifiedShow Answer

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Correct AnswerverifiedShow Answer

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Correct AnswerverifiedThe phenomenon of ex...View AnswerShow Answer

Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Correct AnswerverifiedShow Answer

Figure 10-8 -Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Correct AnswerverifiedShow Answer

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Correct AnswerverifiedPrivate parties may fail to bargain to a...View AnswerShow Answer

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Correct AnswerverifiedShow Answer

The Golden Rule is an example of a private solution for

Correct AnswerverifiedShow Answer

When the social cost curve is above a product's supply curve,

Correct AnswerverifiedShow Answer

A technology spillover is a type of negative externality.

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. At Q3

Correct AnswerverifiedShow Answer

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Correct AnswerverifiedShow Answer

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Correct AnswerverifiedShow Answer

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Correct AnswerverifiedShow Answer

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Correct AnswerverifiedWe call th...View AnswerShow Answer

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Correct AnswerverifiedShow Answer

Which of the following represents a way that a government can help the private market to internalize an externality?

Correct AnswerverifiedShow Answer

A corrective tax

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The production of go...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The phenomenon of ex...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Private parties may fail to bargain to a...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
We call th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified