Question 1

Corrective taxes are unlike most other taxes because they

Accepted Answer

A)   distort incentives.
B)   move the allocation of resources away from the social optimum.
C)   raise revenue for the government.
D)   move the allocation of resources closer to the social optimum.E) B) and C)
F) A) and B)

Question 2

Internalizing a positive externality will cause the demand curve to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged.E) B) and C)
F) A) and B)

Question 3

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

Question 4

Which of the following statements is correct?

Accepted Answer

A)   Taxes are more difficult to administer than regulations.
B)   Taxes provide incentives for firms to adopt new methods to reduce negative externalities.
C)   Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own.
D)   Corrective taxes distort incentives.E) A) and B)
F) All of the above

Question 5

Figure 10-10 
-Refer to Figure 10-10. The socially optimal quantity of output is

Accepted Answer

A)   120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit.
B)   120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
C)   160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
D)   160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.E) C) and D)
F) A) and C)

Question 6

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0restored historic building entails the following:
-a private cost of $800,000;
-a private value of $650,000;
-a social value of $800,000.
-Refer to Scenario 10-2. Is there an external cost associated with the restoration of the 50th historic building, or is there an external benefit? What is the amount of that external cost or external benefit?

Accepted Answer

There is an external benefit o...

Question 7

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) B) and C)
F) C) and D)

Question 8

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Accepted Answer

The new supply curve...

Question 9

A command-and-control policy is another term for a

Accepted Answer

A)   pollution permit.
B)   government regulation.
C)   corrective tax.
D)   Both a and b are correct.E) A) and B)
F) None of the above

Question 10

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Accepted Answer

A)   transaction costs.
B)   corrective costs.
C)   input costs.
D)   private costs.E) C) and D)
F) A) and B)

Question 11

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Accepted Answer

A) True 
 B)False

Question 12

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. If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   7
B)   8
C)   9
D)   10E) B) and C)
F) None of the above

Question 13

Figure 10-9 
-Refer to Figure 10-9, Panel (b)  and Panel (c) . Which of the following is correct?

Accepted Answer

A)   A tax would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome.
B)   A subsidy would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome.
C)   A tax would move the market in Panel (b)  closer to the socially optimal outcome, but a subsidy would move the market in Panel (c)  closer to the socially optimal outcome.
D)   A subsidy would move the market in Panel (b)  closer to the socially optimal outcome, but a tax would move the market in Panel (c)  closer to the socially optimal outcome.E) A) and B)
F) All of the above

Question 14

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

Question 15

Once tradable pollution permits have been allocated to firms,

Accepted Answer

A)   the government controls the price of permits.
B)   firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.
C)   the value of pollution-saving technology will be lower than the market value of a pollution permit.
D)   the Coase theorem is no longer applicable as a solution to reducing pollution.E) A) and B)
F) None of the above

Question 16

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)   Social value exceeds private value, and market quantity exceeds the socially optimal quantity.
B)   Social value is less than private value, and market quantity exceeds the socially optimal quantity.
C)   Social value exceeds private value, and market quantity is less than the socially optimal quantity.
D)   Social value seldom exceeds private value; therefore, social quantity is less than private quantity.E) A) and B)
F) A) and C)

Question 17

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

Accepted Answer

A)   equalize private value and private cost.
B)   equalize private cost and external cost.
C)   externalize the actions of the buyers and sellers.
D)   internalize the externality.E) A) and B)
F) A) and C)

Question 18

Figure 10-7 
-Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) C) and D)
F) All of the above

Question 19

Table 10-6
The following table shows the total 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 $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103. 
-Refer to Table 10-6. If the government charged a fee of $93 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   10
B)   12
C)   14
D)   16E) C) and D)
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) C) and D)
F) A) and B)

Exam 10: Externalities

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Correct Answer
verified

Once tradable pollution permits have been allocated to firms,

Correct Answer
verified

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

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

Correct Answer
verified

Internalizing a positive externality will cause the demand curve to

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

Which of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Correct Answer
verified

A command-and-control policy is another term for a

Correct Answer
verified

Corrective taxes are unlike most other taxes because they

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . Which of the following is correct?

Correct Answer
verified

Which of the following is true of markets characterized by positive externalities?

Correct Answer
verified

Figure 10-10 -Refer to Figure 10-10. The socially optimal quantity of output is

Correct Answer
verified

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

Correct Answer
verified

Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

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

Correct Answer
verified
There is an external benefit o...
View Answer

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Correct Answer
verified
The new supply curve...
View Answer

Exam 10: Externalities

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Correct AnswerverifiedShow Answer

Once tradable pollution permits have been allocated to firms,

Correct AnswerverifiedShow Answer

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

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

Correct AnswerverifiedShow Answer

Internalizing a positive externality will cause the demand curve to

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

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Correct AnswerverifiedShow Answer

A command-and-control policy is another term for a

Correct AnswerverifiedShow Answer

Corrective taxes are unlike most other taxes because they

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . Which of the following is correct?

Correct AnswerverifiedShow Answer

Which of the following is true of markets characterized by positive externalities?

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

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

Correct AnswerverifiedThere is an external benefit o...View AnswerShow Answer

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Correct AnswerverifiedThe new supply curve...View AnswerShow 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

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

Correct Answer
verified
There is an external benefit o...
View Answer

Correct Answer
verified
The new supply curve...
View Answer