Question 1

A negative externality

Accepted Answer

A)   is an adverse impact on a bystander.
B)   causes the product in a market to be under-produced.
C)   is an adverse impact on market participants.
D)   is present in markets where the good or service does not have any impact on bystanders.E) B) and C)
F) A) and C)

Question 2

A paper plant produces water pollution during the production process.If the government forces the plant to internalize the negative externality,then the

Accepted Answer

A)   supply curve for paper would shift to the right.
B)   supply curve for paper would shift to the left.
C)   demand curve for paper would shift to the right.
D)   demand curve for paper would shift to the left.E) A) and B)
F) A) and D)

Question 3

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

Accepted Answer

A)   air pollution
B)   a person littering in a public park
C)   a nice garden in front of your neighbor's house
D)   the pollution of a streamE) C) and D)
F) A) and B)

Question 4

Which of the following is a difference between corrective taxes and tradable pollution permits?

Accepted Answer

A)   Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy.
B)   With a corrective tax the government sets the price of pollution;with tradable pollution permits,demand and supply set the price of pollution.
C)   With corrective taxes firms pay for pollution;with tradable pollution permits firms do not.
D)   Corrective taxes internalize the pollution externality while tradable pollution permits do not.E) C) and D)
F) B) and D)

Question 5

Which of the following is the most effective way to internalize a technology spillover?

Accepted Answer

A)   taxes
B)   patents
C)   government regulations
D)   free marketsE) C) and D)
F) B) and D)

Question 6

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 7

Table 10-4
 
-Refer to Table 10-4.Take into account private and external costs and assume the quantity of output is always a whole number (that is,fractional units of output are not possible) .The maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $19.
B)   $21.
C)   $24.
D)   $28.E) None of the above
F) A) and C)

Question 8

Honey producers provide a positive externality to orchards because

Accepted Answer

A)   the honey producers get more honey.
B)   the orchard owner frequently gets stung by the honey producer's bees.
C)   the orchard owner does not have to purchase bees to pollinate his flowers.
D)   the honey producers have to rent access to the orchard grounds.E) All of the above
F) A) and D)

Question 9

When he was a candidate for president,Barack Obama proposed which of the following as a means of combating climate change?

Accepted Answer

A)   a "cap and trade" system in which the government would give away permits to emit carbon
B)   a "cap and trade" system in which the government would auction permits to emit carbon
C)   a tax on carbon emissions
D)   a government mandate to switch from gasoline-powered vehicles to vehicles powered by natural gasE) A) and B)
F) A) and C)

Question 10

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

Accepted Answer

A)   Sally should pay Mike $400 so that she may keep her cat.
B)   Sally should pay Mike $350 for tissues and allergy medication.
C)   Mike should pay Sally $325 to give away her cat.
D)   Mike should move.E) None of the above
F) All of the above

Question 11

Table 10-3
 
-Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Accepted Answer

A)   $2
B)   $3
C)   $5
D)   $10E) A) and B)
F) All of the above

Question 12

When negative externalities are present in a market,

Accepted Answer

A)   producers will be affected but consumers will not.
B)   producers will supply too much of the product.
C)   demand will be too high.
D)   the market will still maximize total benefits.E) A) and B)
F) B) and C)

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) A) and B)
F) A) and C)

Question 14

Figure 10-11 th unit of output is $10. B)  The social value of the 280th unit of output is $28. C)  The external benefit of the 280th unit of output is $18. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-11.Which of the following statements is correct?

Accepted Answer

A)   The private value of the 280th unit of output is $10.
B)   The social value of the 280th unit of output is $28.
C)   The external benefit of the 280th unit of output is $18.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 15

Figure 10-1 
-Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Accepted Answer

A)   $1.90 and 38 units,respectively.
B)   $1.80 and 35 units,respectively.
C)   $1.60 and 42 units,respectively.
D)   $1.35 and 58 units,respectively.E) A) and B)
F) A) and C)

Question 16

Figure 10-4 3 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." class="answers-bank-image d-inline" rel="preload" >
-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) A) and D)

Question 17

If education produces positive externalities,we would expect

Accepted Answer

A)   the government to tax education.
B)   the government to subsidize education.
C)   people to realize the benefits,which would increase the demand for education.
D)   colleges to relax admission requirements.E) None of the above
F) A) and D)

Question 18

Figure 10-18.The graph represents a corrective tax to reduce pollution.On the axes,Q denotes the quantity of pollution and P represents the price of pollution. 
-Refer to Figure 10-18.The tax depicted on the graph

Accepted Answer

A)   gives polluting firms an incentive to develop cleaner technologies.
B)   is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution.
C)   has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax.
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 19

If an aluminum manufacturer does not bear the entire cost of the smoke it emits,it will

Accepted Answer

A)   emit a lower level of smoke than is socially efficient.
B)   emit a higher level of smoke than is socially efficient.
C)   emit an acceptable level of smoke.
D)   not emit any smoke in an attempt to avoid paying the entire cost.E) None of the above
F) All of the above

Question 20

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

Exam 10: Externalities

Figure 10-11 -Refer to Figure 10-11.Which of the following statements is correct?

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

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Which of the following is the most effective way to internalize a technology spillover?

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Table 10-3 -Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

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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.

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

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Markets sometimes fail to allocate resources efficiently.

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

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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?

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Honey producers provide a positive externality to orchards because

Correct Answer
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When he was a candidate for president,Barack Obama proposed which of the following as a means of combating climate change?

Correct Answer
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A paper plant produces water pollution during the production process.If the government forces the plant to internalize the negative externality,then the

Correct Answer
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Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Correct Answer
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If an aluminum manufacturer does not bear the entire cost of the smoke it emits,it will

Correct Answer
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Which of the following is a difference between corrective taxes and tradable pollution permits?

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A negative externality

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When negative externalities are present in a market,

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If education produces positive externalities,we would expect

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Figure 10-18.The graph represents a corrective tax to reduce pollution.On the axes,Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18.The tax depicted on the graph

Correct Answer
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Exam 10: Externalities

Figure 10-11 -Refer to Figure 10-11.Which of the following statements is correct?

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

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Which of the following is the most effective way to internalize a technology spillover?

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Table 10-4 -Refer to Table 10-4.Take into account private and external costs and assume the quantity of output is always a whole number (that is,fractional units of output are not possible) .The maximum total surplus that can be achieved in this market is

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Table 10-3 -Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

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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.

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

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Markets sometimes fail to allocate resources efficiently.

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

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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?

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Honey producers provide a positive externality to orchards because

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When he was a candidate for president,Barack Obama proposed which of the following as a means of combating climate change?

Correct AnswerverifiedShow Answer

A paper plant produces water pollution during the production process.If the government forces the plant to internalize the negative externality,then the

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Correct AnswerverifiedShow Answer

If an aluminum manufacturer does not bear the entire cost of the smoke it emits,it will

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Which of the following is a difference between corrective taxes and tradable pollution permits?

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A negative externality

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When negative externalities are present in a market,

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If education produces positive externalities,we would expect

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Figure 10-18.The graph represents a corrective tax to reduce pollution.On the axes,Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18.The tax depicted on the graph

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

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