Question 1

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Accepted Answer

A)  Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm.
B)  Abe pays Jenny $350 for her inconvenience.
C)  Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.
D)  There is no private transaction that would improve this situation.E) None of the above
F) All of the above

Question 2

Figure 10-11 
-Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Accepted Answer

A)  the private value of the last unit of output that was produced and sold
B)  the social value of the last unit of output that was produced and sold
C)  the external benefit of the last unit of output that was produced and sold
D)  the private cost of the last unit of output that was produced and soldE) All of the above
F) A) and B)

Question 3

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 4

Which of the following statements is correct?

Accepted Answer

A)  The use of pollution permits and corrective taxes reduces the cost of environmental protection.
B)  Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity.
C)  Clean water and clean air are goods to which the law of demand applies.
D)  All of the above are correct.E) A) and C)
F) A) and B)

Question 5

Figure 10-2. The graph depicts the market for plastic. th unit of plastic exceeds the social cost of the 200th unit of plastic by A) $4. B) $8. C) $12. D) $16." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Accepted Answer

A)  $4.
B)  $8.
C)  $12.
D)  $16.E) C) and D)
F) A) and B)

Question 6

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Accepted Answer

A)  give sellers the incentive to account for the external effects of their actions.
B)  increase demand.
C)  increase the amount of the commodity exchanged in market equilibrium.
D)  restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.E) A) and B)
F) A) and C)

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. Without any government regulation, what price will the firm charge per unit of plastic?

Accepted Answer

A)  $4.00
B)  $6.00
C)  $7.00
D)  $10.00E) None of the above
F) A) and C)

Question 8

Figure 10-19 
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Accepted Answer

A)  $15.
B)  $23.
C)  $36.
D)  $89.E) A) and B)
F) A) and C)

Question 9

Ty lives in an apartment building and gets a benefit from playing his stereo. Olivia, who lives next door to Ty and often loses sleep due to the loud music coming from Ty's stereo, bears a cost from the noise. Olivia is threatening to call the police to force Ty to turn down his stereo. Under which of the following conditions would Ty be able to offer Olivia some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

Accepted Answer

A)  The cost of the noise to Olivia must exceed the benefit of the music to Ty.
B)  The benefit of the music to Ty must exceed the cost of the noise to Olivia.
C)  The Coase Theorem guarantees that Olivia and Ty will always be able to come to an agreement that keeps Olivia from calling the police regardless of the individual benefits and costs.
D)  The cost of the noise to Olivia must exceed the benefit of the music to Ty by an amount greater than the transaction costs associated with the agreement.E) A) and B)
F) A) and C)

Question 10

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) None of the above
F) All of the above

Question 11

Figure 10-10 
-Refer to Figure 10-10. The graph represents a market in which

Accepted Answer

A)  there is no externality.
B)  there is a positive externality.
C)  there is a negative externality.
D)  The answer cannot be determined from inspection of the graph.E) None of the above
F) A) and B)

Question 12

When the government intervenes in markets with externalities, it does so in order to

Accepted Answer

A)  increase production when negative externalities are present.
B)  protect the interests of bystanders.
C)  make certain all benefits are received by market participants.
D)  reduce production when positive externalities are present.E) A) and D)
F) All of the above

Question 13

If we know that the demand curve for good x fails to reflect the total value to society of 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 supply curve for good x fails to reflect the cost to society of producing that good.E) A) and C)
F) C) and D)

Question 14

The difference between a corrective tax and a tradable pollution permit is that

Accepted Answer

A)  a corrective tax sets the price of pollution and a permit sets the quantity of pollution.
B)  a corrective tax creates a more efficient outcome than a permit.
C)  a corrective tax sets the quantity of pollution and a permit sets the price of pollution.
D)  a permit creates a more efficient outcome than a corrective tax.E) None of the above
F) All of the above

Question 15

Economists believe that the optimal level of pollution is zero.

Accepted Answer

A) True 
 B)False

Question 16

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Accepted Answer

The restoration of h...

Question 17

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Accepted Answer

A)  social costs equal private costs at the private market solution.
B)  private costs exceed social costs at the private market solution.
C)  social costs exceed private costs at the private market solution.
D)  they internalize externalities.E) All of the above
F) A) and B)

Question 18

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Accepted Answer

The new demand curve...

Question 19

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 wanted to eliminate exactly 11 units of pollution, which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $75
B)  $87
C)  $90
D)  $106E) B) and D)
F) B) and C)

Question 20

In markets, the invisible hand allocates resources efficiently

Accepted Answer

A)  in all cases.
B)  when the buyers and sellers are the only interested parties.
C)  when there are positive externalities, but not when there are negative externalities.
D)  when there are negative externalities, but not when there are positive externalities.E) A) and B)
F) A) and C)

Exam 10: Externalities

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Correct Answer
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When the government intervenes in markets with externalities, it does so in order to

Correct Answer
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Correct Answer
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Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Correct Answer
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The new demand curve...
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Correct Answer
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Figure 10-11 -Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Correct Answer
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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. Without any government regulation, what price will the firm charge per unit of plastic?

Correct Answer
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Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Correct Answer
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In markets, the invisible hand allocates resources efficiently

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

Correct Answer
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Economists believe that the optimal level of pollution is zero.

Correct Answer
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Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Correct Answer
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The restoration of h...
View Answer

The difference between a corrective tax and a tradable pollution permit is that

Correct Answer
verified

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Correct Answer
verified

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200^th unit of plastic exceeds the social cost of the 200^th unit of plastic by

Correct Answer
verified

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Correct Answer
verified

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 Answer
verified
We call th...
View Answer

Figure 10-10 -Refer to Figure 10-10. The graph represents a market in which

Correct Answer
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If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Exam 10: Externalities

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Correct AnswerverifiedShow Answer

When the government intervenes in markets with externalities, it does so in order to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Correct AnswerverifiedThe new demand curve...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

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. Without any government regulation, what price will the firm charge per unit of plastic?

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Correct AnswerverifiedShow Answer

In markets, the invisible hand allocates resources efficiently

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

Economists believe that the optimal level of pollution is zero.

Correct AnswerverifiedShow Answer

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Correct AnswerverifiedThe restoration of h...View AnswerShow Answer

The difference between a corrective tax and a tradable pollution permit is that

Correct AnswerverifiedShow Answer

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Correct AnswerverifiedShow Answer

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

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

Figure 10-10 -Refer to Figure 10-10. The graph represents a market in which

Correct AnswerverifiedShow Answer

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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The new demand curve...
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Correct Answer
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Correct Answer
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The restoration of h...
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Correct Answer
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Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200^th unit of plastic exceeds the social cost of the 200^th unit of plastic by

Correct Answer
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Correct Answer
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Correct Answer
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We call th...
View Answer

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Correct Answer
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