Question 1

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 D)
F) None of the above

Question 2

The Coase theorem suggests that private solutions to an externality problem

Accepted Answer

A)  are effective under all conditions.
B)  will usually allocate resources efficiently if private parties can bargain without cost.
C)  are only efficient when there are negative externalities.
D)  may not be possible because of the distribution of property rights.E) All of the above
F) A) and D)

Question 3

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  Karen should pay Danny $400 so that she may keep her cat.
B)  Karen should pay Danny $350 for tissues and allergy medication.
C)  Danny should pay Karen $325 to give away her cat.
D)  Danny should move.E) B) and C)
F) A) and B)

Question 5

The Coase theorem states that

Accepted Answer

A)  taxes are an efficient way for governments to remedy negative externalities.
B)  subsidies are an efficient way for governments to remedy positive externalities.
C)  industrial policies encourage technology spillovers.
D)  in the absence of transaction costs, private parties can solve the problem of externalities on their own.E) None of the above
F) B) and C)

Question 6

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Accepted Answer

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

Question 7

The difference between social cost and private cost is a measure of the

Accepted Answer

A)  loss in profit to the seller as the result of a negative externality.
B)  cost of an externality.
C)  cost reduction when the negative externality is eliminated.
D)  cost incurred by the government when it intervenes in the market.E) C) and D)
F) A) and D)

Question 8

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 reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $67
B)  $68
C)  $81
D)  $83E) B) and C)
F) B) and D)

Question 9

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. 
-Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

Accepted Answer

A)  social optimum has been reached.
B)  market equilibrium has been reached.
C)  government must have imposed a corrective tax to guide the market to this outcome.
D)  government must have offered a corrective subsidy to guide the market to this outcome.E) B) and D)
F) A) and B)

Question 10

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

Accepted Answer

A)  is always needed because private solutions can never be attained.
B)  is needed when private solutions fail to arise.
C)  will be needed only to correct for positive externalities.
D)  will be needed only to correct for negative externalities.E) C) and D)
F) A) and B)

Question 11

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3 0. B) P1. C) P2. D) None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Accepted Answer

A)  P0.
B)  P1.
C)  P2.
D)  None of the above is correct.E) None of the above
F) A) and C)

Question 12

Two farmers, A and B, each apply 100 tons of manure on their fields. To reduce manure runoff, the government has decided to require a permit for each ton of manure applied. The government gives each farmer 50 permits. Farmer A incurs losses of $25 for each ton of manure he does not apply, and Farmer B incurs losses of $50 for each ton of manure he does not apply. What is the total cost of reducing runoff if firms are not allowed to buy and sell permits from each other? What is the total cost of reducing runoff if the firms are allowed to buy and sell permits from each other?

Accepted Answer

A)  ​$3,750; $2,500
B)  ​$2,500; $3,750
C)  ​$5,000; $2,500
D)  $3,750; $3,750E) B) and C)
F) C) and D)

Question 13

A positive externality

Accepted Answer

A)  is a benefit to the producer of the good.
B)  is a benefit to the consumer of the good.
C)  is a benefit to someone other than the producer and consumer of the good.
D)  results in an optimal level of output.E) B) and D)
F) All of the above

Question 14

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 15

The supply curve for a product reflects the

Accepted Answer

A)  willingness to pay of the marginal buyer.
B)  quantity buyers will ultimately purchase of the product.
C)  cost to sellers of producing the product.
D)  seller's profit from producing the product.E) A) and B)
F) B) and C)

Question 16

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Accepted Answer

A) True 
 B)False

Question 17

All externalities

Accepted Answer

A)  cause markets to fail to allocate resources efficiently.
B)  cause equilibrium prices to be too high.
C)  benefit producers at the expense of consumers.
D)  cause equilibrium prices to be too low.E) A) and D)
F) None of the above

Question 18

An externality is

Accepted Answer

A)  the costs that parties incur in the process of agreeing and following through on a bargain.
B)  the uncompensated impact of one person's actions on the well-being of a bystander.
C)  the proposition that private parties can bargain without cost over the allocation of resources.
D)  a market equilibrium tax.E) A) and B)
F) None of the above

Question 19

Suppose that flu shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-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 C)
F) A) and D)

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

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Correct Answer
verified

Correct Answer
verified

The Coase theorem suggests that private solutions to an externality problem

Correct Answer
verified

A corrective tax

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

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

Correct Answer
verified

Suppose that flu shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct Answer
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Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Correct Answer
verified

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

Correct Answer
verified

The Coase theorem states that

Correct Answer
verified

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 Answer
verified
The phenomenon of ex...
View Answer

Correct Answer
verified

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Correct Answer
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A positive externality

Correct Answer
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Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

Correct Answer
verified

The supply curve for a product reflects the

Correct Answer
verified

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Correct Answer
verified

An externality is

Correct Answer
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The difference between social cost and private cost is a measure of the

Correct Answer
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All externalities

Correct Answer
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Exam 10: Externalities

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Coase theorem suggests that private solutions to an externality problem

Correct AnswerverifiedShow Answer

A corrective tax

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

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-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

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Coase theorem states that

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

Correct AnswerverifiedShow Answer

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Correct AnswerverifiedShow Answer

A positive externality

Correct AnswerverifiedShow Answer

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

Correct AnswerverifiedShow Answer

The supply curve for a product reflects the

Correct AnswerverifiedShow Answer

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Correct AnswerverifiedShow Answer

An externality is

Correct AnswerverifiedShow Answer

The difference between social cost and private cost is a measure of the

Correct AnswerverifiedShow Answer

All externalities

Correct AnswerverifiedShow Answer

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

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Correct Answer
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Correct Answer
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