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Exam 10: Externalities

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Question 241

Multiple Choice

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When externalities exist, buyers and sellers

A) neglect the external effects of their actions, but the market equilibrium is still efficient.
B) do not neglect the external effects of their actions, and the market equilibrium is efficient.
C) neglect the external effects of their actions, and the market equilibrium is not efficient.
D) do not neglect the external effects of their actions, and the market equilibrium is not efficient.

E) A) and D)
F) B) and C)

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Question 242

Multiple Choice

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Which of the following statements is true of both pollution permits and corrective taxes?

A) Both policies internalize the externality of pollution.
B) Both policies require firms to pay for their pollution.
C) Both policies lead to the establishment of an equilibrium price of pollution.
D) All of the above are correct.

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

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Question 243

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At any given quantity, the cost of the marginal seller is the height of the __________.

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, what is the equilibrium price of fertilizer?

When technology spillover occurs,

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

Government can be used to solve externality problems that are too costly for private parties to solve.

Tradable pollution permits

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be __________ , regardless of the initial allocation of permits.

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?

If a sawmill creates too much noise for local residents,

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 250 units of plastics are produced and consumed, then the

In some cases, selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

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, how much plastic will be produced?