Question 1

If alcohol creates negative consumption externalities then the market equilibrium level of alcohol consumption will be:

Accepted Answer

A)   less than is socially desirable
B)   more than is socially desirable
C)   more than is market optimal
D)   less than is market optimalE) A) and C)
F) C) and D)

Question 2

Graph 10-3
 1 B)  P2 C)  P3 D)  P4" class="answers-bank-image d-inline" rel="preload" > This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees.
-Refer to Graph 10-3. At the private market outcome, the equilibrium price of kiwifruit will be:

Accepted Answer

A)   P1
B)   P2
C)   P3
D)   P4E) B) and D)
F) A) and D)

Question 3

Paul owns a mushroom farm. The smell from the farm reduces the value of adjacent houses by a total of $30 000. Suppose that the benefit of the mushroom farm to Paul is $20 000. Assuming that Paul has the legal right to own the farm, a possible private solution to this problem is that:

Accepted Answer

A)   adjacent property owners pay $20 000 to Paul to stop farming mushrooms
B)   Paul pays the adjacent property-owners $25 000 for their loss in house-values
C)   adjacent property owners pay $25 000 to Paul to stop farming mushrooms
D)   there is no private solution that would improve this situationE) B) and C)
F) None of the above

Question 4

If the government were to impose a fee of $10 000 for each unit of air pollution released by a steel mill, this policy would be considered a:

Accepted Answer

A)   subsidy
B)   regulation
C)   Pigovian tax
D)   command-and-control policyE) A) and C)
F) A) and B)

Question 5

If the marginal consumer values timber less than the social cost of harvesting it , the timber market will be characterised by a negative production externality.

Accepted Answer

A) True 
 B)False

Question 6

A positive consumption externality occurs when:

Accepted Answer

A)   Jack receives personal benefits from his own consumption of a certain good
B)   Jack receives a benefit from John's consumption of a certain good
C)   Jack's benefit exceeds John's benefit when they each consume the same good
D)   Jack's consumption is not beneficial to JohnE) None of the above
F) A) and B)

Question 7

Using a supply-demand diagram, demonstrate how a positive consumption externality leads to market inefficiency.

Accepted Answer

A positive consumption externa...

Question 8

Irrespective of whether an externality is positive or negative, all solutions share the same goal of:

Accepted Answer

A)   moving the allocation of resources closer to the market equilibrium
B)   reducing pollution
C)   moving the allocation of resources closer to the social optimum
D)   increasing the conservation of natural resourcesE) A) and B)
F) A) and C)

Question 9

When weighing the costs and benefits of pollution, the costs always exceed the benefits because the benefit equals zero.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is true of the Coase theorem?

Accepted Answer

A)   interested parties can reach an outcome in which everyone is better off
B)   the bargain outcome will be inefficient
C)   interested parties will need an arbitrator in order to reach an agreement that is efficient
D)   none of the above is trueE) All of the above
F) B) and D)

Question 11

Graph 10-3
  This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees.
-Refer to Graph 10-3. Assume that the kiwifruit orchardists must purchase a pesticide application permit (the cost for the permit is included in private cost)  before spraying their fruit. What criteria should the government use in determining whether or not to issue a permit?

Accepted Answer

A)   the majority vote of the affected beekeepers should determine whether a permit is issued
B)   as long as the value to consumers of kiwifruit exceeds the cost of kiwifruit (including the external costs) , the permit should be issued
C)   as long as kiwifruit orchardists are willing to replace the dead honeybees, the permit should be issued
D)   the permit should not be issued as long as there are identifiable external costs imposed on local beekeepers.E) B) and C)
F) A) and B)

Question 12

Graph 10-4
 B be equivalent to the Pigovian tax B)  QA be equivalent to the amount of pollution allowed by the pollution permit holders C)  the equilibrium price and quantity of pollution be the same in both panel A and panel B D)  all of the above conditions hold" class="answers-bank-image d-inline" rel="preload" >
-Refer to Graph 10-4. The equivalence of a Pigovian tax and a pollution permit would require that:

Accepted Answer

A)   PB be equivalent to the Pigovian tax
B)   QA be equivalent to the amount of pollution allowed by the pollution permit holders
C)   the equilibrium price and quantity of pollution be the same in both panel A and panel B
D)   all of the above conditions holdE) A) and B)
F) A) and C)

Question 13

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 14

Explain the difference between market equilibrium and social optimum.

Accepted Answer

Market equilibrium occurs when...

Question 15

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Accepted Answer

A)   social cost
B)   opportunity cost of technology
C)   internalisation of an externality
D)   technology spilloverE) All of the above
F) B) and D)

Question 16

Assume that your housemate is very messy. Suppose he gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to:

Accepted Answer

A)   pay your housemate at least $100 but no more than $200 to clean up after himself
B)   pay your housemate at least $201 to clean up after himself
C)   continue to live with your messy housemate until you are able to make other living arrangements elsewhere
D)   charge your housemate at least $100 to have you clean up after himE) A) and D)
F) All of the above

Question 17

In which of the following situations may tradeable pollution permits be preferred to Pigovian taxes? (i)  where they internalise the externality of pollution
(ii)  where regulatory agencies do not know the demand curve for pollution
(iii)  where the government is not interested in generating maximum revenue from polluting firms

Accepted Answer

A)   (i)  only
B)   (ii)  only
C)   (ii)  and (iii)  only
D)   (i) , (ii)  and (iii) E) All of the above
F) B) and C)

Question 18

The impact of one person's actions on the wellbeing of a bystander is called:

Accepted Answer

A)   competitive advantage
B)   deadweight loss
C)   market equilibrium
D)   an externalityE) C) and D)
F) B) and D)

Question 19

Encouraging firms to increase production via a subsidy will tend to be socially optimal when:

Accepted Answer

A)   the firms are producing necessities
B)   there is excess supply in the market
C)   the firms output is associated with large technology spillovers
D)   the market equilibrium output level is greater than the social optimumE) C) and D)
F) B) and D)

Exam 10: Externalities

Irrespective of whether an externality is positive or negative, all solutions share the same goal of:

Correct Answer
verified

When weighing the costs and benefits of pollution, the costs always exceed the benefits because the benefit equals zero.

Correct Answer
verified

Explain the difference between market equilibrium and social optimum.

Correct Answer
verified
Market equilibrium occurs when...
View Answer

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct Answer
verified

The impact of one person's actions on the wellbeing of a bystander is called:

Correct Answer
verified

If the government were to impose a fee of $10 000 for each unit of air pollution released by a steel mill, this policy would be considered a:

Correct Answer
verified

A positive consumption externality occurs when:

Correct Answer
verified

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct Answer
verified

Using a supply-demand diagram, demonstrate how a positive consumption externality leads to market inefficiency.

Correct Answer
verified
A positive consumption externa...
View Answer

If alcohol creates negative consumption externalities then the market equilibrium level of alcohol consumption will be:

Correct Answer
verified

Paul owns a mushroom farm. The smell from the farm reduces the value of adjacent houses by a total of $30 000. Suppose that the benefit of the mushroom farm to Paul is $20 000. Assuming that Paul has the legal right to own the farm, a possible private solution to this problem is that:

Correct Answer
verified

Graph 10-4 -Refer to Graph 10-4. The equivalence of a Pigovian tax and a pollution permit would require that:

Correct Answer
verified

Correct Answer
verified

Assume that your housemate is very messy. Suppose he gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to:

Correct Answer
verified

Correct Answer
verified

If the marginal consumer values timber less than the social cost of harvesting it , the timber market will be characterised by a negative production externality.

Correct Answer
verified

Graph 10-3 This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees. -Refer to Graph 10-3. At the private market outcome, the equilibrium price of kiwifruit will be:

Correct Answer
verified

Which of the following is true of the Coase theorem?

Correct Answer
verified

Encouraging firms to increase production via a subsidy will tend to be socially optimal when:

Correct Answer
verified

Exam 10: Externalities

Irrespective of whether an externality is positive or negative, all solutions share the same goal of:

Correct AnswerverifiedShow Answer

When weighing the costs and benefits of pollution, the costs always exceed the benefits because the benefit equals zero.

Correct AnswerverifiedShow Answer

Explain the difference between market equilibrium and social optimum.

Correct AnswerverifiedMarket equilibrium occurs when...View AnswerShow Answer

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct AnswerverifiedShow Answer

The impact of one person's actions on the wellbeing of a bystander is called:

Correct AnswerverifiedShow Answer

If the government were to impose a fee of $10 000 for each unit of air pollution released by a steel mill, this policy would be considered a:

Correct AnswerverifiedShow Answer

A positive consumption externality occurs when:

Correct AnswerverifiedShow Answer

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct AnswerverifiedShow Answer

Using a supply-demand diagram, demonstrate how a positive consumption externality leads to market inefficiency.

Correct AnswerverifiedA positive consumption externa...View AnswerShow Answer

If alcohol creates negative consumption externalities then the market equilibrium level of alcohol consumption will be:

Correct AnswerverifiedShow Answer

Paul owns a mushroom farm. The smell from the farm reduces the value of adjacent houses by a total of $30 000. Suppose that the benefit of the mushroom farm to Paul is $20 000. Assuming that Paul has the legal right to own the farm, a possible private solution to this problem is that:

Correct AnswerverifiedShow Answer

Graph 10-4 -Refer to Graph 10-4. The equivalence of a Pigovian tax and a pollution permit would require that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that your housemate is very messy. Suppose he gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the marginal consumer values timber less than the social cost of harvesting it , the timber market will be characterised by a negative production externality.

Correct AnswerverifiedShow Answer

Graph 10-3 This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees. -Refer to Graph 10-3. At the private market outcome, the equilibrium price of kiwifruit will be:

Correct AnswerverifiedShow Answer

Which of the following is true of the Coase theorem?

Correct AnswerverifiedShow Answer

Encouraging firms to increase production via a subsidy will tend to be socially optimal when:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
Market equilibrium occurs when...
View 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
verified
A positive consumption externa...
View 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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Correct Answer
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Correct Answer
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Correct Answer
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