Question 1

Externalities tend to cause markets to be

Accepted Answer

A)   inefficient.
B)   unequal.
C)   unnecessary.
D)   overwhelmed.E) B) and D)
F) B) and C)

Question 2

Why can't private individuals always internalize an externality without the help of government?

Accepted Answer

A)   Legal restrictions prevent side payments between individuals.
B)   Transactions costs may be too high.
C)   Side payments between individuals are inefficient.
D)   Side payments between individuals are insufficient.E) B) and D)
F) All of the above

Question 3

A command-and-control policy is another term for a

Accepted Answer

A)   pollution permit.
B)   government regulation.
C)   corrective tax.
D)   Both a and b are correct.E) All of the above
F) B) and C)

Question 4

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,then this is an example of

Accepted Answer

A)   a market-based policy.
B)   a command-and-control policy.
C)   tradable pollution permits.
D)   transaction costs.E) All of the above
F) C) and D)

Question 5

Figure 10-9   
-Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the external benefit of smokestack scrubber installation is represented by

Accepted Answer

A)   Q3 - Q2.
B)   Q5 - Q4.
C)   P3a - P3b.
D)   P4a - P4b.E) A) and D)
F) C) and D)

Question 6

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)   Each party involved holds out for a better deal.
B)   The externality is large.
C)   Only problems with a sufficiently large number of parties can be solved.
D)   There is a lack of government intervention.E) A) and D)
F) C) and D)

Question 7

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that a negative externality is created by the production of good X.Which of the following statements is correct?

Accepted Answer

A)   The social cost of producing good X includes the private cost plus the cost to bystanders of the externality.
B)   The increased social cost can be graphed as a decrease in demand.
C)   The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere.
D)   Both a and b are correct.E) C) and D)
F) A) and C)

Question 9

Figure 10-7 
-Refer to Figure 10-7.To internalize the externality in this market,the government should

Accepted Answer

A)   impose a tax on this product.
B)   provide a subsidy for this product.
C)   forbid production.
D)   produce the product itself.E) B) and C)
F) A) and D)

Question 10

Negative externalities lead markets to produce

Accepted Answer

A)   greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.
B)   smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.
C)   greater than efficient output levels and positive externalities lead markets to produce efficient output levels.
D)   efficient output levels and positive externalities lead markets to produce greater than efficient output levels.E) A) and D)
F) B) and D)

Question 11

Figure 10-5 0 and Q1. B)  P2 and Q1. C)  P1 and Q0. D)  P2 and Q0." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Accepted Answer

A)   P0 and Q1.
B)   P2 and Q1.
C)   P1 and Q0.
D)   P2 and Q0.E) A) and B)
F) A) and C)

Question 12

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be 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 B)
F) C) and D)

Question 13

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

Accepted Answer

A)   A college student buys a new car when she graduates.
B)   The mayor of a small town plants flowers in the city park.
C)   Local high school teachers have pizza delivered every Friday for lunch.
D)   An avid fisherman buys new fishing gear for his next fishing trip.E) All of the above
F) B) and C)

Question 14

Figure 10-6 
-Refer to Figure 10-6.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) B) and C)
F) A) and B)

Question 15

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

Accepted Answer

A) True 
 B)False

Question 16

Figure 10-1 
-Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   no externalities.
D)   no equilibrium in the market.E) None of the above
F) B) and C)

Question 17

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 18

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) B) and C)
F) None of the above

Question 19

Which of the following statements is not correct?

Accepted Answer

A)   A patent is a way for the government to encourage the production of a good with technology spillovers.
B)   A tax is a way for the government to reduce the production of a good with a negative externality.
C)   A tax that accurately reflects social costs produces the socially optimal outcome.
D)   Government policies cannot improve upon private market outcomes.E) A) and D)
F) A) and B)

Question 20

Table 10-2
The following table shows the private value,private cost,and social value for a market with a positive externality.
 
-Refer to Table 10-2.What is the equilibrium quantity of output in this market?

Accepted Answer

A)   3 units
B)   4 units
C)   5 units
D)   6 unitsE) B) and D)
F) C) and D)

Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the external benefit of smokestack scrubber installation is represented by

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Which of the following statements is not correct?

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Why can't private individuals always internalize an externality without the help of government?

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Figure 10-7 -Refer to Figure 10-7.To internalize the externality in this market,the government should

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Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

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Markets sometimes fail to allocate resources efficiently.

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Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

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Externalities tend to cause markets to be

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The Coase theorem states that

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Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

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Which of the following is a problem that keeps people from privately solving externality problems?

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A command-and-control policy is another term for a

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Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.What is the equilibrium quantity of output in this market?

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If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,then this is an example of

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

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Figure 10-6 -Refer to Figure 10-6.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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Suppose that a negative externality is created by the production of good X.Which of the following statements is correct?

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Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

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The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

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Negative externalities lead markets to produce

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