Question 1

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)   Dick pays Jane $600 for her inconvenience.
B)   Jane pays Dick $400 to give the dog to his parents who live on an isolated farm.
C)   Jane pays Dick $550 to give the dog to his parents who live on an isolated farm.
D)   The current situation is efficient.E) B) and C)
F) A) and D)

Question 2

Figure 10-12 
-Refer to Figure 10-12.Suppose,on the figure,Q represents the quantity of education and P represents the price of education.Then the quantity  represents

Accepted Answer

A)   an inefficiency.
B)   the extent of the negative externality that pertains to the market for education.
C)   the amount of the tax that would be required to correct the negative externality that pertains to the market for education.
D)   the amount of the subsidy that would be required to correct the positive externality that pertains to the market for education.E) None of the above
F) All of the above

Question 3

All remedies for externalities share the goal of

Accepted Answer

A)   moving the allocation of resources toward the market equilibrium.
B)   moving the allocation of resources toward the socially optimal equilibrium.
C)   increasing the allocation of resources.
D)   decreasing the allocation of resources.E) A) and D)
F) C) and D)

Question 4

If an aluminum manufacturer does not bear the entire cost of the smoke it emits,it will

Accepted Answer

A)   emit a lower level of smoke than is socially efficient.
B)   emit a higher level of smoke than is socially efficient.
C)   emit an acceptable level of smoke.
D)   not emit any smoke in an attempt to avoid paying the entire cost.E) A) and D)
F) A) and B)

Question 5

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

Question 6

When one firm sells its pollution permit to another firm,

Accepted Answer

A)   both firms benefit.
B)   the total amount of pollution remains the same.
C)   the total amount of pollution decreases.
D)   Both a and b are correct.E) None of the above
F) C) and D)

Question 7

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Accepted Answer

A) True 
 B)False

Question 8

Two firms,A and B,each currently dump 50 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.The government will sell 40 pollution permits for $75 each.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.Neither firm produces any less output,but they both conform to the law.It is likely that between the cost of permits and the cost of additional pollution abatement,

Accepted Answer

A)   Firm B will spend $3,500.
B)   Firm A will spend $4,000.
C)   Firm A will spend $4,500.
D)   Firm B will spend $3,000.E) A) and B)
F) B) and C)

Question 9

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Accepted Answer

A) True 
 B)False

Question 10

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality.What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)   The equilibrium quantity is greater than the socially optimal quantity.
B)   They are equal.
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) All of the above

Question 11

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 12

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)   an economic dilemma.
B)   deadweight loss.
C)   a multi-party problem.
D)   an externality.E) B) and D)
F) None of the above

Question 13

Negative externalities occur when one person's actions

Accepted Answer

A)   cause another person to lose money in a stock market transaction.
B)   cause his or her employer to lose business.
C)   reveal his or her preference for foreign-produced goods.
D)   adversely affect the well-being of a bystander who is not a party to the action.E) A) and D)
F) C) and D)

Question 14

Even if possible,it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-12 
-Refer to Figure 10-12.Which of the following is an appropriate label for Line 2?

Accepted Answer

A)   social cost minus social value
B)   social value minus private cost
C)   demand
D)   private value plus external benefitE) C) and D)
F) A) and D)

Question 16

In the absence of externalities,the "invisible hand" leads a market to maximize

Accepted Answer

A)   producer profit from that market.
B)   total benefit to society from that market.
C)   both equality and efficiency in that market.
D)   output of goods or services in that market.E) A) and D)
F) All of the above

Question 17

A corrective tax is also known as:

Accepted Answer

A)   a command-and-control regulation.
B)   a Coase tax.
C)   a Pigovian tax.
D)   a Smithian tax.E) B) and C)
F) A) and C)

Question 18

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?

Accepted Answer

A)   2 units
B)   3 units
C)   4 units
D)   5 unitsE) B) and C)
F) None of the above

Question 19

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) A) and D)
F) None of the above

Question 20

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) B) and D)
F) B) and C)

Exam 10: Externalities

Correct Answer
verified

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Correct Answer
verified

Correct Answer
verified

The impact of one person's actions on the well-being of a bystander is called

Correct Answer
verified

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

Correct Answer
verified

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Correct Answer
verified

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?

Correct Answer
verified

A corrective tax is also known as:

Correct Answer
verified

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Correct Answer
verified

Negative externalities occur when one person's actions

Correct Answer
verified

Even if possible,it would be inefficient to prohibit all polluting activity.

Correct Answer
verified

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Correct Answer
verified

In the absence of externalities,the "invisible hand" leads a market to maximize

Correct Answer
verified

If an aluminum manufacturer does not bear the entire cost of the smoke it emits,it will

Correct Answer
verified

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

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12.Suppose,on the figure,Q represents the quantity of education and P represents the price of education.Then the quantity represents

Correct Answer
verified

When one firm sells its pollution permit to another firm,

Correct Answer
verified

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?

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12.Which of the following is an appropriate label for Line 2?

Correct Answer
verified

All remedies for externalities share the goal of

Correct Answer
verified

Exam 10: Externalities

Correct AnswerverifiedShow Answer

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The impact of one person's actions on the well-being of a bystander is called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A corrective tax is also known as:

Correct AnswerverifiedShow Answer

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Correct AnswerverifiedShow Answer

Negative externalities occur when one person's actions

Correct AnswerverifiedShow Answer

Even if possible,it would be inefficient to prohibit all polluting activity.

Correct AnswerverifiedShow Answer

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Correct AnswerverifiedShow Answer

In the absence of externalities,the "invisible hand" leads a market to maximize

Correct AnswerverifiedShow Answer

If an aluminum manufacturer does not bear the entire cost of the smoke it emits,it will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12.Suppose,on the figure,Q represents the quantity of education and P represents the price of education.Then the quantity represents

Correct AnswerverifiedShow Answer

When one firm sells its pollution permit to another firm,

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12.Which of the following is an appropriate label for Line 2?

Correct AnswerverifiedShow Answer

All remedies for externalities share the goal of

Correct AnswerverifiedShow Answer

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