Question 1

That some firms are engaged in more than one type of business is explained, in some cases, by

Accepted Answer

A)   moral injunctions such as the Golden Rule.
B)   the existence of charitable organizations.
C)   government regulations that discourage the internalization of externalities.
D)   the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties.E) B) and C)
F) A) and B)

Question 2

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Accepted Answer

A)   their respective markets would move closer to the social optimum.
B)   their respective markets would move further away from the social optimum.
C)   total surplus in their respective markets would decrease.
D)   the merger would serve as an example of a misguided public policy toward externalities.E) A) and B)
F) A) and C)

Question 3

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Accepted Answer

A Pigovian...

Question 4

The difference between a corrective tax and a tradable pollution permit is that

Accepted Answer

A)   a corrective tax sets the price of pollution and a permit sets the quantity of pollution.
B)   a corrective tax creates a more efficient outcome than a permit.
C)   a corrective tax sets the quantity of pollution and a permit sets the price of pollution.
D)   a permit creates a more efficient outcome than a corrective tax.E) None of the above
F) B) and C)

Question 5

Which of the following is not an advantage of corrective taxes?

Accepted Answer

A)   They raise revenues for the government.
B)   They enhance economic efficiency.
C)   They subsidize the production of goods with positive externalities.
D)   They move the allocation of resources closer to the social optimum.E) A) and D)
F) B) and D)

Question 6

Market failure can be caused by

Accepted Answer

A)   too much competition.
B)   externalities.
C)   low consumer demand.
D)   scarcity.E) B) and D)
F) A) and C)

Question 7

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Accepted Answer

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

Question 8

Table 10-3
 
-Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Accepted Answer

A)   $10.
B)   $16.
C)   $26.
D)   $30.E) None of the above
F) A) and B)

Question 9

Briefly explain how research into new technologies gives rise to a positive externality.

Accepted Answer

Research into new technologies...

Question 10

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Accepted Answer

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

Question 11

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

Accepted Answer

A)   making it illegal to "disturb the peace."
B)   having a well-funded animal control department.
C)   subsidizing local animal shelters.
D)   encouraging people to adopt cats.E) A) and B)
F) B) and C)

Question 12

A corrective tax

Accepted Answer

A)   causes each factory to reduce pollution by the same amount.
B)   assigns a legal pollution limit for firms.
C)   places a price on the right to pollute.
D)   costs society more than pollution regulations.E) A) and B)
F) A) and C)

Question 13

Figure 10-11 
-Refer to Figure 10-11. The socially optimal quantity of output is

Accepted Answer

A)   240 units, since the value to the buyer of the 240th unit is equal to the cost incurred by the seller of the 240th unit.
B)   240 units, since the value to society of the 240th unit is equal to the cost incurred by the seller of the 240th unit.
C)   420 units, since the value to the buyer of the 420th unit is equal to the cost incurred by the seller of the 420th unit.
D)   420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit.E) All of the above
F) A) and C)

Question 14

Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo?

Accepted Answer

A)   $250
B)   $550
C)   $750
D)   $1,020E) A) and B)
F) All of the above

Question 15

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the railroad is not liable for any damage caused to the crops. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

Accepted Answer

A)   The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)   The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)   The farmer will incur $1,500 in damages to his crops.
D)   The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) A) and B)
F) A) and C)

Question 16

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. The equilibrium number of permits is

Accepted Answer

A)   50
B)   100
C)   1,000
D)   2,000E) All of the above
F) A) and D)

Question 17

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 18

Table 10-4
 
-Refer to Table 10-4. The table represents a market in which

Accepted Answer

A)   there is no externality.
B)   there is a positive externality.
C)   there is a negative externality.
D)   The answer cannot be determined from inspection of the table.E) All of the above
F) A) and B)

Question 19

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Accepted Answer

A)   social value = private value = private cost 
B)   private cost 
C)   social cost = private cost = private value 
D)   social cost = private cost = private value = social value.E) A) and B)
F) B) and C)

Question 20

What are the three externalities that are associated with driving cars and trucks?

Accepted Answer

The negative externa...

Exam 10: Externalities

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. The equilibrium number of permits is

Correct Answer
verified

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Correct Answer
verified

The difference between a corrective tax and a tradable pollution permit is that

Correct Answer
verified

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Correct Answer
verified

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

Correct Answer
verified

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Correct Answer
verified
A Pigovian...
View Answer

Market failure can be caused by

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

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. The socially optimal quantity of output is

Correct Answer
verified

What are the three externalities that are associated with driving cars and trucks?

Correct Answer
verified
The negative externa...
View Answer

Table 10-4 -Refer to Table 10-4. The table represents a market in which

Correct Answer
verified

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Correct Answer
verified

That some firms are engaged in more than one type of business is explained, in some cases, by

Correct Answer
verified

Table 10-3 -Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Correct Answer
verified

Briefly explain how research into new technologies gives rise to a positive externality.

Correct Answer
verified
Research into new technologies...
View Answer

Which of the following is not an advantage of corrective taxes?

Correct Answer
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Correct Answer
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A corrective tax

Correct Answer
verified

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Correct Answer
verified

Exam 10: Externalities

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. The equilibrium number of permits is

Correct AnswerverifiedShow Answer

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Correct AnswerverifiedShow Answer

The difference between a corrective tax and a tradable pollution permit is that

Correct AnswerverifiedShow Answer

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Correct AnswerverifiedShow Answer

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

Correct AnswerverifiedShow Answer

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Correct AnswerverifiedA Pigovian...View AnswerShow Answer

Market failure can be caused by

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

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

What are the three externalities that are associated with driving cars and trucks?

Correct AnswerverifiedThe negative externa...View AnswerShow Answer

Table 10-4 -Refer to Table 10-4. The table represents a market in which

Correct AnswerverifiedShow Answer

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Correct AnswerverifiedShow Answer

That some firms are engaged in more than one type of business is explained, in some cases, by

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Correct AnswerverifiedShow Answer

Briefly explain how research into new technologies gives rise to a positive externality.

Correct AnswerverifiedResearch into new technologies...View AnswerShow Answer

Which of the following is not an advantage of corrective taxes?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A corrective tax

Correct AnswerverifiedShow Answer

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Correct AnswerverifiedShow Answer

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A Pigovian...
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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The negative externa...
View 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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Research into new technologies...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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