Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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?

Accepted Answer

A)   The equilibrium quantity is greater than the socially optimal quantity.
B)   The equilibrium quantity is less than the socially optimal quantity.
C)   They are equal.
D)   There is not enough information to answer the question.E) C) and D)
F) B) and C)

Question 3

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Accepted Answer

A)   height of the demand curve at that quantity.
B)   height of the supply curve at that quantity.
C)   value to the producer of the last unit of gasoline sold.
D)   total quantity of gasoline exchanged in the market.E) B) and C)
F) None of the above

Question 4

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. 
-Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

Accepted Answer

A)   "Demand for clean air"
B)   "Demand for pollution rights"
C)   "Supply of pollution permits"
D)   "Tax paid to government"E) All of the above
F) None of the above

Question 5

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 B)
F) A) and C)

Question 6

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

Accepted Answer

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

Question 7

If gasoline taxes were significantly increased in the United States, then

Accepted Answer

A)   some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary.
B)   other taxes, such as income taxes, could be lowered.
C)   it is likely that roads would become safer and the environment would become cleaner.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 8

Figure 10-19 
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Accepted Answer

A)   $15.
B)   $23.
C)   $36.
D)   $89.E) A) and B)
F) None of the above

Question 9

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Accepted Answer

A)   regulation and corrective taxes
B)   regulation and tradable pollution permits
C)   corrective taxes and tradable pollution permits
D)   All of these policies produce the same economic effects.E) A) and B)
F) C) and D)

Question 10

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Accepted Answer

A)   the market for good x is characterized by an externality, but we cannot determine whether the externality is positive or negative from this fact alone.
B)   the market for good x is characterized by a positive externality.
C)   the market for good x is characterized by a negative externality.
D)   the supply curve for good x fails to reflect the cost to society of producing that good.E) A) and B)
F) A) and C)

Question 11

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go...

Question 12

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Accepted Answer

A) True 
 B)False

Question 13

Honey producers provide a positive externality to orchards because

Accepted Answer

A)   the honey producers get more honey.
B)   the orchard owner frequently gets stung by the honey producer's bees.
C)   the orchard owner does not have to purchase bees to pollinate his flowers.
D)   the honey producers have to rent access to the orchard grounds.E) B) and C)
F) A) and D)

Question 14

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) C) and D)
F) A) and D)

Question 15

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Accepted Answer

A)   the supply curve would adequately reflect the marginal social cost of production.
B)   consumers will be required to pay a higher price for steel than they would have if the externality were internalized.
C)   the market equilibrium quantity will not be the socially optimal quantity.
D)   producers will produce less steel than they otherwise would if the externality were internalized.E) B) and C)
F) A) and D)

Question 16

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

Accepted Answer

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

Question 17

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.
Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Accepted Answer

The supply...

Question 18

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Accepted Answer

The new supply curve...

Question 19

Which of the following would not be considered a negative externality?

Accepted Answer

A)   Smelter, Inc. creates steel and pollution.
B)   Your friend buys a new puppy that barks every night.
C)   You have an adverse reaction to a medication your doctor prescribed for you.
D)   Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.E) A) and B)
F) All of the above

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. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)   $3
B)   $5
C)   $7
D)   $9E) A) and B)
F) A) and C)

Exam 10: Externalities

If gasoline taxes were significantly increased in the United States, then

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Which of the following would not be considered a negative externality?

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Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution. Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Correct AnswerverifiedThe supply...View AnswerShow Answer

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Correct AnswerverifiedShow Answer

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

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Negative externalities occur when one person's actions

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Correct AnswerverifiedShow Answer

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Correct AnswerverifiedShow Answer

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Correct AnswerverifiedShow Answer

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Correct AnswerverifiedThe new supply curve...View AnswerShow Answer

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

Correct AnswerverifiedShow Answer

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. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Correct AnswerverifiedShow Answer

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Honey producers provide a positive externality to orchards because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Correct AnswerverifiedThe production of go...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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The supply...
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The new supply curve...
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The production of go...
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