Question 1

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
-Refer to Scenario 10-1. From the given information, it is apparent that

Accepted Answer

A)   the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable.
B)   the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable.
C)   the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable.
D)   the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.E) C) and D)
F) None of the above

Question 2

Which of the following statements is correct about a market in which pollution is emitted?

Accepted Answer

A)   Both corrective taxes and pollution permits internalize the externality of pollution.
B)   Corrective taxes internalize the externality of pollution, but pollution permits do not internalize that externality.
C)   Corrective taxes fail to internalize the externality of pollution, but corrective taxes internalize that externality.
D)   Neither corrective taxes nor pollution permits internalize the externality of pollution.E) A) and C)
F) B) and C)

Question 3

The concept of external cost is associated with a negative externality, but not with a positive externality.

Accepted Answer

A) True 
 B)False

Question 4

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A)   it is hard to estimate the market demand curve and thus charge the "right" corrective tax.
B)   selling pollution permits create a net increase in pollution.
C)   Corrective taxes distort incentives.
D)   Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.E) All of the above
F) C) and D)

Question 5

Scenario 10-3
  Suppose the equation for the demand curve in a market is
where is the quantity demanded and is the price.
    Also, suppose the equation for the supply curve in the same market is ,
where is the quantity supplied.
 
-Refer to Scenario 10-3. What are the market equilibrium quantity and price?

Accepted Answer

The market equilibri...

Question 6

Which of the following statements is correct?

Accepted Answer

A)   Taxes are more difficult to administer than regulations.
B)   Taxes provide incentives for firms to adopt new methods to reduce negative externalities.
C)   Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own.
D)   Corrective taxes distort incentives.E) A) and B)
F) A) and C)

Question 7

By allowing an income-tax deduction for charitable contributions, the government

Accepted Answer

A)   encourages a private solution to a particular positive-externality problem.
B)   discourages a private solution to a particular positive-externality problem.
C)   encourages a private solution to a particular negative-externality problem.
D)   discourages a private solution to a particular negative-externality problem.E) None of the above
F) C) and D)

Question 8

Table 10-6
The following table shows the total costs for each of four firms A, B, C, and D to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103.
 
-Refer to Table 10-6. If the government charged a fee of $93 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   10
B)   12
C)   14
D)   16E) A) and B)
F) All of the above

Question 9

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. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research 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) A) and C)

Question 10

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A)   social cost minus social value
B)   social value minus private cost
C)   demand
D)   private costE) None of the above
F) All of the above

Question 11

A negative externality arises when a person engages in an activity that has

Accepted Answer

A)   an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)   an adverse effect on a bystander who is compensated by the person who causes the effect.
C)   a beneficial effect on a bystander who pays the person who causes the effect.
D)   a beneficial effect on a bystander who does not pay the person who causes the effect.E) All of the above
F) C) and D)

Question 12

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

Accepted Answer

A)   benefit of $15.
B)   benefit of $36.
C)   cost of $15.
D)   cost of $36.E) A) and C)
F) A) and B)

Question 13

What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?

Accepted Answer

A)   the Coase theorem
B)   the laws of supply and demand
C)   the law of comparative advantage
D)   the law of externalitiesE) B) and C)
F) A) and D)

Question 14

Table 10-5
The following table shows the marginal costs for each of four firms A, B, C, and D)  to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
 
-Refer to Table 10-5. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

Accepted Answer

A)   $69
B)   $81
C)   $83
D)   $97E) A) and B)
F) A) and C)

Question 15

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A)   increase private profit at the expense of consumers.
B)   internalize some forms of positive externalities.
C)   reduce the impact of government regulations on their business.
D)   increase the private marginal cost of production.E) B) and C)
F) A) and C)

Question 16

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced?

Accepted Answer

A)   200
B)   500
C)   650
D)   900E) B) and D)
F) B) and C)

Question 17

Figure 10-10 th unit. B)  120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit. C)  160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. D)  160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-10. The socially optimal quantity of output is

Accepted Answer

A)   120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit.
B)   120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
C)   160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
D)   160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.E) A) and B)
F) C) and D)

Question 18

One reason that private solutions to externalities do not always work is that

Accepted Answer

A)   government intervention negates the benefits of positive externalities.
B)   some people benefit from externalities.
C)   interested parties incur costs in the bargaining process.
D)   charities are not well organized.E) None of the above
F) B) and D)

Question 19

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar- beet-processing firms 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) None of the above
F) A) and B)

Question 20

If the social value of producing a good is always higher than the private value of producing it, then there is a

Accepted Answer

A)   negative externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity.
B)   negative externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.
C)   positive externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity.
D)   positive externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.E) B) and C)
F) A) and D)

Exam 10: Externalities

The concept of external cost is associated with a negative externality, but not with a positive externality.

Correct Answer
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Scenario 10-3 Suppose the equation for the demand curve in a market is where is the quantity demanded and is the price. Also, suppose the equation for the supply curve in the same market is , where is the quantity supplied. -Refer to Scenario 10-3. What are the market equilibrium quantity and price?

Correct Answer
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The market equilibri...
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What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?

Correct Answer
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One reason that private solutions to externalities do not always work is that

Correct Answer
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In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct Answer
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Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct Answer
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By allowing an income-tax deduction for charitable contributions, the government

Correct Answer
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Firms that are involved in more than one type of business could be evidence of an attempt to

Correct Answer
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Which of the following statements is correct about a market in which pollution is emitted?

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

Correct Answer
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If the social value of producing a good is always higher than the private value of producing it, then there is a

Correct Answer
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Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced?

Correct Answer
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In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar- beet-processing firms is an example of

Correct Answer
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A negative externality arises when a person engages in an activity that has

Correct Answer
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Which of the following statements is correct?

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

Correct Answer
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Exam 10: Externalities

The concept of external cost is associated with a negative externality, but not with a positive externality.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe market equilibri...View AnswerShow Answer

What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?

Correct AnswerverifiedShow Answer

One reason that private solutions to externalities do not always work is that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct AnswerverifiedShow Answer

By allowing an income-tax deduction for charitable contributions, the government

Correct AnswerverifiedShow Answer

Firms that are involved in more than one type of business could be evidence of an attempt to

Correct AnswerverifiedShow Answer

Which of the following statements is correct about a market in which pollution is emitted?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the social value of producing a good is always higher than the private value of producing it, then there is a

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced?

Correct AnswerverifiedShow Answer

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar- beet-processing firms is an example of

Correct AnswerverifiedShow Answer

A negative externality arises when a person engages in an activity that has

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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The market equilibri...
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