Question 1

Figure 10-9   
-Refer to Figure 10-9.Which graph represents a market with a positive externality?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) 
D)   Both (b) and (c) are correct.E) None of the above
F) All of the above

Question 2

When he was a candidate for president,Barack Obama proposed which of the following as a means of combating climate change?

Accepted Answer

A)   a "cap and trade" system in which the government would give away permits to emit carbon
B)   a "cap and trade" system in which the government would auction permits to emit carbon
C)   a tax on carbon emissions
D)   a government mandate to switch from gasoline-powered vehicles to vehicles powered by natural gasE) A) and C)
F) None of the above

Question 3

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Accepted Answer

A)   Sally should pay Mike $400 so that she may keep her cat.
B)   Sally should pay Mike $350 for tissues and allergy medication.
C)   Mike should pay Sally $325 to give away her cat.
D)   Mike should move.E) B) and C)
F) A) and D)

Question 4

Figure 10-6 
-Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Accepted Answer

A)   Q
B)   Q'
C)   Either Q or Q'.It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity.
D)   Some quantity between Q and Q'.The socially-optimal quantity depends on the negotiating skills of the interested parties.E) All of the above
F) B) and D)

Question 5

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

Accepted Answer

A)   encourage the production of computer chips with subsidies.
B)   discourage the production of potato chips with taxes.
C)   encourage the production of potato chips with subsidies.
D)   discourage the production of computer chips with taxes.E) A) and D)
F) B) and C)

Question 6

When a market is characterized by an externality,the government

Accepted Answer

A)   can correct the market failure only in the case of positive externalities.
B)   can correct the market failure only in the case of negative externalities.
C)   can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality.
D)   cannot correct for externalities due to the existence of patents.E) A) and B)
F) A) and C)

Question 7

Figure 10-19 
-Refer to Figure 10-19.The social optimum can be reached if

Accepted Answer

A)   a subsidy of $36 is applied to each unit of the good.
B)   a subsidy of $23 is applied to each unit of the good.
C)   a tax of $23 is applied to each unit of the good.
D)   a tax of $15 is applied to each unit of the good.E) A) and B)
F) A) and D)

Question 8

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a...

Question 9

Figure 10-8 
-Refer to Figure 10-8.What is the socially-optimal quantity of output in this market?

Accepted Answer

A)   8 units
B)   Between 8 and 10 units
C)   10 units
D)   More than 10 unitsE) A) and B)
F) C) and D)

Question 10

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. 
-Refer to Figure 10-13.If the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum,then tax revenue for the government would amount to

Accepted Answer

A)   $1,250.
B)   $1,600.
C)   $2,000.
D)   $2,500.E) All of the above
F) B) and C)

Question 11

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)   Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own,whereas market-based policies regulate behavior directly.
B)   Command-and-control policies rely on taxes,whereas market-based policies rely on quotas.
C)   Command-and-control policies regulate behavior directly,whereas market-based policies provide incentives for private decisionmakers to change their behavior.
D)   Command-and-control policies are efficient,whereas market-based policies are inefficient.E) A) and B)
F) A) and D)

Question 12

Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

Accepted Answer

A)   The groundwater pollution reduces the cost of large-scale pork production.
B)   The economic impact of a large-scale pork production facility is localized in a small geographic area.
C)   The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility.
D)   Consumers will not reap the benefits of lower production cost from large-scale pork production.E) None of the above
F) A) and C)

Question 13

Figure 10-15 
-Refer to Figure 10-15.Which graph illustrates a pollution permit program?

Accepted Answer

A)   the left graph
B)   the right graph
C)   both graphs
D)   neither graphE) B) and C)
F) A) and D)

Question 14

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

Question 15

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) All of the above
F) C) and D)

Question 16

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Accepted Answer

A)   externalize the positive externality.
B)   externalize the negative externality.
C)   internalize the positive externality.
D)   internalize the negative externality.E) A) and C)
F) None of the above

Question 17

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)   private benefit equals the social benefit at the private market solution.
B)   private cost exceeds the private benefit at the private market solution.
C)   social value exceeds the private value at the private market solution.
D)   private cost exceeds the social benefit at the private market solution.E) B) and C)
F) A) and D)

Question 18

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

Question 19

To enhance the well-being of society,a social planner will encourage firms to increase production when

Accepted Answer

A)   the firms are producing basic goods.
B)   there is a shortage in the market.
C)   technology spillovers are associated with production.
D)   negative externalities "spill over" into production.E) A) and B)
F) C) and D)

Question 20

Regulations to reduce pollution

Accepted Answer

A)   cause pollution levels to drop below the regulated amount.
B)   are a more costly solution to society than a corrective tax.
C)   allow firms with the lowest cost to reduce pollution by more than those with highest costs.
D)   are a better solution for the environment than a corrective tax.E) A) and C)
F) B) and D)

Exam 10: Externalities

Which of the following statements is not correct?

Correct Answer
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Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

Correct Answer
verified

To enhance the well-being of society,a social planner will encourage firms to increase production when

Correct Answer
verified

What is the difference between command-and-control policies and market-based policies toward externalities?

Correct Answer
verified

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

Correct Answer
verified

When a market is characterized by an externality,the government

Correct Answer
verified

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Correct Answer
verified

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Correct Answer
verified

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
verified

When he was a candidate for president,Barack Obama proposed which of the following as a means of combating climate change?

Correct Answer
verified

Figure 10-6 -Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Correct Answer
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Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a positive externality?

Correct Answer
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Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Correct Answer
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Figure 10-19 -Refer to Figure 10-19.The social optimum can be reached if

Correct Answer
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Correct Answer
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Figure 10-8 -Refer to Figure 10-8.What is the socially-optimal quantity of output in this market?

Correct Answer
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Figure 10-15 -Refer to Figure 10-15.Which graph illustrates a pollution permit program?

Correct Answer
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The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Correct Answer
verified
Private parties may fail to bargain to a...
View Answer

Regulations to reduce pollution

Correct Answer
verified

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

Correct Answer
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Exam 10: Externalities

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

Correct AnswerverifiedShow Answer

To enhance the well-being of society,a social planner will encourage firms to increase production when

Correct AnswerverifiedShow Answer

What is the difference between command-and-control policies and market-based policies toward externalities?

Correct AnswerverifiedShow Answer

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

Correct AnswerverifiedShow Answer

When a market is characterized by an externality,the government

Correct AnswerverifiedShow Answer

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Correct AnswerverifiedShow Answer

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Correct AnswerverifiedShow 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

When he was a candidate for president,Barack Obama proposed which of the following as a means of combating climate change?

Correct AnswerverifiedShow Answer

Figure 10-6 -Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a positive externality?

Correct AnswerverifiedShow Answer

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19.The social optimum can be reached if

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-8 -Refer to Figure 10-8.What is the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

Figure 10-15 -Refer to Figure 10-15.Which graph illustrates a pollution permit program?

Correct AnswerverifiedShow Answer

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Correct AnswerverifiedPrivate parties may fail to bargain to a...View AnswerShow Answer

Regulations to reduce pollution

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Private parties may fail to bargain to a...
View Answer

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