Question 1

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Accepted Answer

A)  Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.
B)  Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200.
C)  Both firms will use their own pollution permits.
D)  Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.E) None of the above
F) All of the above

Question 2

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) B) and D)
F) A) and D)

Question 3

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

Accepted Answer

A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  Both (b)  and (c)  are correct.E) B) and C)
F) A) and C)

Question 4

The difference between social cost and private cost is a measure of the

Accepted Answer

A)  loss in profit to the seller as the result of a negative externality.
B)  cost of an externality.
C)  cost reduction when the negative externality is eliminated.
D)  cost incurred by the government when it intervenes in the market.E) B) and D)
F) A) and B)

Question 5

Figure 10-4 3." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4. This market

Accepted Answer

A)  has no need for government intervention.
B)  would benefit from a tax on the product.
C)  would benefit from a subsidy for the product.
D)  would maximize total well-being at Q3.E) A) and B)
F) C) and D)

Question 6

​The majority of economists believe that the social benefit of mandating measles vaccines for all Americans (except those with compelling medical reasons) would exceed the social cost.

Accepted Answer

A) True 
 B)False

Question 7

Tradable pollution permits

Accepted Answer

A)  have prices that are set by the government.
B)  will be more valuable to firms that can reduce pollution only at high costs.
C)  are likely to create a higher level of total pollution.
D)  are less desirable than command-and-control policies to reduce pollution.E) A) and B)
F) C) and D)

Question 8

An externality is

Accepted Answer

A)  the costs that parties incur in the process of agreeing and following through on a bargain.
B)  the uncompensated impact of one person's actions on the well-being of a bystander.
C)  the proposition that private parties can bargain without cost over the allocation of resources.
D)  a market equilibrium tax.E) B) and C)
F) A) and D)

Question 9

Figure 10-8 
-Refer to Figure 10-8. What is the equilibrium price in this market?

Accepted Answer

A)  $8
B)  Between $8 and $10
C)  $10
D)  More than $10E) All of the above
F) A) and C)

Question 10

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) None of the above

Question 11

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. What is the socially-optimal level of output in this market?

Accepted Answer

A)  3 units
B)  4 units
C)  5 units
D)  6 unitsE) A) and B)
F) A) and C)

Question 12

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Accepted Answer

The other type of po...

Question 13

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)  the "invisible hand"
B)  the law of diminishing social returns
C)  the Coase theorem
D)  technology policyE) A) and D)
F) A) and B)

Question 14

Which of the following is NOT an example of a negative externality?

Accepted Answer

A)  air pollution from a manufacturing plant.
B)  disrupted sleep from a neighbor's loud music.
C)  an illness caused by secondhand cigarette smoke.
D)  a decrease in your property value from neglecting your lawn and garden.E) A) and B)
F) A) and C)

Question 15

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. What is the socially optimal quantity of plastic?

Accepted Answer

A)  200 units
B)  450 units
C)  500 units
D)  650 unitsE) A) and D)
F) B) and C)

Question 16

All externalities

Accepted Answer

A)  cause markets to fail to allocate resources efficiently.
B)  cause equilibrium prices to be too high.
C)  benefit producers at the expense of consumers.
D)  cause equilibrium prices to be too low.E) A) and C)
F) None of the above

Question 17

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 C)
F) C) and D)

Question 18

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Accepted Answer

A)  transaction costs.
B)  corrective costs.
C)  input costs.
D)  private costs.E) C) and D)
F) B) and C)

Question 19

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) All of the above
F) None of the above

Question 20

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Accepted Answer

A)  ​increases the value of other properties in the neighborhood.
B)  ​increases the value of Josiah's home.
C)  ​is visually unappealing to Josiah's neighbors.
D)  ​creates a safety hazard for neighborhood children.E) A) and C)
F) B) and C)

Exam 10: Externalities

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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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. What is the socially-optimal level of output in this market?

Correct Answer
verified

The majority of economists believe that the social benefit of mandating measles vaccines for all Americans (except those with compelling medical reasons) would exceed the social cost.

Correct Answer
verified

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

Correct Answer
verified

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Correct Answer
verified

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Correct Answer
verified
The other type of po...
View Answer

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Correct Answer
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Correct Answer
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Correct Answer
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Which of the following is NOT an example of a negative externality?

Correct Answer
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Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

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. What is the socially optimal quantity of plastic?

Correct Answer
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An externality is

Correct Answer
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When one firm sells its pollution permit to another firm,

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

Correct Answer
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Tradable pollution permits

Correct Answer
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The difference between social cost and private cost is a measure of the

Correct Answer
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All externalities

Correct Answer
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Figure 10-4 -Refer to Figure 10-4. This market

Correct Answer
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Which of the following suggests that private markets can be effective in dealing with externalities?

Correct Answer
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Exam 10: Externalities

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

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. What is the socially-optimal level of output in this market?

Correct AnswerverifiedShow Answer

​The majority of economists believe that the social benefit of mandating measles vaccines for all Americans (except those with compelling medical reasons) would exceed the social cost.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Correct AnswerverifiedShow Answer

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Correct AnswerverifiedThe other type of po...View AnswerShow Answer

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is NOT an example of a negative externality?

Correct AnswerverifiedShow Answer

Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

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. What is the socially optimal quantity of plastic?

Correct AnswerverifiedShow Answer

An externality is

Correct AnswerverifiedShow Answer

When one firm sells its pollution permit to another firm,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Tradable pollution permits

Correct AnswerverifiedShow Answer

The difference between social cost and private cost is a measure of the

Correct AnswerverifiedShow Answer

All externalities

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. This market

Correct AnswerverifiedShow Answer

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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The majority of economists believe that the social benefit of mandating measles vaccines for all Americans (except those with compelling medical reasons) would exceed the social cost.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The other type of po...
View Answer

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Correct Answer
verified

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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