Question 1

​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then

Accepted Answer

A)  ​the after-subsidy equilibrium quantity of rain barrels will be less than the socially optimal quantity of rain barrels.
B)  ​the after-subsidy equilibrium quantity of rain barrels will be more than the socially optimal quantity of rain barrels.
C)  ​the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels.
D)  ​market incentives will be distorted and move the allocation of resources away from the social optimum.E) B) and D)
F) B) and C)

Question 2

All externalities impose a cost on others. ​

Accepted Answer

A) True 
 B)False

Question 3

Education yields positive externalities. For example, a more educated population

Accepted Answer

A)  may increase the pace of technological advances, leading to higher productivity and wages for everyone.
B)  leads to more informed voters, resulting in better government for everyone.
C)  tends to result in lower crime rates.
D)  All of the above are correct.E) A) and C)
F) None of the above

Question 4

Gretchen is a writer who works from her home. Gretchen lives next door to Randall, the trumpet player for a local band. Randall needs lots of practice to earn his share of the band's profit, which will amount to $350. Gretchen gets distracted by Randall's trumpet playing but she needs to get her writing done to earn $570 for her current article. If Randall owns the right to play his music and Gretchen needs to hire a lawyer to help her reach an agreement with Randall, then what price is Gretchen willing to pay the lawyer?

Accepted Answer

A)  less than $220
B)  less than $350
C)  less than $570
D)  less than $920E) B) and C)
F) None of the above

Question 5

Regulations to reduce pollution

Accepted Answer

A)  cause pollution levels to drop below the regulated amount.
B)  are typically 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 the highest costs.
D)  are a better solution for the environment than a corrective tax.E) C) and D)
F) A) and D)

Question 6

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

Question 7

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)  if the government does not become involved in the process.
B)  when the number of interested parties is large and bargaining costs are high.
C)  if the firm in the market is a monopoly.
D)  if some people benefit from the externality.E) A) and B)
F) A) and C)

Question 8

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Accepted Answer

The phenomenon of ex...

Question 9

Which of the following policies is an example of a command-and-control policy?

Accepted Answer

A)  subsidies to education
B)  maximum levels of pollution that factories may emit
C)  tradable pollution permits
D)  None of the above is an example of a command-and-control policy.E) All of the above
F) A) and B)

Question 10

Which of the following problems can not be alleviated by a gasoline tax?

Accepted Answer

A)  traffic congestion
B)  traffic accidents
C)  the undersupply of goods that produce positive externalities
D)  air pollutionE) A) and B)
F) A) and C)

Question 11

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

Accepted Answer

A)  The radio station puts up a shield, which it pays for.
B)  The radio station puts up a shield, which the dentist pays for.
C)  Neither the radio station nor the dentist purchase additional equipment.
D)  The dentist gets a new drill; it does not matter who pays for it.E) B) and C)
F) C) and D)

Question 12

Figure 10-11 
-Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $5,880.
B)  $9,480.
C)  $13,230.
D)  $15,360.E) All of the above
F) B) and D)

Question 13

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

Accepted Answer

The negative externa...

Question 14

The term market failure refers to

Accepted Answer

A)  a market that fails to allocate resources efficiently.
B)  an unsuccessful advertising campaign which reduces demand.
C)  ruthless competition among firms.
D)  a firm that is forced out of business because of losses.E) C) and D)
F) B) and D)

Question 15

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

Question 16

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Accepted Answer

A)  lower levels of nutrition, health care, and housing
B)  a lower standard of living
C)  slowing or reversing technological advancement
D)  the elimination of all pollutionE) B) and D)
F) A) and D)

Question 17

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 an 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 D)
F) A) and C)

Question 18

Which of the following statements is correct?

Accepted Answer

A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced.
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced.
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.E) A) and B)
F) None of the above

Question 19

Research into new technologies provides a

Accepted Answer

A)  negative externality, and too few resources are devoted to research as a result.
B)  negative externality, and too many resources are devoted to research as a result.
C)  positive externality, and too few resources are devoted to research as a result.
D)  positive externality, and too many resources are devoted to research as a result.E) C) and D)
F) B) and D)

Question 20

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 D)

Exam 10: Externalities

All externalities impose a cost on others.

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

Correct Answer
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The term market failure refers to

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. 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 Answer
verified

Correct Answer
verified

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Correct Answer
verified

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Correct Answer
verified

Which of the following problems can not be alleviated by a gasoline tax?

Correct Answer
verified

Education yields positive externalities. For example, a more educated population

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Correct Answer
verified

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then

Correct Answer
verified

Which of the following policies is an example of a command-and-control policy?

Correct Answer
verified

Research into new technologies provides a

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Correct Answer
verified
The phenomenon of ex...
View Answer

Regulations to reduce pollution

Correct Answer
verified

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

Correct Answer
verified
The negative externa...
View 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 Answer
verified

Exam 10: Externalities

All externalities impose a cost on others. ​

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The term market failure refers to

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

Correct AnswerverifiedShow Answer

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Correct AnswerverifiedShow Answer

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Correct AnswerverifiedShow Answer

Which of the following problems can not be alleviated by a gasoline tax?

Correct AnswerverifiedShow Answer

Education yields positive externalities. For example, a more educated population

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following policies is an example of a command-and-control policy?

Correct AnswerverifiedShow Answer

Research into new technologies provides a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Correct AnswerverifiedThe phenomenon of ex...View AnswerShow Answer

Regulations to reduce pollution

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe negative externa...View AnswerShow 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

All externalities impose a cost on others.

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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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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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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Correct Answer
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Correct Answer
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The phenomenon of ex...
View Answer

Correct Answer
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Correct Answer
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The negative externa...
View Answer

Correct Answer
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