Question 1

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. If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   7
B)   8
C)   9
D)   10E) A) and B)
F) A) and C)

Question 2

Patent protection is one way to deal with technology spillovers.

Accepted Answer

A) True 
 B)False

Question 3

When the production of a good results in a positive externality, the social value curve is

Accepted Answer

A)   below the demand curve, indicating that the total value to society is less than the private benefit.
B)   above the demand curve, indicating that the total value to society is greater than the private benefit.
C)   identical to the demand curve, indicating that the total cost to society is the equal to the private benefit.
D)   above the supply curve, indicating that the total cost to society exceeds the private cost.E) C) and D)
F) B) and D)

Question 4

Figure 10-11 
-Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Accepted Answer

A)   $3,850.
B)   $4,320.
C)   $4,980.
D)   $5,530.E) A) and B)
F) B) and C)

Question 5

Which of the following statements is correct?

Accepted Answer

A)   Government should tax goods with either positive or negative externalities.
B)   Government should tax goods with negative externalities and subsidize goods with positive externalities.
C)   Government should subsidize goods with either positive or negative externalities.
D)   Government should tax goods with positive externalities and subsidize goods with negative externalities.E) B) and C)
F) A) and D)

Question 6

Table 10-4
 
-Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible) . The maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $29.
B)   $35.
C)   $40.
D)   $46.E) A) and D)
F) A) and C)

Question 7

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Accepted Answer

A)   alleviating the negative externalities that are associated with charitable giving.
B)   imposing a negative externality on those who do not pay income taxes.
C)   encouraging a private solution to a positive-externality problem.
D)   encouraging a private solution to a negative-externality problem.E) A) and B)
F) A) and C)

Question 8

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Accepted Answer

A)   the externalities that are present are positive, not negative.
B)   government assigns property rights to the harmed party.
C)   private parties can bargain with sufficiently low transaction costs.
D)   businesses determine an appropriate level of production.E) A) and B)
F) B) and C)

Question 9

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. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $67
B)   $68
C)   $81
D)   $83E) A) and B)
F) A) and C)

Question 10

Figure 10-4 
-Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Accepted Answer

A)   increased beyond Q4.
B)   decreased to Q1.
C)   increased to Q3.
D)   stayed at Q2.E) A) and D)
F) A) and C)

Question 11

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

Question 12

Table 10-3
 
-Refer to Table 10-3. The socially optimal quantity of output is

Accepted Answer

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

Question 13

In many cases the Coase theorem does not work well because

Accepted Answer

A)   there are too few parties at the negotiation table.
B)   the government does not know about the Coase theorem.
C)   transaction costs are too high.
D)   transaction costs are too low.E) A) and B)
F) A) and C)

Question 14

Externalities tend to cause markets to be

Accepted Answer

A)   inefficient.
B)   unequal.
C)   unnecessary.
D)   overwhelmed.E) A) and B)
F) All of the above

Question 15

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

Question 16

Which of the following statements is not correct?

Accepted Answer

A)   Government policies may improve the market's allocation of resources when negative externalities are present.
B)   Government policies may improve the market's allocation of resources when positive externalities are present.
C)   A positive externality is an example of a market failure.
D)   Without government intervention, the market will tend to undersupply products that produce negative externalities.E) A) and C)
F) C) and D)

Question 17

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

Question 18

Altering incentives so that people take account of the external effects of their actions

Accepted Answer

A)   is called internalizing the externality.
B)   can be done by imposing a corrective tax.
C)   is the role of government in markets with externalities.
D)   All of the above are correct.E) A) and C)
F) All of the above

Question 19

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 20

Beverly owns a rabbit and receives a $600 benefit from owning it. Sometimes Beverly's rabbit makes its way onto the lawn of her neighbor, Charles, and eats the vegetables in Charles' garden. This intrusion by the rabbit costs Charles $400. Can both individuals become better off if Charles pays Beverly some amount of money to get rid of the rabbit? Explain.

Accepted Answer

No, since Beverly would requir...

Exam 10: Externalities

Externalities tend to cause markets to be

Correct Answer
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Altering incentives so that people take account of the external effects of their actions

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
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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
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Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Correct Answer
verified

In many cases the Coase theorem does not work well because

Correct Answer
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Table 10-3 -Refer to Table 10-3. The socially optimal quantity of output is

Correct Answer
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Markets sometimes fail to allocate resources efficiently.

Correct Answer
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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
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No, since Beverly would requir...
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Which of the following statements is not correct?

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When the production of a good results in a positive externality, the social value curve is

Correct Answer
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Patent protection is one way to deal with technology spillovers.

Correct Answer
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Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Correct Answer
verified

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

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
verified

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Correct Answer
verified

Exam 10: Externalities

Externalities tend to cause markets to be

Correct AnswerverifiedShow Answer

Altering incentives so that people take account of the external effects of their actions

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

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

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Correct AnswerverifiedShow Answer

In many cases the Coase theorem does not work well because

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3. The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

Markets sometimes fail to allocate resources efficiently.

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 AnswerverifiedNo, since Beverly would requir...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible) . The maximum total surplus that can be achieved in this market is

Correct AnswerverifiedShow Answer

When the production of a good results in a positive externality, the social value curve is

Correct AnswerverifiedShow Answer

Patent protection is one way to deal with technology spillovers.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Correct AnswerverifiedShow Answer

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

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

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Correct AnswerverifiedShow Answer

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No, since Beverly would requir...
View Answer

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