Question 1

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Accepted Answer

The supply...

Question 2

Figure 10-3 
-Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Accepted Answer

A)   P0.
B)   P1.
C)   P2.
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 3

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)   Each party involved holds out for a better deal.
B)   The externality is large.
C)   Only problems with a sufficiently large number of parties can be solved.
D)   There is a lack of government intervention.E) C) and D)
F) B) and D)

Question 4

Figure 10-12 
-Refer to Figure 10-12. Suppose, on the figure, Q represents the quantity of education and P represents the price of education. Then the quantity  represents

Accepted Answer

A)   an inefficiency.
B)   the extent of the negative externality that pertains to the market for education.
C)   the amount of the tax that would be required to correct the negative externality that pertains to the market for education.
D)   the amount of the subsidy that would be required to correct the positive externality that pertains to the market for education.E) A) and B)
F) A) and C)

Question 5

Which of the following is an example of a positive externality?

Accepted Answer

A)   Sue not catching the flu because she got a flu vaccine
B)   Mary not catching the flu from Sue because Sue got a flu vaccine
C)   Sue catching the flu because she did not get a flu vaccine
D)   Mary catching the flu from Sue because Sue did not get a flu vaccineE) A) and D)
F) None of the above

Question 6

A positive externality

Accepted Answer

A)   is a benefit to the producer of the good.
B)   is a benefit to the consumer of the good.
C)   is a benefit to someone other than the producer and consumer of the good.
D)   results in an optimal level of output.E) None of the above
F) B) and C)

Question 7

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

Question 8

Economists believe that the optimal level of pollution is zero.

Accepted Answer

A) True 
 B)False

Question 9

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government will sell 40 pollution permits for $75 each. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of additional pollution abatement,

Accepted Answer

A)   Firm B will spend $3,500.
B)   Firm A will spend $4,000.
C)   Firm A will spend $4,500.
D)   Firm B will spend $3,000.E) None of the above
F) B) and D)

Question 10

Why can't private individuals always internalize an externality without the help of government?

Accepted Answer

A)   Legal restrictions prevent side payments between individuals.
B)   Transactions costs may be too high.
C)   Side payments between individuals are inefficient.
D)   Side payments between individuals are insufficient.E) A) and B)
F) B) and D)

Question 11

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Accepted Answer

A)   the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.
B)   the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
C)   the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked.
D)   There is not enough information to answer the question.E) C) and D)
F) A) and C)

Question 13

Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then

Accepted Answer

A)   the after-tax equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked.
B)   the after-tax equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
C)   the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.
D)   There is not enough information to answer the question.E) C) and D)
F) B) and D)

Question 14

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Accepted Answer

A)   social value = private value = private cost 
B)   social cost > private value = social value > private cost.
C)   social cost = private cost = private value 
D)   social value = private cost = social cost > private value.E) B) and C)
F) None of the above

Question 15

Figure 10-4 
-Refer to Figure 10-4. At Q3

Accepted Answer

A)   the marginal consumer values this product less than the social cost of producing it.
B)   every consumer values this product less than the social cost of producing it.
C)   the cost to society is equal to the value to society.
D)   the marginal consumer values this product more than the private cost.E) All of the above
F) B) and C)

Question 16

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Accepted Answer

The Coase ...

Question 17

A patent is used to

Accepted Answer

A)   disseminate information.
B)   offset the negative effects of taxes.
C)   protect inventors for as long as they live.
D)   assign property rights.E) A) and D)
F) A) and C)

Question 18

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

Accepted Answer

A) True 
 B)False

Question 19

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Accepted Answer

A)   the market-based solution is less costly to society.
B)   the market-based solution can result in a greater reduction in pollution.
C)   the market-based solution raises revenue for the government.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 20

Figure 10-11 
-Refer to Figure 10-11. The graph represents a market in which

Accepted Answer

A)   there is no externality.
B)   there is a positive externality.
C)   there is a negative externality.
D)   The answer cannot be determined from inspection of the graph.E) A) and D)
F) A) and B)

Exam 10: Externalities

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Correct Answer
verified
The Coase ...
View Answer

A positive externality

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. The graph represents a market in which

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12. Suppose, on the figure, Q represents the quantity of education and P represents the price of education. Then the quantity represents

Correct Answer
verified

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

Correct Answer
verified

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Correct Answer
verified
The supply...
View Answer

A patent is used to

Correct Answer
verified

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

Correct Answer
verified

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct Answer
verified

Which of the following is an example of a positive externality?

Correct Answer
verified

Which of the following is a problem that keeps people from privately solving externality problems?

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4. At Q3

Correct Answer
verified

Why can't private individuals always internalize an externality without the help of government?

Correct Answer
verified

Correct Answer
verified

Economists believe that the optimal level of pollution is zero.

Correct Answer
verified

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Correct Answer
verified

Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then

Correct Answer
verified

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Correct Answer
verified

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Correct Answer
verified

Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Correct Answer
verified

Exam 10: Externalities

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Correct AnswerverifiedThe Coase ...View AnswerShow Answer

A positive externality

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. The graph represents a market in which

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. Suppose, on the figure, Q represents the quantity of education and P represents the price of education. Then the quantity represents

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Correct AnswerverifiedThe supply...View AnswerShow Answer

A patent is used to

Correct AnswerverifiedShow Answer

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

Correct AnswerverifiedShow Answer

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct AnswerverifiedShow Answer

Which of the following is an example of a positive externality?

Correct AnswerverifiedShow Answer

Which of the following is a problem that keeps people from privately solving externality problems?

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. At Q3

Correct AnswerverifiedShow Answer

Why can't private individuals always internalize an externality without the help of government?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Economists believe that the optimal level of pollution is zero.

Correct AnswerverifiedShow Answer

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Correct AnswerverifiedShow Answer

Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then

Correct AnswerverifiedShow Answer

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Correct AnswerverifiedShow Answer

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Correct AnswerverifiedShow Answer

Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Correct AnswerverifiedShow Answer

Correct Answer
verified
The Coase ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
The supply...
View Answer

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
verified

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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Correct Answer
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Correct Answer
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Correct Answer
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