Question 1

Research into new technologies conveys neither negative externalities nor positive externalities.

Accepted Answer

A) True 
 B)False

Question 2

If an externality is present in a market, economic efficiency may be enhanced by

Accepted Answer

A)   increased competition.
B)   weakening property rights.
C)   better informed market participants.
D)   government intervention.E) A) and C)
F) C) and D)

Question 3

The tax on cigarettes is an example of

Accepted Answer

A)   a consumption tax.
B)   a corrective tax.
C)   an income tax.
D)   a command-and-control policy.E) All of the above
F) A) and B)

Question 4

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Accepted Answer

A)   supply curve for paper would shift to the right.
B)   supply curve for paper would shift to the left.
C)   demand curve for paper would shift to the right.
D)   demand curve for paper would shift to the left.E) All of the above
F) A) and D)

Question 5

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

Question 6

When a market experiences a positive externality,

Accepted Answer

A)   the demand curve does not reflect the value to society of the good.
B)   too much of the good is being produced.
C)   the government can internalize the externality by imposing a tax on the product.
D)   the private value is greater than the social value.E) A) and B)
F) None of the above

Question 7

One drawback to industrial policy is that

Accepted Answer

A)   technology spillovers are too expensive to control.
B)   measuring the size of spillovers from different markets is difficult.
C)   spillovers often occur in industries that produce undesirable products for society.
D)   positive side effects are often outweighed by negative side effects.E) A) and B)
F) C) and D)

Question 8

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

Question 9

The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

Table 10-6
The following table shows the total 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 $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103. 
-Refer to Table 10-6. If the government charged a fee of $85 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   10
B)   12
C)   14
D)   16E) A) and C)
F) B) and D)

Question 12

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain?

Accepted Answer

A)   (i)  only
B)   both (i)  and (ii) 
C)   (iii)  only
D)   both (ii)  and (iii) E) C) and D)
F) B) and C)

Question 13

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Accepted Answer

The term i...

Question 14

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.
Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Accepted Answer

The supply...

Question 15

A corrective tax

Accepted Answer

A)   allocates pollution to those factories that face the highest cost of reducing it.
B)   is a form of regulation.
C)   works well for all types of externalities.
D)   is inferior to regulatory policy according to most economists.E) All of the above
F) A) and C)

Question 16

Suppose a certain good conveys either an external cost or an external benefit. If the private cost of the last unit of the good that was produced is equal to the private value of that unit, then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 17

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 18

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Accepted Answer

A)   Trade can make everyone better off.
B)   People face trade-offs.
C)   Markets are usually a good way to organize economic activity.
D)   A country's standard of living depends on its ability to produce goods and services.E) A) and C)
F) C) and D)

Question 19

Scenario 10-3  Suppose the equation for the demand curve in a market is
where is the quantity demanded and is the price.    Also, suppose the equation for the supply curve in the same market is ,
where is the quantity supplied. 
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What particular tax or subsidy would move the market to the social optimum?

Accepted Answer

A tax of $12 per uni...

Question 20

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A)   social cost minus social value
B)   social value minus private cost
C)   demand
D)   private costE) B) and C)
F) A) and B)

Exam 10: Externalities

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Correct Answer
verified

When a market experiences a positive externality,

Correct Answer
verified

The tax on cigarettes is an example of

Correct Answer
verified

A corrective tax

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

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution. Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Correct Answer
verified
The supply...
View Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain?

Correct Answer
verified

If an externality is present in a market, economic efficiency may be enhanced by

Correct Answer
verified

Correct Answer
verified
A tax of $12 per uni...
View Answer

Suppose a certain good conveys either an external cost or an external benefit. If the private cost of the last unit of the good that was produced is equal to the private value of that unit, then the sum of producer and consumer surplus is maximized.

Correct Answer
verified

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

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct Answer
verified

The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.

Correct Answer
verified

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Correct Answer
verified
The term i...
View Answer

Research into new technologies conveys neither negative externalities nor positive externalities.

Correct Answer
verified

One drawback to industrial policy is that

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

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Correct AnswerverifiedShow Answer

When a market experiences a positive externality,

Correct AnswerverifiedShow Answer

The tax on cigarettes is an example of

Correct AnswerverifiedShow Answer

A corrective tax

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

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution. Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Correct AnswerverifiedThe supply...View AnswerShow Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain?

Correct AnswerverifiedShow Answer

If an externality is present in a market, economic efficiency may be enhanced by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA tax of $12 per uni...View AnswerShow Answer

Suppose a certain good conveys either an external cost or an external benefit. If the private cost of the last unit of the good that was produced is equal to the private value of that unit, then the sum of producer and consumer surplus is maximized.

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

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct AnswerverifiedShow Answer

The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.

Correct AnswerverifiedShow Answer

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Correct AnswerverifiedThe term i...View AnswerShow Answer

Research into new technologies conveys neither negative externalities nor positive externalities.

Correct AnswerverifiedShow Answer

One drawback to industrial policy is that

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

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 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
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Correct Answer
verified
A tax of $12 per uni...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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The term i...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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