Question 1

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?

Accepted Answer

A)   1,000 
B)   QOPTIMUM 
C)   QMARKET 
D)   QOPTIMUM < QMARKET < 1,000E) B) and D)
F) B) and C)

Question 2

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

Accepted Answer

A)   $1.90 and 38 units, respectively.
B)   $1.80 and 35 units, respectively.
C)   $1.60 and 42 units, respectively.
D)   $1.35 and 58 units, respectively.E) None of the above
F) A) and B)

Question 3

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Accepted Answer

A)   The groundwater pollution reduces the cost of large-scale pork production.
B)   The economic impact of a large-scale pork production facility is localized in a small geographic area.
C)   The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility.
D)   Consumers will not reap the benefits of lower production cost from large-scale pork production.E) A) and B)
F) All of the above

Question 4

Table 10-3 
-Refer to Table 10-3. The market equilibrium quantity of output is

Accepted Answer

A)   3 units.
B)   4 units.
C)   5 units.
D)   6 units.E) A) and B)
F) None of the above

Question 5

A corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 6

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 7

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)   an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)   an adverse effect on a bystander who is compensated by the person who causes the effect.
C)   a beneficial effect on a bystander who pays the person who causes the effect.
D)   a beneficial effect on a bystander who does not pay the person who causes the effect.E) B) and C)
F) C) and D)

Question 8

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Accepted Answer

A)   They are equal.
B)   The equilibrium quantity is greater than the socially optimal quantity.
C)   The equilibrium quantity is less than the socially optimal quantity.
D)   There is not enough information to answer the question.E) B) and C)
F) None of the above

Question 9

When the government intervenes in markets with externalities, it does so in order to

Accepted Answer

A)   increase production when negative externalities are present.
B)   protect the interests of bystanders.
C)   make certain all benefits are received by market participants.
D)   reduce production when positive externalities are present.E) None of the above
F) All of the above

Question 10

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

Question 11

The Coase theorem states that

Accepted Answer

A)   under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present.
B)   government intervention is always required to reach an efficient outcome when an externality is present.
C)   government intervention cannot lead to an efficient outcome when an externality is present.
D)   only negative externalities can be resolved using government intervention.E) A) and C)
F) A) and B)

Question 12

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market. 
-Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Accepted Answer

A)   2 units
B)   3 units
C)   4 units
D)   5 unitsE) A) and B)
F) All of the above

Question 13

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Accepted Answer

A)   impose a tax on alcohol that is equal to the per-unit externality
B)   offer a subsidy on alcohol that is equal to the per-unit externality
C)   impose a regulation limiting the amount of alcohol that each consumer can purchase
D)   nothingE) A) and B)
F) A) and C)

Question 14

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Accepted Answer

A)   a subsidy.
B)   a regulation.
C)   a corrective tax.
D)   an application of the Coase theorem.E) All of the above
F) B) and D)

Question 15

The externality associated with technology spillovers

Accepted Answer

A)   cannot be internalized by government.
B)   is a negative externality.
C)   can be internalized, potentially, through taxation of firms that are responsible for technology spillovers.
D)   can be internalized, potentially, through patent protection.E) B) and D)
F) All of the above

Question 16

Figure 10-9 
-Refer to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Accepted Answer

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

Question 17

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Accepted Answer

A)   Impose a tax greater than the value of the technology spillover.
B)   Not allow production of any product that causes a technology spillover.
C)   Provide a subsidy equal to the value of the technology spillover.
D)   Require producers to "clean up" any spillover that results from their production process.E) All of the above
F) A) and B)

Question 18

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

Question 19

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

Accepted Answer

A)   A college student buys a new car when she graduates.
B)   The mayor of a small town plants flowers in the city park.
C)   Local high school teachers have pizza delivered every Friday for lunch.
D)   An avid fisherman buys new fishing gear for his next fishing trip.E) None of the above
F) All of the above

Question 20

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 B)
F) A) and C)

Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Correct Answer
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The Coase theorem states that

Correct Answer
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The externality associated with technology spillovers

Correct Answer
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Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Correct Answer
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Table 10-3 -Refer to Table 10-3. The market equilibrium quantity of output is

Correct Answer
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A positive externality arises when a person engages in an activity that has

Correct Answer
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Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Correct Answer
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Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Correct Answer
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Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

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

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Correct Answer
verified

A corrective tax places a price on the right to pollute.

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

Correct Answer
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Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Correct Answer
verified

When the government intervenes in markets with externalities, it does so in order to

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Correct Answer
verified

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

Correct Answer
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Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

The externality associated with technology spillovers

Correct AnswerverifiedShow Answer

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3. The market equilibrium quantity of output is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A positive externality arises when a person engages in an activity that has

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Correct AnswerverifiedShow Answer

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

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

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Correct AnswerverifiedShow Answer

A corrective tax places a price on the right to pollute.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Correct AnswerverifiedShow Answer

When the government intervenes in markets with externalities, it does so in order to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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