Question 1

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Accepted Answer

A)   external cost of good x exceeds the private value of good x.
B)   external cost of good x equals the private value of good x.
C)   social cost of good x exceeds the private value of good x.
D)   social cost of good x equals the private value of good x.E) A) and B)
F) A) and C)

Question 2

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Accepted Answer

We use the term mark...

Question 3

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 D)
F) All of the above

Question 4

When an externality is present, the market equilibrium is

Accepted Answer

A)   efficient, and the equilibrium maximizes the total benefit to society as a whole.
B)   efficient, but the equilibrium does not maximize the total benefit to society as a whole.
C)   inefficient, but the equilibrium maximizes the total benefit to society as a whole.
D)   inefficient, and the equilibrium does not maximize the total benefit to society as a whole.E) A) and B)
F) B) and C)

Question 5

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. Suppose there is presently no pollution fee, and the government wishes to eliminate exactly 8 units of pollution. Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $65
B)   $75
C)   $80
D)   $88E) None of the above
F) A) and D)

Question 6

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 7

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)   Prices are set by supply and demand.
B)   Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.
C)   Real-world markets for pollution permits include sulfur dioxide and carbon.
D)   Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.E) None of the above
F) A) and B)

Question 9

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 10

Research into new technologies

Accepted Answer

A)   provides positive externalities because it creates knowledge others can use.
B)   results in negative externalities because government funding for research causes less government spending in other areas.
C)   is protected by patent laws, which eliminates the need for government intervention.
D)   should only be funded by the corporations that will receive the profits from the research.E) C) and D)
F) A) and D)

Question 11

Which of the following is an advantage of tradable pollution permits?

Accepted Answer

A)   Each firm is allowed to pollute exactly the same amount.
B)   Revenue from the sale of permits is greater than revenue from a corrective tax.
C)   The initial allocation of permits to firms does not affect the efficiency of the market.
D)   Firms will engage in joint research efforts to reduce pollution.E) A) and D)
F) None of the above

Question 12

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Accepted Answer

A)   the market for good x is characterized by an externality, but we cannot determine whether the externality is positive or negative from this fact alone.
B)   the market for good x is characterized by a positive externality.
C)   the market for good x is characterized by a negative externality.
D)   the supply curve for good x fails to reflect the cost to society of producing that good.E) None of the above
F) B) and C)

Question 13

Figure 10-3 
-Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Accepted Answer

A)   P1, Q1
B)   P2, Q0
C)   P2, Q1
D)   The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.E) A) and B)
F) C) and D)

Question 14

Figure 10-11 
-Refer to Figure 10-11. A benevolent social planner would prefer

Accepted Answer

A)   a $24 price to any other price.
B)   420 units to any other quantity of output.
C)   a subsidy of $24 per unit to a subsidy of $27 per unit.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 15

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 16

At any given quantity, the cost of the marginal seller is the height of the .

Accepted Answer

The answer of At any given quantity, the cost of...

Question 17

Figure 10-9 
-Refer to Figure 10-9, Panel (b) . The market equilibrium quantity is

Accepted Answer

A)   Q2, which is the socially optimal quantity.
B)   Q3, which is the socially optimal quantity.
C)   Q2, and the socially optimal quantity is Q3.
D)   Q3, and the socially optimal quantity is Q2.E) B) and C)
F) All of the above

Question 18

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality. What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)   The equilibrium quantity is greater than the socially optimal quantity.
B)   They are equal.
C)   The equilibrium quantity is less than the socially optimal quantity.
D)   There is not enough information to answer the question.E) C) and D)
F) All of the above

Question 19

Figure 10-15 
-Refer to Figure 10-15. Which graph illustrates a pollution permit program?

Accepted Answer

A)   the left graph
B)   the right graph
C)   both graphs
D)   neither graphE) A) and B)
F) None of the above

Question 20

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Accepted Answer

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

Exam 10: Externalities

At any given quantity, the cost of the marginal seller is the height of the .

Correct Answer
verified

Government intervention is necessary to correct all externalities.

Correct Answer
verified

Figure 10-3 -Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Correct Answer
verified

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Correct Answer
verified

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

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

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a pollution permit program?

Correct Answer
verified

Which of the following is not a characteristic of pollution permits?

Correct Answer
verified

Markets sometimes fail to allocate resources efficiently.

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9, Panel (b) . The market equilibrium quantity is

Correct Answer
verified

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

Correct Answer
verified

Correct Answer
verified

Government can be used to solve externality problems that are too costly for private parties to solve.

Correct Answer
verified

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Correct Answer
verified
We use the term mark...
View Answer

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Correct Answer
verified

Research into new technologies

Correct Answer
verified

Which of the following is an advantage of tradable pollution permits?

Correct Answer
verified

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Correct Answer
verified

When an externality is present, the market equilibrium is

Correct Answer
verified

Exam 10: Externalities

At any given quantity, the cost of the marginal seller is the height of the .

Correct AnswerverifiedShow Answer

Government intervention is necessary to correct all externalities.

Correct AnswerverifiedShow Answer

Figure 10-3 -Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Correct AnswerverifiedShow Answer

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Correct AnswerverifiedShow Answer

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

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

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a pollution permit program?

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of pollution permits?

Correct AnswerverifiedShow Answer

Markets sometimes fail to allocate resources efficiently.

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (b) . The market equilibrium quantity is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Government can be used to solve externality problems that are too costly for private parties to solve.

Correct AnswerverifiedShow Answer

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Correct AnswerverifiedWe use the term mark...View AnswerShow Answer

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Correct AnswerverifiedShow Answer

Research into new technologies

Correct AnswerverifiedShow Answer

Which of the following is an advantage of tradable pollution permits?

Correct AnswerverifiedShow Answer

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Correct AnswerverifiedShow Answer

When an externality is present, the market equilibrium is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
We use the term mark...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified