Question 1

Tradable pollution permits

Accepted Answer

A)   are widely viewed as a cost-effective way to reduce pollution.
B)   have helped reduce carbon emissions.
C)   have helped reduce sulfur dioxide emissions.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 2

Ed is a writer who works from his home.Ed lives next door to Ricky,the drummer for a local band.Ricky needs lots of practice to earn his share of the bands profits,$250.Ed gets distracted by Ricky's drumming but needs to get his writing done to earn $500 for his current article.Which of the following is an efficient solution?

Accepted Answer

A)   Ricky offers Ed $499 to allow Ricky to continue drumming.Ed accepts and both are better off.
B)   Ricky offers Ed $249 to allow Ricky to continue drumming.Ed accepts and both are better off.
C)   Ed offers Ricky $251 to stop practicing his drumming.Ricky agrees and both are better off.
D)   Ed offers Ricky $501 to stop practicing his drumming.Ricky agrees and both are better off.E) A) and D)
F) A) and B)

Question 3

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

Question 4

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Accepted Answer

A)   a situation in which the Coase theorem fails to explain the lawn mowing arrangement.
B)   an improper allocation of resources.
C)   a private solution to a negative externality problem.
D)   an exploitation of a common resource.E) C) and D)
F) B) and D)

Question 5

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 $69 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 6

Which of the following is not a necessary condition for the Coase theorem?

Accepted Answer

A)   Property rights are clearly defined.
B)   There are no bargaining costs.
C)   The government intervenes to internalize the externality.
D)   There are only a few parties involved.E) All of the above
F) B) and C)

Question 7

According to recent research,the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

Question 8

When externalities are present in a market,the well-being of market participants

Accepted Answer

A)   and market bystanders are both directly affected.
B)   and market bystanders are both indirectly affected.
C)   is directly affected,and market bystanders are indirectly affected.
D)   is indirectly affected,and market bystanders are directly affected.E) A) and B)
F) C) and D)

Question 9

Figure 10-9   
-Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the external benefit of smokestack scrubber installation is represented by

Accepted Answer

A)   Q3 - Q2.
B)   Q5 - Q4.
C)   P3a - P3b.
D)   P4a - P4b.E) A) and C)
F) A) and B)

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) B) and C)

Question 11

A negative externality

Accepted Answer

A)   is a cost to a bystander.
B)   is a cost to the buyer.
C)   is a cost to the seller.
D)   exists with all market transactions.E) A) and D)
F) All of the above

Question 12

Which of the following statements is true of both pollution permits and corrective taxes?

Accepted Answer

A)   Both policies internalize the externality of pollution.
B)   Both policies require firms to pay for their pollution.
C)   Both policies lead to the establishment of an equilibrium price of pollution.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 13

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 14

Dioxin emission that results from the production of paper is a good example of a negative externality because

Accepted Answer

A)   self-interested paper firms are generally unaware of environmental regulations.
B)   there are fines for producing too much dioxin.
C)   self-interested paper producers will not consider the full cost of the dioxin pollution they create.
D)   toxic emissions are the best example of an externality.E) C) and D)
F) All of the above

Question 15

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Accepted Answer

A)   maximize attorney fees.
B)   reduce the incentive of attorneys to file class action lawsuits.
C)   reduce the transaction costs of finding a private solution to an externality.
D)   regulate attorney fees.E) None of the above
F) B) and D)

Question 16

Figure 10-3 1,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." class="answers-bank-image d-inline" rel="preload" >
-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 D)
F) All of the above

Question 17

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.What is the socially-optimal level of output in this market?

Accepted Answer

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

Question 18

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)   enhance economic efficiency.
B)   do not raise revenue for the government.
C)   cause deadweight loss.
D)   cannot be divided between the buyer and seller.E) B) and C)
F) A) and C)

Question 19

Figure 10-1 
-Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   no externalities.
D)   no equilibrium in the market.E) A) and D)
F) C) and D)

Question 20

Table 10-3
 
-Refer to Table 10-3.The table 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 table.E) All of the above
F) A) and D)

Exam 10: Externalities

Corrective taxes differ from most taxes in that corrective taxes

Correct Answer
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Tradable pollution permits

Correct Answer
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Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Correct Answer
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Table 10-3 -Refer to Table 10-3.The table represents a market in which

Correct Answer
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In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Correct Answer
verified

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

Correct Answer
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Correct Answer
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Which of the following is not a necessary condition for the Coase theorem?

Correct Answer
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A negative externality

Correct Answer
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Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the external benefit of smokestack scrubber installation is represented by

Correct Answer
verified

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

Correct Answer
verified

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Correct Answer
verified

Which of the following statements is true of both pollution permits and corrective taxes?

Correct Answer
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Correct Answer
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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

When externalities are present in a market,the well-being of market participants

Correct Answer
verified

Dioxin emission that results from the production of paper is a good example of a negative externality because

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.What is the socially-optimal level of output in this market?

Correct Answer
verified

According to recent research,the gas tax in the United States is lower than the optimal level.

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

Exam 10: Externalities

Corrective taxes differ from most taxes in that corrective taxes

Correct AnswerverifiedShow Answer

Tradable pollution permits

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3.The table represents a market in which

Correct AnswerverifiedShow Answer

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a necessary condition for the Coase theorem?

Correct AnswerverifiedShow Answer

A negative externality

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the external benefit of smokestack scrubber installation is represented by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Correct AnswerverifiedShow Answer

Which of the following statements is true of both pollution permits and corrective taxes?

Correct AnswerverifiedShow Answer

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

When externalities are present in a market,the well-being of market participants

Correct AnswerverifiedShow Answer

Dioxin emission that results from the production of paper is a good example of a negative externality because

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.What is the socially-optimal level of output in this market?

Correct AnswerverifiedShow Answer

According to recent research,the gas tax in the United States is lower than the optimal level.

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

Correct Answer
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The supply...
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