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Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

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blured image Yes, these two quantities cou...

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

A) True
B) False

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If education produces positive externalities and the government does not intervene in the market, we would expect


A) the equilibrium price to be higher than the optimal price.
B) the equilibrium quantity to be lower than the optimal level.
C) the equilibrium quantity to be higher than the optimal level.
D) both a and b are correct

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

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Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

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blured image When a positive externality exists, the...

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Figure 10-4 Figure 10-4 -Refer to Figure 10-4. The socially optimal quantity would be A) Q<sub>1</sub>. B) Q<sub>2</sub>. C) Q<sub>3</sub>. D) Q<sub>4</sub>. -Refer to Figure 10-4. The socially optimal quantity would be


A) Q1.
B) Q2.
C) Q3.
D) Q4.

E) None of the above
F) A) and B)

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Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?


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

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Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

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The new supply curve...

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Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be __________ , regardless of the initial allocation of permits.

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Figure 10-12 Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) ) -Refer to Figure 10-12. An alternative label for the quantity Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) ) would be


A) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)
B) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)
C) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)
D) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)

E) A) and C)
F) All of the above

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That some firms are engaged in more than one type of business is explained, in some cases, by


A) moral injunctions such as the Golden Rule.
B) the existence of charitable organizations.
C) government regulations that discourage the internalization of externalities.
D) the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties.

E) All of the above
F) A) and C)

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A corrective tax is also known as:


A) a command-and-control regulation.
B) a Coase tax.
C) a Pigovian tax.
D) a Smithian tax.

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

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The Coase theorem states that


A) taxes are an efficient way for governments to remedy negative externalities.
B) subsidies are an efficient way for governments to remedy positive externalities.
C) industrial policies encourage technology spillovers.
D) in the absence of transaction costs, private parties can solve the problem of externalities on their own.

E) B) and D)
F) B) and C)

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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. 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. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome? A) $2 B) $3 C) $9 D) $10 -Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?


A) $2
B) $3
C) $9
D) $10

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

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Which of the following statements about the Coase theorem is true?


A) Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources.
B) The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources.
C) The Coase theorem applies to negative externalities, but not to positive externalities.
D) All of the above are correct.

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

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Which of the following statements is not correct?


A) A patent is a way for the government to encourage the production of a good with technology spillovers.
B) A tax is a way for the government to reduce the production of a good with a negative externality.
C) A tax that accurately reflects social costs produces the socially optimal outcome.
D) Government policies cannot improve upon private market outcomes.

E) All of the above
F) B) and C)

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Figure 10-9 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, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point A) Q2 to point Q3. B) Q3 to point Q2. C) Q4 to point Q5. D) Q5 to point Q4. 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, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point A) Q2 to point Q3. B) Q3 to point Q2. C) Q4 to point Q5. D) Q5 to point Q4. 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, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point A) Q2 to point Q3. B) Q3 to point Q2. C) Q4 to point Q5. D) Q5 to point Q4. -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, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point


A) Q2 to point Q3.
B) Q3 to point Q2.
C) Q4 to point Q5.
D) Q5 to point Q4.

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

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The impact of one person's actions on the well-being of a bystander is called


A) an economic dilemma.
B) deadweight loss.
C) a multi-party problem.
D) an externality.

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

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In some circumstances, selling pollution permits may be better than levying a corrective tax.

A) True
B) False

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A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

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Most econo...

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When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

A) True
B) False

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