Question 1

Which of the following statements is correct?

Accepted Answer

A)   Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.
B)   Corrective taxes distort economic incentives.
C)   Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate.
D)   Both a and b are correct.E) B) and C)
F) A) and D)

Question 2

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 3

When externalities exist, buyers and sellers

Accepted Answer

A)   neglect the external effects of their actions, but the market equilibrium is still efficient.
B)   do not neglect the external effects of their actions, and the market equilibrium is efficient.
C)   neglect the external effects of their actions, and the market equilibrium is not efficient.
D)   do not neglect the external effects of their actions, and the market equilibrium is not efficient.E) A) and B)
F) None of the above

Question 4

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

Accepted Answer

A)   making it illegal to "disturb the peace."
B)   having a well-funded animal control department.
C)   subsidizing local animal shelters.
D)   encouraging people to adopt cats.E) All of the above
F) C) and D)

Question 5

Externalities can be corrected by each of the following except

Accepted Answer

A)   self-interest.
B)   moral codes and social sanctions.
C)   charity.
D)   normal market adjustments.E) A) and C)
F) None of the above

Question 6

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 7

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go...

Question 8

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Accepted Answer

A)   Despite the increase in the carbon tax, emissions of greenhouse gases in British Columbia have continued to increase at a rapid rate.
B)   Along with the increase in the carbon tax, British Columbia has decreased income-tax rates on individuals and corporations.
C)   Few, if any, economists favor carbon taxes such as the one that British Columbia has imposed.
D)   All of the above are correct.E) A) and C)
F) A) and D)

Question 9

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

Accepted Answer

When there is a large number o...

Question 10

Figure 10-11 
-Refer to Figure 10-11. The graph 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 graph.E) B) and C)
F) A) and D)

Question 11

Which of the following statements is not correct?

Accepted Answer

A)   Patents help internalize the externalities associated with technological advances.
B)   Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution.
C)   Allowing firms to trade pollution permits will lower the total cost of reducing pollution.
D)   A big impediment to implementing the Coase theorem in many cases is high transactions costs.E) B) and C)
F) A) and C)

Question 12

Figure 10-10 
-Refer to Figure 10-10. The socially optimal quantity of output is

Accepted Answer

A)   120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit.
B)   120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
C)   160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
D)   160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.E) A) and B)
F) None of the above

Question 13

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

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) A) and D)

Question 14

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

Question 15

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 16

Briefly explain how research into new technologies gives rise to a positive externality.

Accepted Answer

Research into new technologies...

Question 17

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Accepted Answer

A)   regulation and corrective taxes
B)   regulation and tradable pollution permits
C)   corrective taxes and tradable pollution permits
D)   All of these policies produce the same economic effects.E) B) and C)
F) A) and D)

Question 20

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

Accepted Answer

A)   less than the social cost of producing it.
B)   less than the private cost of producing it.
C)   more than the social cost of producing it.
D)   more than the private cost of producing it.E) All of the above
F) B) and C)

Exam 10: Externalities

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

Correct AnswerverifiedWhen there is a large number o...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Briefly explain how research into new technologies gives rise to a positive externality.

Correct AnswerverifiedResearch into new technologies...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

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

Correct AnswerverifiedShow Answer

Externalities can be corrected by each of the following except

Correct AnswerverifiedShow Answer

Firms that can reduce pollution easily would be willing to sell their 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

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

When externalities exist, buyers and sellers

Correct AnswerverifiedShow Answer

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Correct AnswerverifiedThe production of go...View AnswerShow Answer

Which of the following statements is not correct?

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

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

Correct AnswerverifiedShow Answer

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. The graph represents a market in which

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
When there is a large number o...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Research into new technologies...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The term i...
View Answer

Correct Answer
verified
The supply...
View Answer

Correct Answer
verified

Correct Answer
verified
The production of go...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified