Question 1

Which of the following statements is correct about a market in which pollution is emitted?

Accepted Answer

A)   Both corrective taxes and pollution permits move the market toward the social optimum.
B)   Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum.
C)   Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum.
D)   Neither corrective taxes nor pollution permits move the market toward the social optimum.E) A) and C)
F) B) and C)

Question 2

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Accepted Answer

A)   Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15) .
B)   Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.
C)   Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section.
D)   Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.E) A) and C)
F) B) and D)

Question 3

An externality is the impact of

Accepted Answer

A)   society's decisions on the well-being of society.
B)   a person's actions on that person's well-being.
C)   one person's actions on the well-being of a bystander.
D)   society's decisions on the poorest person in the society.E) A) and B)
F) All of the above

Question 4

Corrective taxes cause deadweight losses, reducing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 5

Figure 10-8 
-Refer to Figure 10-8. What is the equilibrium price in this market?

Accepted Answer

A)   $8
B)   More than $10
C)   Between $8 and $10
D)   $10E) A) and B)
F) A) and C)

Question 6

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

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) A) and D)

Question 7

Which of the following illustrates the concept of a negative externality?

Accepted Answer

A)   A college professor plays a vigorous game of racquet ball with the racquet he recently purchased.
B)  m.
C)   A flood wipes out a farmer's corn crop.
D)   A college student plays loud music on his new stereo system at 2:00
D)   A janitor eats a hamburger during his lunch break.E) A) and B)
F) A) and D)

Question 8

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)   Social value exceeds private value, and market quantity exceeds the socially optimal quantity.
B)   Social value is less than private value, and market quantity exceeds the socially optimal quantity.
C)   Social value exceeds private value, and market quantity is less than the socially optimal quantity.
D)   Social value seldom exceeds private value; therefore, social quantity is less than private quantity.E) A) and B)
F) A) and C)

Question 9

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged.E) None of the above
F) B) and C)

Question 10

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Accepted Answer

A Pigovian...

Question 11

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0fire extinguisher entails the following:
-a private cost of $10;
-an external cost of $0;
-a private value of $9;
-an external benefit of $3.
-
-Refer to Scenario 10-4. Is the socially-optimal quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^t^hfire extinguisher, ...

Question 12

Research into new technologies conveys neither negative externalities nor positive externalities.

Accepted Answer

A) True 
 B)False

Question 13

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Accepted Answer

A)   social value = private value = private cost 
B)   social cost > private value = social value > private cost.
C)   social cost = private cost = private value 
D)   social value = private cost = social cost > private value.E) None of the above
F) B) and C)

Question 14

Table 10-4
 
-Refer to Table 10-4. The market equilibrium quantity of output is

Accepted Answer

A)   3 units.
B)   4 units.
C)   5 units.
D)   6 units.E) B) and C)
F) A) and D)

Question 15

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 18

According to the Coase theorem, private parties can solve the problem of externalities if

Accepted Answer

A)   the cost of bargaining is small.
B)   the initial distribution of legal rights favors the person being adversely affected by the externality.
C)   the number of parties involved is sufficiently large.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 19

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Accepted Answer

A)   the supply curve would adequately reflect the marginal social cost of production.
B)   consumers will be required to pay a higher price for steel than they would have if the externality were internalized.
C)   the market equilibrium quantity will not be the socially optimal quantity.
D)   producers will produce less steel than they otherwise would if the externality were internalized.E) B) and C)
F) A) and B)

Exam 10: Externalities

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Correct Answer
verified

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Correct Answer
verified
A Pigovian...
View Answer

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Correct Answer
verified

Which of the following illustrates the concept of a negative externality?

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

Correct Answer
verified

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Correct Answer
verified

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

Correct Answer
verified

According to the Coase theorem, private parties can solve the problem of externalities if

Correct Answer
verified

Research into new technologies conveys neither negative externalities nor positive externalities.

Correct Answer
verified

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Correct Answer
verified

Which of the following statements is correct about a market in which pollution is emitted?

Correct Answer
verified

Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

Correct Answer
verified

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Correct Answer
verified

An externality is the impact of

Correct Answer
verified

Corrective taxes cause deadweight losses, reducing economic efficiency.

Correct Answer
verified

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Correct Answer
verified

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct Answer
verified

Which of the following is true of markets characterized by positive externalities?

Correct Answer
verified

Correct Answer
verified
For the 500^t^hfire extinguisher, ...
View Answer

Correct Answer
verified

Exam 10: Externalities

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Correct AnswerverifiedShow Answer

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Correct AnswerverifiedA Pigovian...View AnswerShow Answer

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Correct AnswerverifiedShow Answer

Which of the following illustrates the concept of a negative externality?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the Coase theorem, private parties can solve the problem of externalities if

Correct AnswerverifiedShow Answer

Research into new technologies conveys neither negative externalities nor positive externalities.

Correct AnswerverifiedShow Answer

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Correct AnswerverifiedShow Answer

Which of the following statements is correct about a market in which pollution is emitted?

Correct AnswerverifiedShow Answer

Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

Correct AnswerverifiedShow Answer

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Correct AnswerverifiedShow Answer

An externality is the impact of

Correct AnswerverifiedShow Answer

Corrective taxes cause deadweight losses, reducing economic efficiency.

Correct AnswerverifiedShow Answer

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Correct AnswerverifiedShow Answer

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct AnswerverifiedShow Answer

Which of the following is true of markets characterized by positive externalities?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor the 500th fire extinguisher, ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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A Pigovian...
View Answer

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verified
For the 500^t^hfire extinguisher, ...
View Answer

Correct Answer
verified