Question 1

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500th fire 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. In order to maximize the total benefit of fire extinguishers to society as a whole, should the number of fire extinguishers produced be less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500th fire extinguisher, the soc...

Question 2

A negative externality will cause a private market to produce

Accepted Answer

A)   less than is socially desirable.
B)   more than is socially desirable.
C)   exactly the quantity that is socially desirable.
D)   less than the same market would produce in the presence of a positive externality.E) A) and C)
F) A) and B)

Question 3

Which of the following require firms to pay to pollute? i)  corrective taxes
Ii)  tradable pollution permits
Iii)  pollution regulations

Accepted Answer

A)   i)  only
B)   both i)  and ii) 
C)   iii)  only
D)   both ii)  and iii) E) A) and B)
F) None of the above

Question 4

Regulations to reduce pollution

Accepted Answer

A)   cause pollution levels to drop below the regulated amount.
B)   are a more costly solution to society than a corrective tax.
C)   allow firms with the lowest cost to reduce pollution by more than those with highest costs.
D)   are a better solution for the environment than a corrective tax.E) B) and C)
F) A) and C)

Question 5

The goal of industrial policy should be that

Accepted Answer

A)   industries yielding the largest positive externalities should receive the biggest subsidies.
B)   any industry that produces negative externalities should be heavily taxed.
C)   any production process that produces negative externalities should be shut down.
D)   all industries that produce positive externalities should be equally subsidized.E) C) and D)
F) A) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A)   assisted technology.
B)   intervention policy.
C)   industrial technology assistance.
D)   industrial policy.E) A) and B)
F) B) and C)

Question 8

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) B) and D)

Question 9

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

Accepted Answer

A) True 
 B)False

Question 10

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 11

Figure 10-19 
-Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: 1)  Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and 2)  private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by

Accepted Answer

A)   $28.00.
B)   $31.40.
C)   $33.60.
D)   $36.00.E) A) and C)
F) None of the above

Question 12

Corrective taxes cause deadweight losses, reducing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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

Question 14

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

Question 15

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Accepted Answer

A)   alleviating the negative externalities that are associated with charitable giving.
B)   imposing a negative externality on those who do not pay income taxes.
C)   encouraging a private solution to a positive-externality problem.
D)   encouraging a private solution to a negative-externality problem.E) A) and D)
F) A) and C)

Question 16

Ty lives in an apartment building and gets a benefit from playing his stereo. Olivia, who lives next door to Ty and often loses sleep due to the loud music coming from Ty's stereo, bears a cost from the noise. Olivia is threatening to call the police to force Ty to turn down his stereo. Under which of the following conditions would Ty be able to offer Olivia some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

Accepted Answer

A)   The cost of the noise to Olivia must exceed the benefit of the music to Ty.
B)   The benefit of the music to Ty must exceed the cost of the noise to Olivia.
C)   The Coase Theorem guarantees that Olivia and Ty will always be able to come to an agreement that keeps Olivia from calling the police regardless of the individual benefits and costs.
D)   The cost of the noise to Olivia must exceed the benefit of the music to Ty by an amount greater than the transaction costs associated with the agreement.E) None of the above
F) A) and C)

Question 17

One drawback to industrial policy is that

Accepted Answer

A)   technology spillovers are too expensive to control.
B)   measuring the size of spillovers from different markets is difficult.
C)   spillovers often occur in industries that produce undesirable products for society.
D)   positive side effects are often outweighed by negative side effects.E) None of the above
F) B) and D)

Question 18

Education yields positive externalities. For example, a more educated population

Accepted Answer

A)   may increase the pace of technological advances, leading to higher productivity and wages for everyone.
B)   leads to more informed voters, resulting in better government for everyone.
C)   tends to result in lower crime rates.
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 19

With pollution permits, the supply curve for pollution rights is

Accepted Answer

A)   perfectly elastic.
B)   perfectly inelastic.
C)   upward sloping.
D)   downward sloping.E) A) and D)
F) B) and C)

Question 20

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Accepted Answer

When the governmental authority e.g., EP...

Exam 10: Externalities

Education yields positive externalities. For example, a more educated population

Correct Answer
verified

Corrective taxes cause deadweight losses, reducing economic efficiency.

Correct Answer
verified

Markets sometimes fail to allocate resources efficiently.

Correct Answer
verified

With pollution permits, the supply curve for pollution rights is

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

Correct Answer
verified

Which of the following require firms to pay to pollute? i) corrective taxes Ii) tradable pollution permits Iii) pollution regulations

Correct Answer
verified

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Correct Answer
verified

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

Correct Answer
verified

One drawback to industrial policy is that

Correct Answer
verified

Regulations to reduce pollution

Correct Answer
verified

Correct Answer
verified

The goal of industrial policy should be that

Correct Answer
verified

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Correct Answer
verified
When the governmental authority e.g., EP...
View Answer

Correct Answer
verified

Government intervention that aims to promote technology-enhancing industries is called

Correct Answer
verified

Correct Answer
verified
For the 500th fire extinguisher, the soc...
View Answer

Correct Answer
verified

A negative externality will cause a private market to produce

Correct Answer
verified

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

Correct Answer
verified

Exam 10: Externalities

Education yields positive externalities. For example, a more educated population

Correct AnswerverifiedShow Answer

Corrective taxes cause deadweight losses, reducing economic efficiency.

Correct AnswerverifiedShow Answer

Markets sometimes fail to allocate resources efficiently.

Correct AnswerverifiedShow Answer

With pollution permits, the supply curve for pollution rights is

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

Correct AnswerverifiedShow Answer

Which of the following require firms to pay to pollute? i) corrective taxes Ii) tradable pollution permits Iii) pollution regulations

Correct AnswerverifiedShow Answer

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Correct AnswerverifiedShow Answer

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

Correct AnswerverifiedShow Answer

One drawback to industrial policy is that

Correct AnswerverifiedShow Answer

Regulations to reduce pollution

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The goal of industrial policy should be that

Correct AnswerverifiedShow Answer

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Correct AnswerverifiedWhen the governmental authority e.g., EP...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Government intervention that aims to promote technology-enhancing industries is called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A negative externality will cause a private market to produce

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When the governmental authority e.g., EP...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
For the 500th fire extinguisher, the soc...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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