Question 1

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Accepted Answer

A) True 
 B)False

Question 2

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)   A flood wipes out a farmer's corn crop.
C)   A college student plays loud music on his new stereo system at 2:00 A.m.
D)   A janitor eats a hamburger during his lunch break.E) B) and C)
F) C) and D)

Question 3

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 D)
F) A) and C)

Question 4

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar- beet-processing firms is an example of

Accepted Answer

A)   a market-based policy.
B)   a command-and-control policy.
C)   tradable pollution permits.
D)   transaction costs.E) B) and C)
F) A) and C)

Question 5

Figure 10-10 
-Refer to Figure 10-10. Which of the following statements is correct?

Accepted Answer

A)   The private cost of producing the 160th unit of output is $16.
B)   The social cost of producing the 160th unit of output is $22.
C)   The external cost of producing the 160th unit of output is $6.
D)   All of the above are correct.E) B) and D)
F) A) and C)

Question 6

Suppose the government issues a limited number of pollution permits in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Accepted Answer

With pollution permi...

Question 7

Figure 10-14 
-Refer to Figure 10-14. Which of the following statements is correct?

Accepted Answer

A)   To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0.
B)   To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0.
C)   To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1.
D)   There is no externality in this market.E) B) and D)
F) A) and B)

Question 8

When one firm sells its pollution permit to another firm,

Accepted Answer

A)   both firms benefit.
B)   the total amount of pollution remains the same.
C)   the total amount of pollution decreases.
D)   Both a and b are correct.E) B) and C)
F) A) and D)

Question 9

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Accepted Answer

A)   $4.
B)   $8.
C)   $12.
D)   $16.E) A) and D)
F) B) and C)

Question 10

If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

Accepted Answer

A)   the market for good x is characterized by an externality, but we cannot determine whether the externality is positive or negative from this fact alone.
B)   the market for good x is characterized by a positive externality.
C)   the market for good x is characterized by a negative externality.
D)   the demand curve for good x fails to reflect the value to society of that good.E) A) and B)
F) A) and D)

Question 11

Externalities tend to cause markets to be

Accepted Answer

A)   inefficient.
B)   unequal.
C)   unnecessary.
D)   overwhelmed.E) A) and B)
F) None of the above

Question 12

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

Question 13

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Accepted Answer

A) True 
 B)False

Question 14

Figure 10-12 
-Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Accepted Answer

A)   fire extinguishers.
B)   immunizations such as flu shots.
C)   education.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 15

Figure 10-19 
-Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Accepted Answer

A)   fewer than 58
B)   58
C)   73
D)   94E) A) and B)
F) C) and D)

Question 16

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Accepted Answer

A)   give sellers the incentive to account for the external effects of their actions.
B)   increase demand.
C)   increase the amount of the commodity exchanged in market equilibrium.
D)   restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.E) A) and B)
F) B) and D)

Question 17

Which of the following statements is correct?

Accepted Answer

A)   Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced.
B)   Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.
C)   Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced.
D)   Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.E) A) and D)
F) B) and C)

Question 18

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Accepted Answer

With a corrective ta...

Question 19

A negative externality

Accepted Answer

A)   is an adverse impact on a bystander.
B)   causes the product in a market to be under-produced.
C)   is an adverse impact on market participants.
D)   is present in markets where the good or service does not have any impact on bystanders.E) A) and D)
F) B) and C)

Question 20

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)   Each party involved holds out for a better deal.
B)   The externality is large.
C)   Only problems with a sufficiently large number of parties can be solved.
D)   There is a lack of government intervention.E) B) and D)
F) C) and D)

Exam 10: Externalities

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Correct Answer
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Figure 10-14 -Refer to Figure 10-14. Which of the following statements is correct?

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Figure 10-10 -Refer to Figure 10-10. Which of the following statements is correct?

Correct Answer
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If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

Correct Answer
verified

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Correct Answer
verified

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

Correct Answer
verified

Suppose the government issues a limited number of pollution permits in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Correct Answer
verified
With pollution permi...
View Answer

Correct Answer
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Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Correct Answer
verified

A negative externality

Correct Answer
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Externalities tend to cause markets to be

Correct Answer
verified

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar- beet-processing firms is an example of

Correct Answer
verified

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Correct Answer
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Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Correct Answer
verified
With a corrective ta...
View Answer

Correct Answer
verified

Which of the following is a problem that keeps people from privately solving externality problems?

Correct Answer
verified

When one firm sells its pollution permit to another firm,

Correct Answer
verified

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Correct Answer
verified

Exam 10: Externalities

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Correct AnswerverifiedShow Answer

Figure 10-14 -Refer to Figure 10-14. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

Correct AnswerverifiedShow Answer

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the government issues a limited number of pollution permits in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Correct AnswerverifiedWith pollution permi...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Correct AnswerverifiedShow Answer

A negative externality

Correct AnswerverifiedShow Answer

Externalities tend to cause markets to be

Correct AnswerverifiedShow Answer

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar- beet-processing firms is an example of

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Correct AnswerverifiedShow Answer

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Correct AnswerverifiedWith a corrective ta...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following is a problem that keeps people from privately solving externality problems?

Correct AnswerverifiedShow Answer

When one firm sells its pollution permit to another firm,

Correct AnswerverifiedShow Answer

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Correct AnswerverifiedShow Answer

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With pollution permi...
View Answer

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With a corrective ta...
View Answer

Correct Answer
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