Question 1

Figure 10-4 
-Refer to Figure 10-4. The socially optimal quantity would be

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) None of the above
F) B) and D)

Question 2

When negative externalities are present in a market,

Accepted Answer

A)   producers will be affected but consumers will not.
B)   producers will supply too much of the product.
C)   demand will be too high.
D)   the market will still maximize total benefits.E) A) and B)
F) C) and D)

Question 3

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Accepted Answer

A)   Karen should pay Danny $400 so that she may keep her cat.
B)   Karen should pay Danny $350 for tissues and allergy medication.
C)   Danny should pay Karen $325 to give away her cat.
D)   Danny should move.E) All of the above
F) A) and C)

Question 4

Figure 10-9 
-Refer to Figure 10-9. Which graph represents a market with a positive externality?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) 
D)   Both (b)  and (c)  are correct.E) A) and B)
F) A) and C)

Question 5

When technology spillover occurs,

Accepted Answer

A)   it is the government's responsibility to own firms that are engaged in high-tech research.
B)   a firm's research yields technological knowledge that can then be used by society as a whole.
C)   those firms engaged in technology research should be taxed by the government.
D)   firms invest in the latest production technology and the cost of that technology "spills over" to the prices consumers must pay for the product.E) A) and D)
F) None of the above

Question 6

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

Question 7

Figure 10-12 
-Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Accepted Answer

A)   private value.
B)   external value.
C)   private cost.
D)   external cost.E) B) and C)
F) All of the above

Question 8

Table 10-3 
-Refer to Table 10-3. What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Accepted Answer

A)   $2
B)   $3
C)   $5
D)   $10E) A) and B)
F) A) and D)

Question 9

An externality is

Accepted Answer

A)   the costs that parties incur in the process of agreeing and following through on a bargain.
B)   the uncompensated impact of one person's actions on the well-being of a bystander.
C)   the proposition that private parties can bargain without cost over the allocation of resources.
D)   a market equilibrium tax.E) A) and B)
F) C) and D)

Question 10

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. What is the social value of the 500th fire extinguisher?

Accepted Answer

The social value is equal to t...

Question 11

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Accepted Answer

A)   People face trade-offs.
B)   People respond to incentives.
C)   Markets are usually a good way to organize economic activity.
D)   The cost of something is what you give up to get it.E) B) and D)
F) B) and C)

Question 12

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Accepted Answer

The supply...

Question 13

Figure 10-11 
-Refer to Figure 10-11. The socially optimal quantity of output is

Accepted Answer

A)   240 units, since the value to the buyer of the 240th unit is equal to the cost incurred by the seller of the 240th unit.
B)   240 units, since the value to society of the 240th unit is equal to the cost incurred by the seller of the 240th unit.
C)   420 units, since the value to the buyer of the 420th unit is equal to the cost incurred by the seller of the 420th unit.
D)   420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit.E) B) and D)
F) A) and B)

Question 14

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Accepted Answer

Since Liz's cost exceeds Tyler's benefit...

Question 15

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

Question 16

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) None of the above
F) All of the above

Question 17

Honey producers provide a positive externality to orchards because

Accepted Answer

A)   the honey producers get more honey.
B)   the orchard owner frequently gets stung by the honey producer's bees.
C)   the orchard owner does not have to purchase bees to pollinate his flowers.
D)   the honey producers have to rent access to the orchard grounds.E) All of the above
F) None of the above

Question 18

Scenario 10-3  Suppose the equation for the demand curve in a market is
where is the quantity demanded and is the price.    Also, suppose the equation for the supply curve in the same market is ,
where is the quantity supplied. 
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What is the equation of the social-cost curve?

Accepted Answer

The equati...

Question 19

If a sawmill creates too much noise for local residents,

Accepted Answer

A)   noise restrictions will force residents to move out of the area.
B)   a sense of social responsibility will cause owners of the mill to reduce noise levels.
C)   the government can raise economic well-being through noise-control regulations.
D)   the government should avoid intervening because the market will allocate resources efficiently.E) B) and C)
F) A) and C)

Question 20

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A)   social cost
B)   social value
C)   private cost
D)   private valueE) All of the above
F) A) and C)

Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a positive externality?

Correct Answer
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Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Correct Answer
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Since Liz's cost exceeds Tyler's benefit...
View Answer

If a sawmill creates too much noise for local residents,

Correct Answer
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Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Correct Answer
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The supply...
View Answer

Correct Answer
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The equati...
View Answer

When technology spillover occurs,

Correct Answer
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An externality is

Correct Answer
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Figure 10-4 -Refer to Figure 10-4. The socially optimal quantity would be

Correct Answer
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Correct Answer
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The social value is equal to t...
View Answer

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

Correct Answer
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Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Correct Answer
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Figure 10-11 -Refer to Figure 10-11. The socially optimal quantity of output is

Correct Answer
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Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Correct Answer
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The goal of industrial policy should be that

Correct Answer
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With pollution permits, the supply curve for pollution rights is

Correct Answer
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Honey producers provide a positive externality to orchards because

Correct Answer
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Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct Answer
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When negative externalities are present in a market,

Correct Answer
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Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct Answer
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Table 10-3 -Refer to Table 10-3. What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Correct Answer
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Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a positive externality?

Correct AnswerverifiedShow Answer

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Correct AnswerverifiedSince Liz's cost exceeds Tyler's benefit...View AnswerShow Answer

If a sawmill creates too much noise for local residents,

Correct AnswerverifiedShow Answer

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Correct AnswerverifiedThe supply...View AnswerShow Answer

Correct AnswerverifiedThe equati...View AnswerShow Answer

When technology spillover occurs,

Correct AnswerverifiedShow Answer

An externality is

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. The socially optimal quantity would be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe social value is equal to t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Correct AnswerverifiedShow Answer

The goal of industrial policy should be that

Correct AnswerverifiedShow Answer

With pollution permits, the supply curve for pollution rights is

Correct AnswerverifiedShow Answer

Honey producers provide a positive externality to orchards because

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct AnswerverifiedShow Answer

When negative externalities are present in a market,

Correct AnswerverifiedShow Answer

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3. What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Correct AnswerverifiedShow Answer

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Since Liz's cost exceeds Tyler's benefit...
View Answer

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The supply...
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The equati...
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The social value is equal to t...
View Answer

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