Question 1

Figure 10-4  
-Refer to Figure 10-4.Externalities in this market could be internalized if

Accepted Answer

A)  there were a tax on the product. 
B)  there were a subsidy for the product. 
C)  production were stopped. 
D)  the Coase theorem failed. 
A)  there were a tax on the product. 
B)  there were a subsidy for the product. 
C)  production were stopped. 
D)  the Coase theorem failed. A

Question 2

The best remedy for market failure is often

Accepted Answer

A)  a market-based solution. 
B)  shutdown of the market. 
C)  no government intervention. 
D)  externalizing the externalities. 
A)  a market-based solution. 
B)  shutdown of the market. 
C)  no government intervention. 
D)  externalizing the externalities. A

Question 3

The concept of external cost is associated with a negative externality,but not with a positive externality.

Accepted Answer

A) True 
 B)False  True

Question 4

Two firms,A and B,each currently emit 100 tons of chemicals into the air.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air.The government gives each firm 40 pollution permits,which it can either use or sell to the other firm.It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air,and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air.After the two firms buy or sell pollution permits from each other,we would expect that Firm A will emit

Accepted Answer

A)  20 fewer tons of pollution into the air,and Firm B will emit 100 fewer tons of pollution into the air. 
B)  100 fewer tons of pollution into the air,and Firm B will emit 20 fewer tons of pollution into the air. 
C)  50 fewer tons of pollution into the air,and Firm B will emit 50 fewer tons of pollution into the air. 
D)  20 more tons of pollution into the air,and Firm B will emit 100 fewer tons of pollution into the air. 
A)  20 fewer tons of pollution into the air,and Firm B will emit 100 fewer tons of pollution into the air. 
B)  100 fewer tons of pollution into the air,and Firm B will emit 20 fewer tons of pollution into the air. 
C)  50 fewer tons of pollution into the air,and Firm B will emit 50 fewer tons of pollution into the air. 
D)  20 more tons of pollution into the air,and Firm B will emit 100 fewer tons of pollution into the air.

Question 5

Which of the following is an example of an externality?

Accepted Answer

A)  cigarette smoke that permeates an entire restaurant 
B)  a flu shot that prevents a student from transmitting the virus to her roommate 
C)  a beautiful flower garden outside of the local post office 
D)  All of the above are correct. 
A)  cigarette smoke that permeates an entire restaurant 
B)  a flu shot that prevents a student from transmitting the virus to her roommate 
C)  a beautiful flower garden outside of the local post office 
D)  All of the above are correct.

Question 6

Table 10-6
The following table shows the total costs for each of four firms (A,B,C,and D)to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $46,and for Firm A to eliminate two units of pollution,it would cost a total of $103.
  
-Refer to Table 10-6.Suppose the government wanted to reduce pollution from 16 units to exactly 8 units.Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $58 
B)  $65 
C)  $78 
D)  $95 
A)  $58 
B)  $65 
C)  $78 
D)  $95

Question 7

A positive externality

Accepted Answer

A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander. 
A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander.

Question 8

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Accepted Answer

@#IMG-DLM& Yes,these two quantities coul

Question 9

Table 10-3
  
-Refer to Table 10-3.The socially optimal quantity of output is

Accepted Answer

A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units. 
A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units.

Question 10

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A)  increase private profit at the expense of consumers. 
B)  internalize some forms of positive externalities. 
C)  reduce the impact of government regulations on their business. 
D)  increase the private marginal cost of production. 
A)  increase private profit at the expense of consumers. 
B)  internalize some forms of positive externalities. 
C)  reduce the impact of government regulations on their business. 
D)  increase the private marginal cost of production.

Question 11

When he was a candidate for president,Barack Obama proposed a cap-and-trade system for carbon.

Accepted Answer

A) True 
 B)False

Question 12

The tax on gasoline is an example of

Accepted Answer

A)  a consumption tax. 
B)  a corrective tax. 
C)  an income tax. 
D)  a command-and-control policy. 
A)  a consumption tax. 
B)  a corrective tax. 
C)  an income tax. 
D)  a command-and-control policy.

Question 13

Why can't private individuals always internalize an externality without the help of government?

Accepted Answer

A)  Legal restrictions prevent side payments between individuals. 
B)  Transactions costs may be too high. 
C)  Side payments between individuals are inefficient. 
D)  Side payments between individuals are insufficient. 
A)  Legal restrictions prevent side payments between individuals. 
B)  Transactions costs may be too high. 
C)  Side payments between individuals are inefficient. 
D)  Side payments between individuals are insufficient.

Question 14

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 15

If only a few people are affected by an externality,then it is likely that

Accepted Answer

A)  corrective taxes will provide the most efficient solution to the externality. 
B)  command-and-control regulation will provide the most efficient solution to the externality. 
C)  a private solution to the inefficiency will occur. 
D)  a private solution will be very difficult to negotiate. 
A)  corrective taxes will provide the most efficient solution to the externality. 
B)  command-and-control regulation will provide the most efficient solution to the externality. 
C)  a private solution to the inefficiency will occur. 
D)  a private solution will be very difficult to negotiate.

Question 16

Figure 10-12  
-Refer to Figure 10-12.Suppose,on the figure,Q represents the quantity of education and P represents the price of education.Then the quantity   represents

Accepted Answer

A)  an inefficiency. 
B)  the extent of the negative externality that pertains to the market for education. 
C)  the amount of the tax that would be required to correct the negative externality that pertains to the market for education. 
D)  the amount of the subsidy that would be required to correct the positive externality that pertains to the market for education. 
A)  an inefficiency. 
B)  the extent of the negative externality that pertains to the market for education. 
C)  the amount of the tax that would be required to correct the negative externality that pertains to the market for education. 
D)  the amount of the subsidy that would be required to correct the positive externality that pertains to the market for education.

Question 17

Figure 10-16  
-Refer to Figure 10-16.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.The equilibrium number of permits is

Accepted Answer

A)  50 
B)  100 
C)  1,000 
D)  2,000 
A)  50 
B)  100 
C)  1,000 
D)  2,000

Question 18

Suppose that elementary education creates a positive externality.If the government subsidizes education by an amount equal to the per-unit externality it creates,then

Accepted Answer

A)  the equilibrium quantity of education will equal the socially optimal quantity of education. 
B)  the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C)  the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D)  There is not enough information to answer the question. 
A)  the equilibrium quantity of education will equal the socially optimal quantity of education. 
B)  the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C)  the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D)  There is not enough information to answer the question.

Question 19

Suppose that alcohol consumption creates a negative externality.What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Accepted Answer

A)  impose a tax on alcohol that is equal to the per-unit externality 
B)  offer a subsidy on alcohol that is equal to the per-unit externality 
C)  impose a regulation limiting the amount of alcohol that each consumer can purchase 
D)  nothing 
A)  impose a tax on alcohol that is equal to the per-unit externality 
B)  offer a subsidy on alcohol that is equal to the per-unit externality 
C)  impose a regulation limiting the amount of alcohol that each consumer can purchase 
D)  nothing

Question 20

When the production of a good results in a positive externality,the social value curve is

Accepted Answer

A)  below the demand curve,indicating that the total value to society is less than the private benefit. 
B)  above the demand curve,indicating that the total value to society is greater than the private benefit. 
C)  identical to the demand curve,indicating that the total cost to society is the equal to the private benefit. 
D)  above the supply curve,indicating that the total cost to society exceeds the private cost. 
A)  below the demand curve,indicating that the total value to society is less than the private benefit. 
B)  above the demand curve,indicating that the total value to society is greater than the private benefit. 
C)  identical to the demand curve,indicating that the total cost to society is the equal to the private benefit. 
D)  above the supply curve,indicating that the total cost to society exceeds the private cost.

Exam 10: Externalities

Figure 10-4 -Refer to Figure 10-4.Externalities in this market could be internalized if

The best remedy for market failure is often

The concept of external cost is associated with a negative externality,but not with a positive externality.

Which of the following is an example of an externality?

A positive externality

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Table 10-3 -Refer to Table 10-3.The socially optimal quantity of output is

Firms that are involved in more than one type of business could be evidence of an attempt to

When he was a candidate for president,Barack Obama proposed a cap-and-trade system for carbon.

The tax on gasoline is an example of

Why can't private individuals always internalize an externality without the help of government?

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.

If only a few people are affected by an externality,then it is likely that

Figure 10-12 -Refer to Figure 10-12.Suppose,on the figure,Q represents the quantity of education and P represents the price of education.Then the quantity represents

Figure 10-16 -Refer to Figure 10-16.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.The equilibrium number of permits is

Suppose that elementary education creates a positive externality.If the government subsidizes education by an amount equal to the per-unit externality it creates,then

Suppose that alcohol consumption creates a negative externality.What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

When the production of a good results in a positive externality,the social value curve is

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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