Question 1

When a particular negative externality affects a very large number of people,it is likely that

Accepted Answer

A)  government will not find it worthwhile to impose a corrective tax. 
B)  private solutions to the problem will dominate any attempt by government to alleviate the problem. 
C)  the solution to externalities suggested by the Coase theorem will work very well. 
D)  the solution to externalities suggested by the Coase theorem will not work. 
A)  government will not find it worthwhile to impose a corrective tax. 
B)  private solutions to the problem will dominate any attempt by government to alleviate the problem. 
C)  the solution to externalities suggested by the Coase theorem will work very well. 
D)  the solution to externalities suggested by the Coase theorem will not work.

Question 2

When a negative externality exists in a market,the cost to producers

Accepted Answer

A)  is greater than the cost to society. 
B)  will be the same as the cost to society. 
C)  will be less than the cost to society. 
D)  will differ from the cost to society,regardless of whether an externality is present. 
A)  is greater than the cost to society. 
B)  will be the same as the cost to society. 
C)  will be less than the cost to society. 
D)  will differ from the cost to society,regardless of whether an externality is present.

Question 3

Suppose a new market for tradable pollution permits is created.As long as there is a free market for the pollution rights,the final allocation will be ,regardless of the initial allocation of permits.

Accepted Answer

The answer of Suppose a new market for tradable pollution...

Question 4

Figure 10-9      
-Refer to Figure 10-9,Panel (c).The market equilibrium price is

Accepted Answer

A)  P4a. 
B)  P4b. 
C)  P5. 
D)  P4a - P4b. 
A)  P4a. 
B)  P4b. 
C)  P5. 
D)  P4a - P4b.

Question 5

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)  They are equal. 
B)  The after-tax equilibrium quantity is greater than the socially optimal quantity. 
C)  The after-tax equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question. 
A)  They are equal. 
B)  The after-tax equilibrium quantity is greater than the socially optimal quantity. 
C)  The after-tax equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 6

Table 10-2
The following table shows the private value,private cost,and social value for a market with a positive externality.
  
-Refer to Table 10-2.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)  $3 
B)  $5 
C)  $7 
D)  $9 
A)  $3 
B)  $5 
C)  $7 
D)  $9

Question 7

Suppose that flu shots create a positive externality equal to $12 per shot.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots 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. 
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.

Question 8

When Lisa drives to work every morning,she drives on a congested highway.What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway.In this case,the external cost of Lisa's highway trip

Accepted Answer

A)  increases the social cost above the private cost. 
B)  lowers the social cost below the private cost. 
C)  increases the social value above the private benefit. 
D)  decreases the social value below the private benefit. 
A)  increases the social cost above the private cost. 
B)  lowers the social cost below the private cost. 
C)  increases the social value above the private benefit. 
D)  decreases the social value below the private benefit.

Question 9

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,then this is an example of

Accepted Answer

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

Question 10

With a corrective tax,the supply curve for pollution is

Accepted Answer

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

Question 11

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

Question 12

Flu shots provide a positive externality.Suppose that the market for vaccinations is perfectly competitive.Without government intervention in the vaccination market,which of the following statements is correct?

Accepted Answer

A)  At the current output level,the marginal social benefit exceeds the marginal private benefit. 
B)  The current output level is inefficiently low. 
C)  A per-shot subsidy could turn an inefficient situation into an efficient one. 
D)  All of the above are correct. 
A)  At the current output level,the marginal social benefit exceeds the marginal private benefit. 
B)  The current output level is inefficiently low. 
C)  A per-shot subsidy could turn an inefficient situation into an efficient one. 
D)  All of the above are correct.

Question 13

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Accepted Answer

A)  the equilibrium quantity of education will be equal to 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 be equal to 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 14

In a market with positive externalities,the market equilibrium quantity maximizes the welfare of society as a whole.

Accepted Answer

A) True 
 B)False

Question 15

Technology spillover is one type of

Accepted Answer

A)  negative externality. 
B)  positive externality. 
C)  subsidy. 
D)  producer surplus. 
A)  negative externality. 
B)  positive externality. 
C)  subsidy. 
D)  producer surplus.

Question 16

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 17

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. 
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.

Question 18

According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 19

A corrective tax is also known as:

Accepted Answer

A)  a command-and-control regulation. 
B)  a Coase tax. 
C)  a Pigovian tax. 
D)  a Smithian tax. 
A)  a command-and-control regulation. 
B)  a Coase tax. 
C)  a Pigovian tax. 
D)  a Smithian tax.

Question 20

Figure 10-11  
-Refer to Figure 10-11.Taking into account private value and external benefits,the maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $3,980. 
B)  $4,460. 
C)  $5,240. 
D)  $5,880. 
A)  $3,980. 
B)  $4,460. 
C)  $5,240. 
D)  $5,880.

Exam 10: Externalities

When a particular negative externality affects a very large number of people,it is likely that

When a negative externality exists in a market,the cost to producers

Suppose a new market for tradable pollution permits is created.As long as there is a free market for the pollution rights,the final allocation will be ,regardless of the initial allocation of permits.

Figure 10-9 -Refer to Figure 10-9,Panel (c).The market equilibrium price is

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Suppose that flu shots create a positive externality equal to $12 per shot.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

When Lisa drives to work every morning,she drives on a congested highway.What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway.In this case,the external cost of Lisa's highway trip

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,then this is an example of

With a corrective tax,the supply curve for pollution is

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

Flu shots provide a positive externality.Suppose that the market for vaccinations is perfectly competitive.Without government intervention in the vaccination market,which of the following statements is correct?

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

In a market with positive externalities,the market equilibrium quantity maximizes the welfare of society as a whole.

Technology spillover is one type of

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

A negative externality will cause a private market to produce

According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

A corrective tax is also known as:

Figure 10-11 -Refer to Figure 10-11.Taking into account private value and external benefits,the maximum total surplus that can be achieved in this market 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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