Question 1

Many charities like the Sierra Club are established to deal with externalities.

Accepted Answer

A) True 
 B)False

Question 2

Even if possible,it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is not correct?

Accepted Answer

A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes. 
A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes.

Question 4

A gasoline tax is designed to correct each of the following problems except

Accepted Answer

A)  traffic congestion. 
B)  traffic accidents. 
C)  air pollution. 
D)  EPA regulations. 
A)  traffic congestion. 
B)  traffic accidents. 
C)  air pollution. 
D)  EPA regulations.

Question 5

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) 
A)  (i)only 
B)  both (i)and (ii) 
C)  (iii)only 
D)  both (ii)and (iii)

Question 6

Figure 10-7  
-Refer to Figure 10-7.Which quantity represents the social optimum for this market?

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 7

The gasoline tax

Accepted Answer

A)  is similar to most other taxes in that it causes deadweight losses. 
B)  produces the unfortunate side-effect of making the roads more dangerous. 
C)  can be viewed as a corrective tax aimed at multiple negative externalities associated with driving. 
D)  can be viewed as a command-and-control policy aimed at discouraging people from driving. 
A)  is similar to most other taxes in that it causes deadweight losses. 
B)  produces the unfortunate side-effect of making the roads more dangerous. 
C)  can be viewed as a corrective tax aimed at multiple negative externalities associated with driving. 
D)  can be viewed as a command-and-control policy aimed at discouraging people from driving.

Question 8

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. 
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.

Question 9

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Accepted Answer

A)  taxing production,which would decrease supply. 
B)  taxing production,which would increase supply. 
C)  subsidizing production,which would decrease supply. 
D)  subsidizing production,which would increase supply. 
A)  taxing production,which would decrease supply. 
B)  taxing production,which would increase supply. 
C)  subsidizing production,which would decrease supply. 
D)  subsidizing production,which would increase supply.

Question 10

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Accepted Answer

A) True 
 B)False

Question 11

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 are the socially optimal quantity and price?

Accepted Answer

The socially optimal

Question 12

In summarizing the research on the externalities associated with driving cars,a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States would be

Accepted Answer

A)  $0.40 per gallon. 
B)  $0.90 per gallon. 
C)  $2.10 per gallon. 
D)  $3.30 per gallon. 
A)  $0.40 per gallon. 
B)  $0.90 per gallon. 
C)  $2.10 per gallon. 
D)  $3.30 per gallon.

Question 13

Two firms,A and B,each currently dump 20 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.The government gives each firm 10 pollution permits,which it can either use or sell to the other firm.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.After the two firms buy or sell pollution permits from each other,we would expect that

Accepted Answer

A)  Firm A will no longer pollute,and Firm B will not reduce its pollution at all. 
B)  Firm B will no longer pollute,and Firm A will not reduce its pollution at all. 
C)  Firm A will dump 10 tons of pollution into the river,and Firm B will dump 10 tons of pollution into the river. 
D)  Firm A will increase its pollution and Firm B will reduce its pollution. 
A)  Firm A will no longer pollute,and Firm B will not reduce its pollution at all. 
B)  Firm B will no longer pollute,and Firm A will not reduce its pollution at all. 
C)  Firm A will dump 10 tons of pollution into the river,and Firm B will dump 10 tons of pollution into the river. 
D)  Firm A will increase its pollution and Firm B will reduce its pollution.

Question 14

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

Accepted Answer

A)  The private cost of producing the 120th unit of output is $12. 
B)  The social cost of producing the 120th unit of output is $22. 
C)  The external cost of producing the 120th unit of output is $2. 
D)  All of the above are correct. 
A)  The private cost of producing the 120th unit of output is $12. 
B)  The social cost of producing the 120th unit of output is $22. 
C)  The external cost of producing the 120th unit of output is $2. 
D)  All of the above are correct.

Question 15

A patent is used to

Accepted Answer

A)  disseminate information. 
B)  offset the negative effects of taxes. 
C)  protect inventors for as long as they live. 
D)  assign property rights. 
A)  disseminate information. 
B)  offset the negative effects of taxes. 
C)  protect inventors for as long as they live. 
D)  assign property rights.

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. 
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.

Question 17

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

Accepted Answer

A)  $760. 
B)  $1,080. 
C)  $1,440. 
D)  $1,920. 
A)  $760. 
B)  $1,080. 
C)  $1,440. 
D)  $1,920.

Question 18

A cost imposed on someone who is neither the consumer nor the producer is called a

Accepted Answer

A)  corrective tax. 
B)  command and control policy. 
C)  positive externality. 
D)  negative externality. 
A)  corrective tax. 
B)  command and control policy. 
C)  positive externality. 
D)  negative externality.

Question 19

When we identify public policies toward externalities,we contrast command-and-control policies with what other type of policies?

Accepted Answer

The other type of po

Question 20

Economists believe that the optimal level of pollution is zero.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Many charities like the Sierra Club are established to deal with externalities.

Even if possible,it would be inefficient to prohibit all polluting activity.

Which of the following statements is not correct?

A gasoline tax is designed to correct each of the following problems except

Which of the following require firms to pay to pollute? (i) Corrective taxes (ii) Tradable pollution permits (iii) Pollution regulations

Figure 10-7 -Refer to Figure 10-7.Which quantity represents the social optimum for this market?

The gasoline tax

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

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

In summarizing the research on the externalities associated with driving cars,a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States would be

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

A patent is used to

The goal of industrial policy should be that

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

A cost imposed on someone who is neither the consumer nor the producer is called a

When we identify public policies toward externalities,we contrast command-and-control policies with what other type of policies?

Economists believe that the optimal level of pollution is zero.

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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