Question 1

The externality associated with technology spillovers

Accepted Answer

A)  cannot be internalized by government. 
B)  is a negative externality. 
C)  can be internalized,potentially,through taxation of firms that are responsible for technology spillovers. 
D)  can be internalized,potentially,through patent protection. 
A)  cannot be internalized by government. 
B)  is a negative externality. 
C)  can be internalized,potentially,through taxation of firms that are responsible for technology spillovers. 
D)  can be internalized,potentially,through patent protection.

Question 2

In some cases,tradable pollution permits may be better than a corrective tax because

Accepted Answer

A)  pollution permits allow for a market solution while a corrective tax does not. 
B)  pollution permits generate more revenue for the government than a corrective tax. 
C)  pollution permits are never preferred over a corrective tax. 
D)  the government can set a maximum level of pollution using permits. 
A)  pollution permits allow for a market solution while a corrective tax does not. 
B)  pollution permits generate more revenue for the government than a corrective tax. 
C)  pollution permits are never preferred over a corrective tax. 
D)  the government can set a maximum level of pollution using permits.

Question 3

Figure 10-3  
-Refer to Figure 10-3.The social cost curve is above the supply curve because

Accepted Answer

A)  it takes into account the external costs imposed on society by the concert. 
B)  it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. 
C)  concert tickets are likely to cost more than the concert actually costs the organizers. 
D)  residents in the surrounding neighborhoods get to listen to the concert for free. 
A)  it takes into account the external costs imposed on society by the concert. 
B)  it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. 
C)  concert tickets are likely to cost more than the concert actually costs the organizers. 
D)  residents in the surrounding neighborhoods get to listen to the concert for free.

Question 4

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own.What name do we use for these types of policies?

Accepted Answer

We call th

Question 5

Negative externalities occur when one person's actions

Accepted Answer

A)  cause another person to lose money in a stock market transaction. 
B)  cause his or her employer to lose business. 
C)  reveal his or her preference for foreign-produced goods. 
D)  adversely affect the well-being of a bystander who is not a party to the action. 
A)  cause another person to lose money in a stock market transaction. 
B)  cause his or her employer to lose business. 
C)  reveal his or her preference for foreign-produced goods. 
D)  adversely affect the well-being of a bystander who is not a party to the action.

Question 6

Figure 10-4  
-Refer to Figure 10-4.If this market is currently producing at Q4,then total economic well-being would be maximized if output

Accepted Answer

A)  decreased to Q1. 
B)  decreased to Q2. 
C)  decreased to Q3. 
D)  stayed at Q4. 
A)  decreased to Q1. 
B)  decreased to Q2. 
C)  decreased to Q3. 
D)  stayed at Q4.

Question 7

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 8

Emission controls on automobiles are an example of a

Accepted Answer

A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways. 
A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways.

Question 9

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages.If there are no government subsidies for MBAs,then which of the following statements is correct?

Accepted Answer

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

Question 10

Table 10-4
  
-Refer to Table 10-4.The market equilibrium 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 11

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be 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 12

Figure 10-9      
-Refer to Figure 10-9,Panel (b)and Panel (c).The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the socially optimal quantity of smokestack scrubbers is represented by point

Accepted Answer

A)  Q2. 
B)  Q3. 
C)  Q4. 
D)  Q5. 
A)  Q2. 
B)  Q3. 
C)  Q4. 
D)  Q5.

Question 13

In the absence of externalities,the "invisible hand" leads a market to maximize

Accepted Answer

A)  producer profit from that market. 
B)  total benefit to society from that market. 
C)  both equality and efficiency in that market. 
D)  output of goods or services in that market. 
A)  producer profit from that market. 
B)  total benefit to society from that market. 
C)  both equality and efficiency in that market. 
D)  output of goods or services in that market.

Question 14

John lives in an apartment building and gets a $700 benefit from playing his stereo.Mary,who lives next door to John and often loses sleep due to the music coming from John's stereo,bears a $1,000 cost from the noise.At which of the following offers from Mary could both Mary and John benefit from the silencing of John's stereo?

Accepted Answer

A)  $200 
B)  $600 
C)  $900 
D)  $1,100 
A)  $200 
B)  $600 
C)  $900 
D)  $1,100

Question 15

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 particular tax or subsidy would move the market to the social optimum?

Accepted Answer

A tax of $12 per uni

Question 16

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A)  buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B)  sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C)  bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D)  Both (a)and (b)are correct. 
A)  buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B)  sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C)  bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D)  Both (a)and (b)are correct.

Question 17

An externality is an example of

Accepted Answer

A)  a corrective tax. 
B)  a tradable pollution permit. 
C)  a market failure. 
D)  Both a and b are correct. 
A)  a corrective tax. 
B)  a tradable pollution permit. 
C)  a market failure. 
D)  Both a and b are correct.

Question 18

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.If there are no subsidies,what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research 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 19

Corrective taxes are more efficient than regulations for keeping the environment clean.

Accepted Answer

A) True 
 B)False

Question 20

Figure 10-2.The graph depicts the market for plastic.  
-Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per unit of plastic?

Accepted Answer

A)  $3 
B)  $3.50 
C)  $5 
D)  $8 
A)  $3 
B)  $3.50 
C)  $5 
D)  $8

Exam 10: Externalities

The externality associated with technology spillovers

In some cases,tradable pollution permits may be better than a corrective tax because

Figure 10-3 -Refer to Figure 10-3.The social cost curve is above the supply curve because

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own.What name do we use for these types of policies?

Negative externalities occur when one person's actions

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q4,then total economic well-being would be maximized if output

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Emission controls on automobiles are an example of a

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages.If there are no government subsidies for MBAs,then which of the following statements is correct?

Table 10-4 -Refer to Table 10-4.The market equilibrium quantity of output is

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?

Figure 10-9 -Refer to Figure 10-9,Panel (b)and Panel (c).The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the socially optimal quantity of smokestack scrubbers is represented by point

In the absence of externalities,the "invisible hand" leads a market to maximize

An externality arises when a person engages in an activity that influences the well-being of

An externality is an example of

Corrective taxes are more efficient than regulations for keeping the environment clean.

Figure 10-2.The graph depicts the market for plastic. -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per unit of plastic?

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

Filters

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₄,then total economic well-being would be maximized if output