Question 1

Two types of private solutions to the problem of externalities are

Accepted Answer

A)  charities and the Golden Rule. 
B)  charities and subsidies. 
C)  the Golden Rule and taxes. 
D)  taxes and subsidies. 
A)  charities and the Golden Rule. 
B)  charities and subsidies. 
C)  the Golden Rule and taxes. 
D)  taxes and subsidies.

Question 2

At any given quantity,the willingness to pay of the marginal buyer is the height of the __________.

Accepted Answer

The answer of At any given quantity,the willingness to pay...

Question 3

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Accepted Answer

A)  is always needed because private solutions can never be attained. 
B)  is needed when private solutions fail to arise. 
C)  will be needed only to correct for positive externalities. 
D)  will be needed only to correct for negative externalities. 
A)  is always needed because private solutions can never be attained. 
B)  is needed when private solutions fail to arise. 
C)  will be needed only to correct for positive externalities. 
D)  will be needed only to correct for negative externalities.

Question 4

Patents do not

Accepted Answer

A)  provide firms an incentive to research. 
B)  assign property rights to inventors. 
C)  protect the rights of inventors for their lifetimes. 
D)  internalize externalities. 
A)  provide firms an incentive to research. 
B)  assign property rights to inventors. 
C)  protect the rights of inventors for their lifetimes. 
D)  internalize externalities.

Question 5

Since air pollution creates a negative externality,

Accepted Answer

A)  social welfare will be enhanced when some,but not all air pollution is eliminated. 
B)  social welfare is optimal when all air pollution is eliminated. 
C)  governments should encourage private firms to consider only private costs. 
D)  the free market result maximizes social welfare. 
A)  social welfare will be enhanced when some,but not all air pollution is eliminated. 
B)  social welfare is optimal when all air pollution is eliminated. 
C)  governments should encourage private firms to consider only private costs. 
D)  the free market result maximizes social welfare.

Question 6

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $15 per-shot subsidy to producers.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 7

Corrective taxes are unlike most other taxes because they

Accepted Answer

A)  distort incentives. 
B)  move the allocation of resources away from the social optimum. 
C)  raise revenue for the government. 
D)  move the allocation of resources closer to the social optimum. 
A)  distort incentives. 
B)  move the allocation of resources away from the social optimum. 
C)  raise revenue for the government. 
D)  move the allocation of resources closer to the social optimum.

Question 8

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Accepted Answer

A)  even if private parties experience substantial costs of bargaining. 
B)  even if the initial distribution of legal rights is skewed in favor of some private parties over others. 
C)  only when there is a large number of private parties that engage in bargaining. 
D)  All of the above are correct. 
A)  even if private parties experience substantial costs of bargaining. 
B)  even if the initial distribution of legal rights is skewed in favor of some private parties over others. 
C)  only when there is a large number of private parties that engage in bargaining. 
D)  All of the above are correct.

Question 9

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.What is the socially optimal quantity of plastic?

Accepted Answer

A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units 
A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units

Question 10

When externalities exist,buyers and sellers

Accepted Answer

A)  neglect the external effects of their actions,but the market equilibrium is still efficient. 
B)  do not neglect the external effects of their actions,and the market equilibrium is efficient. 
C)  neglect the external effects of their actions,and the market equilibrium is not efficient. 
D)  do not neglect the external effects of their actions,and the market equilibrium is not efficient. 
A)  neglect the external effects of their actions,but the market equilibrium is still efficient. 
B)  do not neglect the external effects of their actions,and the market equilibrium is efficient. 
C)  neglect the external effects of their actions,and the market equilibrium is not efficient. 
D)  do not neglect the external effects of their actions,and the market equilibrium is not efficient.

Question 11

Externalities tend to cause markets to be

Accepted Answer

A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed. 
A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed.

Question 12

Table 10-1
The following table shows the private value,private cost,and external cost for various quantities of output in a market.
  
-Refer to Table 10-1.What is the equilibrium quantity of output in the market?

Accepted Answer

A)  2 units 
B)  3 units 
C)  4 units 
D)  5 units 
A)  2 units 
B)  3 units 
C)  4 units 
D)  5 units

Question 13

What economic argument suggests that if transactions costs are sufficiently low,the equilibrium is economically efficient regardless of how property rights are distributed?

Accepted Answer

A)  the Coase theorem 
B)  the laws of supply and demand 
C)  the law of comparative advantage 
D)  the law of externalities 
A)  the Coase theorem 
B)  the laws of supply and demand 
C)  the law of comparative advantage 
D)  the law of externalities

Question 14

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)  Social value exceeds private value,and market quantity exceeds the socially optimal quantity. 
B)  Social value is less than private value,and market quantity exceeds the socially optimal quantity. 
C)  Social value exceeds private value,and market quantity is less than the socially optimal quantity. 
D)  Social value seldom exceeds private value;therefore,social quantity is less than private quantity. 
A)  Social value exceeds private value,and market quantity exceeds the socially optimal quantity. 
B)  Social value is less than private value,and market quantity exceeds the socially optimal quantity. 
C)  Social value exceeds private value,and market quantity is less than the socially optimal quantity. 
D)  Social value seldom exceeds private value;therefore,social quantity is less than private quantity.

Question 15

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking.Local governments address this problem by

Accepted Answer

A)  making it illegal to "disturb the peace." 
B)  having a well-funded animal control department. 
C)  subsidizing local animal shelters. 
D)  encouraging people to adopt cats. 
A)  making it illegal to "disturb the peace." 
B)  having a well-funded animal control department. 
C)  subsidizing local animal shelters. 
D)  encouraging people to adopt cats.

Question 16

According to the Coase theorem,in the presence of externalities

Accepted Answer

A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome. 
A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome.

Question 17

Figure 10-9      
-Refer to Figure 10-9,Panel (b)and Panel (c).The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the socially optimal quantity of antibiotics is represented by point

Accepted Answer

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

Question 18

Research into new technologies provides a

Accepted Answer

A)  negative externality,and too few resources are devoted to research as a result. 
B)  negative externality,and too many resources are devoted to research as a result. 
C)  positive externality,and too few resources are devoted to research as a result. 
D)  positive externality,and too many resources are devoted to research as a result. 
A)  negative externality,and too few resources are devoted to research as a result. 
B)  negative externality,and too many resources are devoted to research as a result. 
C)  positive externality,and too few resources are devoted to research as a result. 
D)  positive externality,and too many resources are devoted to research as a result.

Question 19

When a market is characterized by an externality,the government

Accepted Answer

A)  can correct the market failure only in the case of positive externalities. 
B)  can correct the market failure only in the case of negative externalities. 
C)  can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D)  cannot correct for externalities due to the existence of patents. 
A)  can correct the market failure only in the case of positive externalities. 
B)  can correct the market failure only in the case of negative externalities. 
C)  can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D)  cannot correct for externalities due to the existence of patents.

Question 20

Corrective taxes enhance efficiency,but the cost to administer them exceeds the revenue they raise for the government.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Two types of private solutions to the problem of externalities are

At any given quantity,the willingness to pay of the marginal buyer is the height of the __________.

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Patents do not

Since air pollution creates a negative externality,

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $15 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Corrective taxes are unlike most other taxes because they

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

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.What is the socially optimal quantity of plastic?

When externalities exist,buyers and sellers

Externalities tend to cause markets to be

Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the equilibrium quantity of output in the market?

What economic argument suggests that if transactions costs are sufficiently low,the equilibrium is economically efficient regardless of how property rights are distributed?

Which of the following is true of markets characterized by positive externalities?

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking.Local governments address this problem by

According to the Coase theorem,in the presence of externalities

Figure 10-9 -Refer to Figure 10-9,Panel (b)and Panel (c).The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the socially optimal quantity of antibiotics is represented by point

Research into new technologies provides a

When a market is characterized by an externality,the government

Corrective taxes enhance efficiency,but the cost to administer them exceeds the revenue they raise for the government.

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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