Question 1

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Accepted Answer

A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees. 
A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees.

Question 2

Ed is a writer who works from his home.Ed lives next door to Ricky,the drummer for a local band.Ricky needs lots of practice to earn his share of the bands profits,$250.Ed gets distracted by Ricky's drumming but needs to get his writing done to earn $500 for his current article.Which of the following is an efficient solution?

Accepted Answer

A)  Ricky offers Ed $499 to allow Ricky to continue drumming.Ed accepts and both are better off. 
B)  Ricky offers Ed $249 to allow Ricky to continue drumming.Ed accepts and both are better off. 
C)  Ed offers Ricky $251 to stop practicing his drumming.Ricky agrees and both are better off. 
D)  Ed offers Ricky $501 to stop practicing his drumming.Ricky agrees and both are better off. 
A)  Ricky offers Ed $499 to allow Ricky to continue drumming.Ed accepts and both are better off. 
B)  Ricky offers Ed $249 to allow Ricky to continue drumming.Ed accepts and both are better off. 
C)  Ed offers Ricky $251 to stop practicing his drumming.Ricky agrees and both are better off. 
D)  Ed offers Ricky $501 to stop practicing his drumming.Ricky agrees and both are better off.

Question 3

Figure 10-1  
-Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market. 
A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market.

Question 4

Table 10-5
The following table shows the marginal 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 $54,and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
  
-Refer to Table 10-5.If the government charged a fee of $69 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  7 
B)  8 
C)  9 
D)  10 
A)  7 
B)  8 
C)  9 
D)  10

Question 5

Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

Accepted Answer

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

Question 6

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)  enhance economic efficiency. 
B)  do not raise revenue for the government. 
C)  cause deadweight loss. 
D)  cannot be divided between the buyer and seller. 
A)  enhance economic efficiency. 
B)  do not raise revenue for the government. 
C)  cause deadweight loss. 
D)  cannot be divided between the buyer and seller.

Question 7

Figure 10-3  
-Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Accepted Answer

A)  P1,Q1 
B)  P2,Q0 
C)  P2,Q1 
D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion. 
A)  P1,Q1 
B)  P2,Q0 
C)  P2,Q1 
D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.

Question 8

A negative externality

Accepted Answer

A)  is a cost to a bystander. 
B)  is a cost to the buyer. 
C)  is a cost to the seller. 
D)  exists with all market transactions. 
A)  is a cost to a bystander. 
B)  is a cost to the buyer. 
C)  is a cost to the seller. 
D)  exists with all market transactions.

Question 9

When externalities are present in a market,the well-being of market participants

Accepted Answer

A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected,and market bystanders are indirectly affected. 
D)  is indirectly affected,and market bystanders are directly affected. 
A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected,and market bystanders are indirectly affected. 
D)  is indirectly affected,and market bystanders are directly affected.

Question 10

Tradable pollution permits

Accepted Answer

A)  are widely viewed as a cost-effective way to reduce pollution. 
B)  have helped reduce carbon emissions. 
C)  have helped reduce sulfur dioxide emissions. 
D)  All of the above are correct. 
A)  are widely viewed as a cost-effective way to reduce pollution. 
B)  have helped reduce carbon emissions. 
C)  have helped reduce sulfur dioxide emissions. 
D)  All of the above are correct.

Question 11

According to recent research,the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is true of both pollution permits and corrective taxes?

Accepted Answer

A)  Both policies internalize the externality of pollution. 
B)  Both policies require firms to pay for their pollution. 
C)  Both policies lead to the establishment of an equilibrium price of pollution. 
D)  All of the above are correct. 
A)  Both policies internalize the externality of pollution. 
B)  Both policies require firms to pay for their pollution. 
C)  Both policies lead to the establishment of an equilibrium price of pollution. 
D)  All of the above are correct.

Question 13

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.What is the socially-optimal level of output in this market?

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 14

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution.Under this policy,is the supply curve for pollution rights vertical or is it horizontal?

Accepted Answer

The supply

Question 15

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 external benefit of smokestack scrubber installation is represented by

Accepted Answer

A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b. 
A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b.

Question 16

Table 10-3
  
-Refer to Table 10-3.The table represents a market in which

Accepted Answer

A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the table. 
A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the table.

Question 17

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution. 
A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution.

Question 18

Which of the following is not a necessary condition for the Coase theorem?

Accepted Answer

A)  Property rights are clearly defined. 
B)  There are no bargaining costs. 
C)  The government intervenes to internalize the externality. 
D)  There are only a few parties involved. 
A)  Property rights are clearly defined. 
B)  There are no bargaining costs. 
C)  The government intervenes to internalize the externality. 
D)  There are only a few parties involved.

Question 19

Dioxin emission that results from the production of paper is a good example of a negative externality because

Accepted Answer

A)  self-interested paper firms are generally unaware of environmental regulations. 
B)  there are fines for producing too much dioxin. 
C)  self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D)  toxic emissions are the best example of an externality. 
A)  self-interested paper firms are generally unaware of environmental regulations. 
B)  there are fines for producing too much dioxin. 
C)  self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D)  toxic emissions are the best example of an externality.

Question 20

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Accepted Answer

A)  a situation in which the Coase theorem fails to explain the lawn mowing arrangement. 
B)  an improper allocation of resources. 
C)  a private solution to a negative externality problem. 
D)  an exploitation of a common resource. 
A)  a situation in which the Coase theorem fails to explain the lawn mowing arrangement. 
B)  an improper allocation of resources. 
C)  a private solution to a negative externality problem. 
D)  an exploitation of a common resource.

Exam 10: Externalities

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

Corrective taxes differ from most taxes in that corrective taxes

Figure 10-3 -Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

A negative externality

When externalities are present in a market,the well-being of market participants

Tradable pollution permits

According to recent research,the gas tax in the United States is lower than the optimal level.

Which of the following statements is true of both pollution permits and corrective taxes?

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.What is the socially-optimal level of output in this market?

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution.Under this policy,is the supply curve for pollution rights vertical or is it horizontal?

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 external benefit of smokestack scrubber installation is represented by

Table 10-3 -Refer to Table 10-3.The table represents a market in which

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Which of the following is not a necessary condition for the Coase theorem?

Dioxin emission that results from the production of paper is a good example of a negative externality because

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

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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