Question 1

If an externality is present in a market,economic efficiency may be enhanced by

Accepted Answer

A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention. 
A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention.

Question 2

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.Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality.What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

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

Question 3

When the social cost curve is above a product's supply curve,

Accepted Answer

A)  the government has intervened in the market. 
B)  a negative externality exists in the market. 
C)  a positive externality exists in the market. 
D)  the distribution of resources is unfair. 
A)  the government has intervened in the market. 
B)  a negative externality exists in the market. 
C)  a positive externality exists in the market. 
D)  the distribution of resources is unfair.

Question 4

Figure 10-9      
-Refer to Figure 10-9.Which graph represents a market with no externality?

Accepted Answer

A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  None of the above is correct. 
A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  None of the above is correct.

Question 5

Figure 10-11  
-Refer to Figure 10-11.On the

Accepted Answer

A)  260th unit of output,private value exceeds private cost. 
B)  260th unit of output,private value exceeds external value. 
C)  300th unit of output,private value exceeds social value. 
D)  300th unit of output,private cost exceeds social value. 
A)  260th unit of output,private value exceeds private cost. 
B)  260th unit of output,private value exceeds external value. 
C)  300th unit of output,private value exceeds social value. 
D)  300th unit of output,private cost exceeds social value.

Question 6

Figure 10-5  
-Refer to Figure 10-5.Which of the following statements is correct?

Accepted Answer

A)  The marginal benefit of the positive externality is measured by P3 - P1. 
B)  The marginal cost of the negative externality is measured by P3 - P2. 
C)  The marginal cost of the negative externality is measured by P3 - P1. 
D)  The marginal cost of the negative externality is measured by P3 - P0. 
A)  The marginal benefit of the positive externality is measured by P3 - P1. 
B)  The marginal cost of the negative externality is measured by P3 - P2. 
C)  The marginal cost of the negative externality is measured by P3 - P1. 
D)  The marginal cost of the negative externality is measured by P3 - P0.

Question 7

Figure 10-10  
-Refer to Figure 10-10.An increase in output from 120 units to 160 units would

Accepted Answer

A)  move the market from a socially efficient outcome to a socially inefficient outcome. 
B)  increase the external cost per unit of output. 
C)  increase total economic well-being. 
D)  be an action of which a benevolent social planner would approve. 
A)  move the market from a socially efficient outcome to a socially inefficient outcome. 
B)  increase the external cost per unit of output. 
C)  increase total economic well-being. 
D)  be an action of which a benevolent social planner would approve.

Question 8

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Accepted Answer

The Coase

Question 9

Table 10-4
  
-Refer to Table 10-4.Taking into account private and external costs,total surplus in the market equilibrium amounts to

Accepted Answer

A)  $15. 
B)  $17. 
C)  $18. 
D)  $20. 
A)  $15. 
B)  $17. 
C)  $18. 
D)  $20.

Question 10

The tax on gasoline causes deadweight losses,as is the case with all taxes.

Accepted Answer

A) True 
 B)False

Question 11

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect. 
A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect.

Question 12

Figure 10-15  
-Refer to Figure 10-15.The supply of pollution permits is

Accepted Answer

A)  elastic and represented by line A. 
B)  inelastic and represented by line A. 
C)  elastic and represented by line F 
D)  inelastic and represented by line F. 
A)  elastic and represented by line A. 
B)  inelastic and represented by line A. 
C)  elastic and represented by line F 
D)  inelastic and represented by line F.

Question 13

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.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)  $2 
B)  $3 
C)  $9 
D)  $10 
A)  $2 
B)  $3 
C)  $9 
D)  $10

Question 14

Figure 10-12  
-Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Accepted Answer

A)  automobiles. 
B)  aluminum. 
C)  robots. 
D)  All of the above are correct. 
A)  automobiles. 
B)  aluminum. 
C)  robots. 
D)  All of the above are correct.

Question 15

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill,the policy would be considered

Accepted Answer

A)  a subsidy. 
B)  a regulation. 
C)  a corrective tax. 
D)  an application of the Coase theorem. 
A)  a subsidy. 
B)  a regulation. 
C)  a corrective tax. 
D)  an application of the Coase theorem.

Question 16

Since restored historic buildings convey a positive externality,local governments may choose to

Accepted Answer

A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct. 
A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct.

Question 17

Tradable pollution permits

Accepted Answer

A)  have prices that are set by the government. 
B)  will be more valuable to firms that can reduce pollution only at high costs. 
C)  are likely to create a higher level of total pollution. 
D)  are less desirable than corrective taxes in reducing pollution. 
A)  have prices that are set by the government. 
B)  will be more valuable to firms that can reduce pollution only at high costs. 
C)  are likely to create a higher level of total pollution. 
D)  are less desirable than corrective taxes in reducing pollution.

Question 18

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Accepted Answer

A)  lower levels of nutrition,health care,and housing 
B)  a lower standard of living 
C)  slowing or reversing technological advancement 
D)  the elimination of all pollution 
A)  lower levels of nutrition,health care,and housing 
B)  a lower standard of living 
C)  slowing or reversing technological advancement 
D)  the elimination of all pollution

Question 19

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the particular "cap and trade" legislation that was making its way to President Obama's desk at that time would result in

Accepted Answer

A)  reduced purchasing power for Americans. 
B)  reduced work incentives. 
C)  depressed economic activity. 
D)  All of the above are correct. 
A)  reduced purchasing power for Americans. 
B)  reduced work incentives. 
C)  depressed economic activity. 
D)  All of the above are correct.

Question 20

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

If an externality is present in a market,economic efficiency may be enhanced by

When the social cost curve is above a product's supply curve,

Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with no externality?

Figure 10-11 -Refer to Figure 10-11.On the

Figure 10-5 -Refer to Figure 10-5.Which of the following statements is correct?

Figure 10-10 -Refer to Figure 10-10.An increase in output from 120 units to 160 units would

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Table 10-4 -Refer to Table 10-4.Taking into account private and external costs,total surplus in the market equilibrium amounts to

The tax on gasoline causes deadweight losses,as is the case with all taxes.

A positive externality arises when a person engages in an activity that has

Figure 10-15 -Refer to Figure 10-15.The supply of pollution permits is

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.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Figure 10-12 -Refer to Figure 10-12.The graph,as drawn,could apply to the market for

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill,the policy would be considered

Since restored historic buildings convey a positive externality,local governments may choose to

Tradable pollution permits

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the particular "cap and trade" legislation that was making its way to President Obama's desk at that time would result in

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

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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