Question 1

When market activity generates a negative externality,the level of output in the market equilibrium is lower than the socially optimal level.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

Accepted Answer

A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized. 
A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized.

Question 3

When externalities are present,reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Question 4

In some situations,private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Accepted Answer

The answer of In some situations,private economic actors cannot solve...

Question 5

When correcting for an externality,command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct?

Accepted Answer

A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced. 
A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

Question 7

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.What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)  tax university researchers 
B)  offer grants to university researchers 
C)  eliminate subsidized student loans 
D)  nothing 
A)  tax university researchers 
B)  offer grants to university researchers 
C)  eliminate subsidized student loans 
D)  nothing

Question 8

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics.  
-Refer to Figure 10-13.If 325 units of plastics are produced and consumed,then the

Accepted Answer

A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome. 
A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome.

Question 10

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive. 
A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.

Question 11

What are the three externalities that are associated with driving cars and trucks?

Accepted Answer

The negative externa

Question 12

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of

Accepted Answer

A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy. 
A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy.

Question 13

Figure 10-6  
-Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Accepted Answer

A)  Q 
B)  Q' 
C)  Either Q or Q'.It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'.The socially-optimal quantity depends on the negotiating skills of the interested parties. 
A)  Q 
B)  Q' 
C)  Either Q or Q'.It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'.The socially-optimal quantity depends on the negotiating skills of the interested parties.

Question 14

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward.The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2.Is the socially optimal quantity of restored historic buildings less than,equal to,or greater than 50?

Accepted Answer

The socially optimal

Question 15

Figure 10-19  
-Refer to Figure 10-19.Each additional unit of the good that is produced yields an external benefit of

Accepted Answer

A)  $15. 
B)  $23. 
C)  $36. 
D)  $89. 
A)  $15. 
B)  $23. 
C)  $36. 
D)  $89.

Question 16

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 $84 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 17

Figure 10-9      
-Refer to Figure 10-9,Panel (b)and Panel (c).Which of the following is correct?

Accepted Answer

A)  A tax would move the market in Panel (b)and the market in Panel (c)closer to the socially optimal outcome. 
B)  A subsidy would move the market in Panel (b)and the market in Panel (c)closer to the socially optimal outcome. 
C)  A tax would move the market in Panel (b)closer to the socially optimal outcome,but a subsidy would move the market in Panel (c)closer to the socially optimal outcome. 
D)  A subsidy would move the market in Panel (b)closer to the socially optimal outcome,but a tax would move the market in Panel (c)closer to the socially optimal outcome. 
A)  A tax would move the market in Panel (b)and the market in Panel (c)closer to the socially optimal outcome. 
B)  A subsidy would move the market in Panel (b)and the market in Panel (c)closer to the socially optimal outcome. 
C)  A tax would move the market in Panel (b)closer to the socially optimal outcome,but a subsidy would move the market in Panel (c)closer to the socially optimal outcome. 
D)  A subsidy would move the market in Panel (b)closer to the socially optimal outcome,but a tax would move the market in Panel (c)closer to the socially optimal outcome.

Question 18

Research into new technologies conveys neither negative externalities nor positive externalities.

Accepted Answer

A) True 
 B)False

Question 19

Using a supply and demand diagram,demonstrate how a negative externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

@#IMG-DLM& When a negative externality exists,the

Question 20

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

When market activity generates a negative externality,the level of output in the market equilibrium is lower than the socially optimal level.

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

When externalities are present,reaching an efficient outcome is especially difficult when the number of interested parties is large.

In some situations,private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

When correcting for an externality,command-and-control policies are always preferable to market-based policies.

Which of the following statements is correct?

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13.If 325 units of plastics are produced and consumed,then the

Which of the following is not a characteristic of pollution permits?

What are the three externalities that are associated with driving cars and trucks?

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of

Figure 10-6 -Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Figure 10-19 -Refer to Figure 10-19.Each additional unit of the good that is produced yields an external benefit of

Figure 10-9 -Refer to Figure 10-9,Panel (b)and Panel (c).Which of the following is correct?

Research into new technologies conveys neither negative externalities nor positive externalities.

Using a supply and demand diagram,demonstrate how a negative externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

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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