Question 1

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A) reduce economic efficiency. 
B) do not raise revenue for the government. 
C) do not cause deadweight losses. 
D) always result in a high burden on sellers of goods to which the corrective tax applies. 
A) reduce economic efficiency. 
B) do not raise revenue for the government. 
C) do not cause deadweight losses. 
D) always result in a high burden on sellers of goods to which the corrective tax applies. C

Question 2

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

Accepted Answer

A) a market-based policy. 
B) a command-and-control policy. 
C) tradable pollution permits. 
D) transaction costs. 
A) a market-based policy. 
B) a command-and-control policy. 
C) tradable pollution permits. 
D) transaction costs. B

Question 3

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
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. B

Question 4

The concept of external cost is associated with a negative externality, but not with a positive externality.

Accepted Answer

A) True 
 B)False

Question 5

A corrective tax

Accepted Answer

A) allocates pollution to those factories that face the highest cost of reducing it. 
B) is a form of regulation. 
C) works well for all types of externalities. 
D) is inferior to regulatory policy according to most economists. 
A) allocates pollution to those factories that face the highest cost of reducing it. 
B) is a form of regulation. 
C) works well for all types of externalities. 
D) is inferior to regulatory policy according to most economists.

Question 6

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Accepted Answer

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

Question 7

If a sawmill creates too much noise for local residents,

Accepted Answer

A) noise restrictions will force residents to move out of the area. 
B) a sense of social responsibility will cause owners of the mill to reduce noise levels. 
C) the government can raise economic well-being through noise-control regulations. 
D) the government should avoid intervening because the market will allocate resources efficiently. 
A) noise restrictions will force residents to move out of the area. 
B) a sense of social responsibility will cause owners of the mill to reduce noise levels. 
C) the government can raise economic well-being through noise-control regulations. 
D) the government should avoid intervening because the market will allocate resources efficiently.

Question 8

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 9

Figure 10-17  
-Refer to Figure 10-17. 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) An amount equal to P' minus P. 
B) An amount equal to P'. 
C) An amount equal to P. 
D) An amount equal to the external cost. 
A) An amount equal to P' minus P. 
B) An amount equal to P'. 
C) An amount equal to P. 
D) An amount equal to the external cost.

Question 10

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000S1U1P1thS1S1P0 gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
-Refer to Scenario 10-1. From the given information, it is apparent that

Accepted Answer

A) the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
B) the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable. 
C) the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
D) the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable. 
A) the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
B) the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable. 
C) the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
D) the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is correct?

Accepted Answer

A) Gasoline taxes are an example of an EPA regulation. 
B) Gasoline taxes are higher in many European countries than in the United States. 
C) Gasoline taxes contribute to global warming. 
D) Gasoline taxes are an example of a command-and-control policy. 
A) Gasoline taxes are an example of an EPA regulation. 
B) Gasoline taxes are higher in many European countries than in the United States. 
C) Gasoline taxes contribute to global warming. 
D) Gasoline taxes are an example of a command-and-control policy.

Question 13

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Accepted Answer

A) True 
 B)False

Question 14

With a corrective tax, the supply curve for pollution is

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward-sloping. 
D) downward-sloping. 
A) vertical. 
B) horizontal. 
C) upward-sloping. 
D) downward-sloping.

Question 15

The supply curve for a product reflects the

Accepted Answer

A) willingness to pay of the marginal buyer. 
B) quantity buyers will ultimately purchase of the product. 
C) cost to sellers of producing the product. 
D) seller's profit from producing the product. 
A) willingness to pay of the marginal buyer. 
B) quantity buyers will ultimately purchase of the product. 
C) cost to sellers of producing the product. 
D) seller's profit from producing the product.

Question 16

Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 17

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

Accepted Answer

A) True 
 B)False

Question 18

​Figure 10-20. ​  
-Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Accepted Answer

A) $​100 
B) $200 
C) $250 
D) ​$300 
A) $​100 
B) $200 
C) $250 
D) ​$300

Question 19

The Golden Rule is an example of a private solution for

Accepted Answer

A) subsidizing higher education. 
B) internalizing externalities. 
C) increasing production. 
D) reducing scarcity. 
A) subsidizing higher education. 
B) internalizing externalities. 
C) increasing production. 
D) reducing scarcity.

Question 20

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution.  
-Refer to Figure 10-18. The line labeled "Corrective tax" could accurately be re-labeled as

Accepted Answer

A) "Demand for clean air." 
B) "Demand for pollution rights." 
C) "Price of pollution." 
D) "Rate of subsidy." 
A) "Demand for clean air." 
B) "Demand for pollution rights." 
C) "Price of pollution." 
D) "Rate of subsidy."

Exam 10: Externalities

Corrective taxes differ from most taxes in that corrective taxes

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. 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?

The concept of external cost is associated with a negative externality, but not with a positive externality.

A corrective tax

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

If a sawmill creates too much noise for local residents,

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

Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

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

Which of the following statements is correct?

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

With a corrective tax, the supply curve for pollution is

The supply curve for a product reflects the

Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized.

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

The Golden Rule is an example of a private solution for

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The line labeled "Corrective tax" could accurately be re-labeled as

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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?