Question 1

A positive externality occurs when

Accepted Answer

A) Jack receives a benefit from John's consumption of a certain good. 
B) Jack receives personal benefits from his own consumption of a certain good. 
C) Jack's benefit exceeds John's benefit when they each consume the same good. 
D) Jack's receives a loss from John's consumption of a certain good. 
A) Jack receives a benefit from John's consumption of a certain good. 
B) Jack receives personal benefits from his own consumption of a certain good. 
C) Jack's benefit exceeds John's benefit when they each consume the same good. 
D) Jack's receives a loss from John's consumption of a certain good.

Question 2

Figure 10-12  
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Accepted Answer

A) social cost minus social value 
B) social value minus private cost 
C) demand 
D) private value plus external benefit 
A) social cost minus social value 
B) social value minus private cost 
C) demand 
D) private value plus external benefit

Question 3

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

Accepted Answer

A) the Pigovian theorem. 
B) a corrective tax. 
C) the externality theorem. 
D) the Coase theorem. 
A) the Pigovian theorem. 
B) a corrective tax. 
C) the externality theorem. 
D) the Coase theorem.

Question 4

At any given quantity, the cost of the marginal seller is the height of the __________.

Accepted Answer

The answer of At any given quantity, the cost of...

Question 5

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 6

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

Accepted Answer

A) the private market will reach an equilibrium in which resources are allocated inefficiently. 
B) the private market will reach an equilibrium in which resources are allocated efficiently. 
C) the private market cannot reach an equilibrium. 
D) a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium. 
A) the private market will reach an equilibrium in which resources are allocated inefficiently. 
B) the private market will reach an equilibrium in which resources are allocated efficiently. 
C) the private market cannot reach an equilibrium. 
D) a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.

Question 7

Which of the following is an example of a positive externality?

Accepted Answer

A) air pollution 
B) a person littering in a public park 
C) a nice garden in front of your neighbor's house 
D) the pollution of a stream 
A) air pollution 
B) a person littering in a public park 
C) a nice garden in front of your neighbor's house 
D) the pollution of a stream

Question 8

In a market economy, government intervention

Accepted Answer

A) will always improve market outcomes. 
B) reduces efficiency in the presence of externalities. 
C) may improve market outcomes in the presence of externalities. 
D) is necessary to control individual greed. 
A) will always improve market outcomes. 
B) reduces efficiency in the presence of externalities. 
C) may improve market outcomes in the presence of externalities. 
D) is necessary to control individual greed.

Question 9

Even if possible, it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 10

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Accepted Answer

A) emit a lower level of smoke than is socially efficient. 
B) emit a higher level of smoke than is socially efficient. 
C) emit an acceptable level of smoke. 
D) not emit any smoke in an attempt to avoid paying the entire cost. 
A) emit a lower level of smoke than is socially efficient. 
B) emit a higher level of smoke than is socially efficient. 
C) emit an acceptable level of smoke. 
D) not emit any smoke in an attempt to avoid paying the entire cost.

Question 11

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Accepted Answer

The term i

Question 12

Table 10-3  
-Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

Accepted Answer

A) $18. 
B) $38. 
C) $46. 
D) $55. 
A) $18. 
B) $38. 
C) $46. 
D) $55.

Question 13

Why can't private individuals always internalize an externality without the help of government?

Accepted Answer

A) Legal restrictions prevent side payments between individuals. 
B) Transactions costs may be too high. 
C) Side payments between individuals are inefficient. 
D) Side payments between individuals are insufficient. 
A) Legal restrictions prevent side payments between individuals. 
B) Transactions costs may be too high. 
C) Side payments between individuals are inefficient. 
D) Side payments between individuals are insufficient.

Question 14

Figure 10-11  
-Refer to Figure 10-11. A benevolent social planner would prefer

Accepted Answer

A) a $24 price to any other price. 
B) 420 units to any other quantity of output. 
C) a subsidy of $24 per unit to a subsidy of $27 per unit. 
D) All of the above are correct. 
A) a $24 price to any other price. 
B) 420 units to any other quantity of output. 
C) a subsidy of $24 per unit to a subsidy of $27 per unit. 
D) All of the above are correct.

Question 15

A positive externality

Accepted Answer

A) is a benefit to the producer of the good. 
B) is a benefit to the consumer of the good. 
C) is a benefit to someone other than the producer and consumer of the good. 
D) results in an optimal level of output. 
A) is a benefit to the producer of the good. 
B) is a benefit to the consumer of the good. 
C) is a benefit to someone other than the producer and consumer of the good. 
D) results in an optimal level of output.

Question 16

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Accepted Answer

A) If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B) Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C) If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D) If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial. 
A) If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B) Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C) If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D) If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.

Question 17

Figure 10-12  
-Refer to Figure 10-12. An alternative label for the quantity   would be

Accepted Answer

A)   
) 
B)   
) 
C)   
) 
D)   
) 
A)   
) 
B)   
) 
C)   
) 
D)   
)

Question 18

Figure 10-11  
-Refer to Figure 10-11. The graph 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 graph. 
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 graph.

Question 19

Scenario 10-3
Suppose the equation for the demand curve in a market is   , where   is the quantity demanded and   is the price. Also, suppose the equation for the supply curve in the same market is   , where   is the quantity supplied.
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What particular tax or subsidy would move the market to the social optimum?

Accepted Answer

A tax of $12 per uni

Question 20

Suppose the government issues a limited number of pollution permits in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Accepted Answer

With pollution permi

Exam 10: Externalities

A positive externality occurs when

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

At any given quantity, the cost of the marginal seller is the height of the __________.

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

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

Which of the following is an example of a positive externality?

In a market economy, government intervention

Even if possible, it would be inefficient to prohibit all polluting activity.

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Table 10-3 -Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

Why can't private individuals always internalize an externality without the help of government?

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

A positive externality

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be

Figure 10-11 -Refer to Figure 10-11. The graph represents a market in which

Suppose the government issues a limited number of pollution permits in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

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

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