Question 1

A positive externality will cause a market to produce

Accepted Answer

A) more than is socially desirable. 
B) less than is socially desirable. 
C) the socially optimal equilibrium amount. 
D) more than the same market would produce in the presence of a negative externality. 
A) more than is socially desirable. 
B) less than is socially desirable. 
C) the socially optimal equilibrium amount. 
D) more than the same market would produce in the presence of a negative externality. B

Question 2

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 socially optimal quantity of smokestack scrubbers is represented by point

Accepted Answer

A) Q2. 
B) Q3. 
C) Q4. 
D) Q5. 
A) Q2. 
B) Q3. 
C) Q4. 
D) Q5. D

Question 3

If gasoline taxes were significantly increased in the United States, then

Accepted Answer

A) some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary. 
B) other taxes, such as income taxes, could be lowered. 
C) it is likely that roads would become safer and the environment would become cleaner. 
D) All of the above are correct. 
A) some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary. 
B) other taxes, such as income taxes, could be lowered. 
C) it is likely that roads would become safer and the environment would become cleaner. 
D) All of the above are correct. D

Question 4

Education yields positive externalities. For example, a more educated population

Accepted Answer

A) may increase the pace of technological advances, leading to higher productivity and wages for everyone. 
B) leads to more informed voters, resulting in better government for everyone. 
C) tends to result in lower crime rates. 
D) All of the above are correct. 
A) may increase the pace of technological advances, leading to higher productivity and wages for everyone. 
B) leads to more informed voters, resulting in better government for everyone. 
C) tends to result in lower crime rates. 
D) All of the above are correct.

Question 5

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Accepted Answer

A) adherence to the notion of the invisible hand 
B) command-and-control policies 
C) the development and enforcement of regulations 
D) the requirement that decision makers bear the full costs of their actions 
A) adherence to the notion of the invisible hand 
B) command-and-control policies 
C) the development and enforcement of regulations 
D) the requirement that decision makers bear the full costs of their actions

Question 6

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Accepted Answer

A) True 
 B)False

Question 7

At any given quantity, the willingness to pay of the marginal buyer is the height of the __________.

Accepted Answer

The answer of At any given quantity, the willingness to...

Question 8

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

Accepted Answer

A) less than the social cost of producing it. 
B) less than the private cost of producing it. 
C) more than the social cost of producing it. 
D) more than the private cost of producing it. 
A) less than the social cost of producing it. 
B) less than the private cost of producing it. 
C) more than the social cost of producing it. 
D) more than the private cost of producing it.

Question 9

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

Accepted Answer

A) a negative externality requires a subsidy to move the market equilibrium closer to the social optimum. 
B) the social cost of education exceeds the private cost of education. 
C) the social value of education exceeds the private value of education. 
D) the market-equilibrium quantity of education exceeds the optimal quantity of education. 
A) a negative externality requires a subsidy to move the market equilibrium closer to the social optimum. 
B) the social cost of education exceeds the private cost of education. 
C) the social value of education exceeds the private value of education. 
D) the market-equilibrium quantity of education exceeds the optimal quantity of education.

Question 10

A corrective tax

Accepted Answer

A) causes each factory to reduce pollution by the same amount. 
B) assigns a legal pollution limit for firms. 
C) places a price on the right to pollute. 
D) costs society more than pollution regulations. 
A) causes each factory to reduce pollution by the same amount. 
B) assigns a legal pollution limit for firms. 
C) places a price on the right to pollute. 
D) costs society more than pollution regulations.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 is the social cost of producing 30 units of the good?

Accepted Answer

The social cost of p

Question 14

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-14  
-Refer to Figure 10-14. Which of the following statements is correct?

Accepted Answer

A) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0. 
B) To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. 
C) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1. 
D) There is no externality in this market. 
A) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0. 
B) To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. 
C) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1. 
D) There is no externality in this market.

Question 16

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A) increase private profit at the expense of consumers. 
B) internalize some forms of positive externalities. 
C) reduce the impact of government regulations on their business. 
D) increase the private marginal cost of production. 
A) increase private profit at the expense of consumers. 
B) internalize some forms of positive externalities. 
C) reduce the impact of government regulations on their business. 
D) increase the private marginal cost of production.

Question 17

​Figure 10-20. ​  
-Refer to Figure 10-20. Without government intervention,

Accepted Answer

A) the equilibrium quantity is less than the socially optimal quantity. 
B) the equilibrium quantity is larger than the socially optimal quantity. 
C) the equilibrium quantity equals the socially optimal quantity. 
D) there is no clear relationship between the equilibrium quantity and socially optimal quantity. 
A) the equilibrium quantity is less than the socially optimal quantity. 
B) the equilibrium quantity is larger than the socially optimal quantity. 
C) the equilibrium quantity equals the socially optimal quantity. 
D) there is no clear relationship between the equilibrium quantity and socially optimal quantity.

Question 18

Assuming education results in a positive externality, which of the following statements is correct?

Accepted Answer

A) The social cost of producing education exceeds the private cost of producing education. 
B) The positive externality can be depicted on a graph by the vertical distance between the supply curve and the social-cost curve. 
C) The socially optimal quantity of education will exceed the market equilibrium quantity of education. 
D) All of the above are correct. 
A) The social cost of producing education exceeds the private cost of producing education. 
B) The positive externality can be depicted on a graph by the vertical distance between the supply curve and the social-cost curve. 
C) The socially optimal quantity of education will exceed the market equilibrium quantity of education. 
D) All of the above are correct.

Question 19

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that

Accepted Answer

A) Firm A will no longer pollute, and Firm B will not reduce its pollution at all. 
B) Firm B will no longer pollute, and Firm A will not reduce its pollution at all. 
C) Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of pollution into the river. 
D) Firm A will increase its pollution and Firm B will reduce its pollution. 
A) Firm A will no longer pollute, and Firm B will not reduce its pollution at all. 
B) Firm B will no longer pollute, and Firm A will not reduce its pollution at all. 
C) Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of pollution into the river. 
D) Firm A will increase its pollution and Firm B will reduce its pollution.

Question 20

Figure 10-8  
-Refer to Figure 10-8. What is the equilibrium price in this market?

Accepted Answer

A) $8 
B) Between $8 and $10 
C) $10 
D) More than $10 
A) $8 
B) Between $8 and $10 
C) $10 
D) More than $10

Exam 10: Externalities

A positive externality will cause a market to produce

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 socially optimal quantity of smokestack scrubbers is represented by point

If gasoline taxes were significantly increased in the United States, then

Education yields positive externalities. For example, a more educated population

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

At any given quantity, the willingness to pay of the marginal buyer is the height of the __________.

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

A corrective tax

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

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

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Figure 10-14 -Refer to Figure 10-14. Which of the following statements is correct?

Firms that are involved in more than one type of business could be evidence of an attempt to

​Figure 10-20. ​ -Refer to Figure 10-20. Without government intervention,

Assuming education results in a positive externality, which of the following statements is correct?

Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 10-20. -Refer to Figure 10-20. Without government intervention,