Question 1

Many charities like the Sierra Club are established to deal with externalities.

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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. B

Question 4

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Accepted Answer

A)  social costs equal private costs at the private market solution. 
B)  private costs exceed social costs at the private market solution. 
C)  social costs exceed private costs at the private market solution. 
D)  they internalize externalities. 
A)  social costs equal private costs at the private market solution. 
B)  private costs exceed social costs at the private market solution. 
C)  social costs exceed private costs at the private market solution. 
D)  they internalize externalities.

Question 5

When a market is characterized by an externality,the government

Accepted Answer

A)  can correct the market failure only in the case of positive externalities. 
B)  can correct the market failure only in the case of negative externalities. 
C)  can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D)  cannot correct for externalities due to the existence of patents. 
A)  can correct the market failure only in the case of positive externalities. 
B)  can correct the market failure only in the case of negative externalities. 
C)  can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D)  cannot correct for externalities due to the existence of patents.

Question 6

A dentist shares an office building with a radio station.The electrical current from the dentist's drill causes static in the radio broadcast,causing the radio station to lose $10,000 in profits.The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000.Either would restore the radio station's lost profits.What is the economically efficient outcome?

Accepted Answer

A)  The radio station puts up a shield, which it pays for. 
B)  The radio station puts up a shield, which the dentist pays for. 
C)  Neither the radio station nor the dentist purchase additional equipment. 
D)  The dentist gets a new drill; it does not matter who pays for it. 
A)  The radio station puts up a shield, which it pays for. 
B)  The radio station puts up a shield, which the dentist pays for. 
C)  Neither the radio station nor the dentist purchase additional equipment. 
D)  The dentist gets a new drill; it does not matter who pays for it.

Question 7

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 8

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-3
  
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.

-Refer to Figure 10-3.The social cost curve is above the supply curve because

Accepted Answer

A)  it takes into account the external costs imposed on society by the concert. 
B)  it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. 
C)  concert tickets are likely to cost more than the concert actually costs the organizers. 
D)  residents in the surrounding neighborhoods get to listen to the concert for free. 
A)  it takes into account the external costs imposed on society by the concert. 
B)  it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. 
C)  concert tickets are likely to cost more than the concert actually costs the organizers. 
D)  residents in the surrounding neighborhoods get to listen to the concert for free.

Question 10

Which of the following is not a negative externality associated with driving cars?

Accepted Answer

A)  congestion 
B)  pollution 
C)  repairs 
D)  accidents 
A)  congestion 
B)  pollution 
C)  repairs 
D)  accidents

Question 11

Suppose that flower gardens create a positive externality equal to $1 per plant.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Accepted Answer

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

Question 12

What economic argument suggests that if transactions costs are sufficiently low,the equilibrium is economically efficient regardless of how property rights are distributed?

Accepted Answer

A)  the Coase theorem 
B)  the laws of supply and demand 
C)  the law of comparative advantage 
D)  the law of externalities 
A)  the Coase theorem 
B)  the laws of supply and demand 
C)  the law of comparative advantage 
D)  the law of externalities

Question 13

Which of the following statements is not correct?

Accepted Answer

A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes. 
A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes.

Question 14

Figure 10-3
  
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.

-Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

Accepted Answer

A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct. 
A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct.

Question 15

The tax on gasoline is an example of

Accepted Answer

A)  a consumption tax. 
B)  a corrective tax. 
C)  an income tax. 
D)  a command-and-control policy. 
A)  a consumption tax. 
B)  a corrective tax. 
C)  an income tax. 
D)  a command-and-control policy.

Question 16

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 17

When a market experiences a positive externality,

Accepted Answer

A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value. 
A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value.

Question 18

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 19

Table 10-4
  
-Refer to Table 10-4.The market equilibrium quantity of output is

Accepted Answer

A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units. 
A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 10: Externalities.

Many charities like the Sierra Club are established to deal with externalities.

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

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

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

When a market is characterized by an externality,the government

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

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Figure 10-3 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. -Refer to Figure 10-3.The social cost curve is above the supply curve because

Which of the following is not a negative externality associated with driving cars?

Suppose that flower gardens create a positive externality equal to $1 per plant.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

What economic argument suggests that if transactions costs are sufficiently low,the equilibrium is economically efficient regardless of how property rights are distributed?

Which of the following statements is not correct?

Figure 10-3 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. -Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

The tax on gasoline is an example of

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

When a market experiences a positive externality,

A positive externality

Table 10-4 -Refer to Table 10-4.The market equilibrium quantity of output is

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

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 in Microeconomics.

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