Question 1

To enhance the well-being of society,a social planner will encourage firms to increase production when

Accepted Answer

A) the firms are producing basic goods. 
B) there is a shortage in the market. 
C) technology spillovers are associated with production. 
D) negative externalities "spill over" into production. 
A) the firms are producing basic goods. 
B) there is a shortage in the market. 
C) technology spillovers are associated with production. 
D) negative externalities "spill over" into production. C

Question 2

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A) the government should ban all transportation. 
B) the government should ban all pollution. 
C) society has to weigh the cost and benefits when deciding how much pollution to allow. 
D) refrain from intervening because the market can best solve this problem. 
A) the government should ban all transportation. 
B) the government should ban all pollution. 
C) society has to weigh the cost and benefits when deciding how much pollution to allow. 
D) refrain from intervening because the market can best solve this problem. B

Question 3

Figure 10-5
  
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Accepted Answer

A) P₀ and Q₁. 
B) P₂ and Q₁. 
C) P₁ and Q₀. 
D) P₂ and Q₀. 
A) P₀ and Q₁. 
B) P₂ and Q₁. 
C) P₁ and Q₀. 
D) P₂ and Q₀. B

Question 4

In the case of a technology spillover,internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Accepted Answer

A) shift up by an amount equal to the subsidy. 
B) shift down by an amount less than the subsidy. 
C) shift down by an amount equal to the subsidy. 
D) shift down by an amount greater than the subsidy. 
A) shift up by an amount equal to the subsidy. 
B) shift down by an amount less than the subsidy. 
C) shift down by an amount equal to the subsidy. 
D) shift down by an amount greater than the subsidy.

Question 5

In Singapore,littering fines are strictly enforced.This is an example of a policy that

Accepted Answer

A) relies on moral codes to reduce the pollution externality. 
B) relies on the Coase Theorem. 
C) discriminates against foreigners. 
D) relies on incentives to reduce the pollution externality. 
A) relies on moral codes to reduce the pollution externality. 
B) relies on the Coase Theorem. 
C) discriminates against foreigners. 
D) relies on incentives to reduce the pollution externality.

Question 6

When the government uses a command-and-control policy to solve an externality,it

Accepted Answer

A) is usually the most effective policy option available. 
B) creates policies that directly regulate behavior. 
C) usually involves taxing the consumption of a commodity. 
D) typically refers to the Coase theorem to structure the policy. 
A) is usually the most effective policy option available. 
B) creates policies that directly regulate behavior. 
C) usually involves taxing the consumption of a commodity. 
D) typically refers to the Coase theorem to structure the policy.

Question 7

A command-and-control policy is another term for a

Accepted Answer

A) pollution permit. 
B) government regulation. 
C) corrective tax. 
D) Both a and b are correct. 
A) pollution permit. 
B) government regulation. 
C) corrective tax. 
D) Both a and b are correct.

Question 8

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A) taxing goods that have negative externalities 
B) subsidizing goods that have positive externalities 
C) The government cannot improve upon the outcomes of private markets. 
D) Both a and b are correct. 
A) taxing goods that have negative externalities 
B) subsidizing goods that have positive externalities 
C) The government cannot improve upon the outcomes of private markets. 
D) Both a and b are correct.

Question 10

Two firms,A and B,each currently dump 50 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 will sell 40 pollution permits for $75 each.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.It is likely that between the cost of permits and the cost of additional pollution abatement,

Accepted Answer

A) Firm B will spend $3,500. 
B) Firm A will spend $4,000. 
C) Firm A will spend $4,500. 
D) Firm B will spend $3,000. 
A) Firm B will spend $3,500. 
B) Firm A will spend $4,000. 
C) Firm A will spend $4,500. 
D) Firm B will spend $3,000.

Question 11

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 12

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government impose a $5 per-unit tax on the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

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 13

Markets are often inefficient when negative externalities are present because

Accepted Answer

A) private costs exceed social costs at the private market solution. 
B) externalities cannot be corrected without government regulation. 
C) social costs exceed private costs at the private market solution. 
D) production externalities lead to consumption externalities. 
A) private costs exceed social costs at the private market solution. 
B) externalities cannot be corrected without government regulation. 
C) social costs exceed private costs at the private market solution. 
D) production externalities lead to consumption externalities.

Question 14

One reason that private solutions to externalities do not always work is that

Accepted Answer

A) government intervention negates the benefits of positive externalities. 
B) some people benefit from externalities. 
C) interested parties incur costs in the bargaining process. 
D) charities are not well organized. 
A) government intervention negates the benefits of positive externalities. 
B) some people benefit from externalities. 
C) interested parties incur costs in the bargaining process. 
D) charities are not well organized.

Question 15

According to the Coase theorem,in the presence of externalities

Accepted Answer

A) private parties can bargain to reach an efficient outcome. 
B) government assistance is necessary to reach an efficient outcome. 
C) the assignment of legal rights can prevent externalities. 
D) the initial distribution of property rights will determine the efficient outcome. 
A) private parties can bargain to reach an efficient outcome. 
B) government assistance is necessary to reach an efficient outcome. 
C) the assignment of legal rights can prevent externalities. 
D) the initial distribution of property rights will determine the efficient outcome.

Question 16

Figure 10-8
  
-Refer to Figure 10-8.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.The equilibrium price of pollution is

Accepted Answer

A) $50 
B) $500 
C) $1,000 
D) $2,000 
A) $50 
B) $500 
C) $1,000 
D) $2,000

Question 17

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $12 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

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 18

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
  
-Refer to Figure 10-3.Assume that the concert organizers must purchase a concert permit before organizing the concert and that the cost for the permit is included in the private cost curve.What criteria should the city use in determining whether or not to issue a permit?

Accepted Answer

A) The majority vote of the residents in surrounding neighborhoods should determine whether a permit is issued. 
B) As long as the value to consumers of concerts exceeds the cost of concerts, including the external costs, the permit should be issued. 
C) As long as concert organizers are willing to return the park to its original condition after the concert, the permit should be issued. 
D) The permit should not be issued as long as there are identifiable external costs imposed on residents in surrounding neighborhoods. 
A) The majority vote of the residents in surrounding neighborhoods should determine whether a permit is issued. 
B) As long as the value to consumers of concerts exceeds the cost of concerts, including the external costs, the permit should be issued. 
C) As long as concert organizers are willing to return the park to its original condition after the concert, the permit should be issued. 
D) The permit should not be issued as long as there are identifiable external costs imposed on residents in surrounding neighborhoods.

Question 19

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Accepted Answer

A) True 
 B)False

Question 20

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 violate equity standards. 
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 violate equity standards.

Exam 10: Externalities

To enhance the well-being of society,a social planner will encourage firms to increase production when

Since almost all forms of transportation produce some type of pollution,

Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

In the case of a technology spillover,internalizing a positive externality through a government subsidy will cause the industry's supply curve to

In Singapore,littering fines are strictly enforced.This is an example of a policy that

When the government uses a command-and-control policy to solve an externality,it

A command-and-control policy is another term for a

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Which of the following represents a way that a government can help the private market to internalize an externality?

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government impose a $5 per-unit tax on the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Markets are often inefficient when negative externalities are present because

One reason that private solutions to externalities do not always work is that

According to the Coase theorem,in the presence of externalities

Figure 10-8 -Refer to Figure 10-8.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.The equilibrium price of pollution is

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $12 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets 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 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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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