Question 1

Suppose that Bill wants to dine at a fancy restaurant,but the only available table is in the smoking section.Bill dislikes the smell of cigarette smoke.He notices that only one person,Peter,is smoking in the smoking section.Bill values the absence of smoke at $15.Peter values the ability to smoke in the restaurant at $5.Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A)   Peter continues to smoke because he has a right to smoke in the smoking section.
B)   Bill offers Peter between $5 and $15 not to smoke.Peter accepts,and both parties are better off.
C)   Bill offers Peter between $5 and $15 not to smoke.Peter declines because he has a right to smoke in the smoking section.
D)   Only a government policy banning smoking in restaurants will solve this problem.

Question 2

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)   Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own,whereas market-based policies regulate behavior directly.
B)   Command-and-control policies rely on taxes,whereas market-based policies rely on quotas.
C)   Command-and-control policies regulate behavior directly,whereas market-based policies provide incentives for private decisionmakers to change their behavior.
D)   Command-and-control policies are efficient,whereas market-based policies are inefficient.

Question 3

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.

Question 4

Which of the following statements is correct?

Accepted Answer

A)   Taxes are more difficult to administer than regulations.
B)   Taxes provide incentives for firms to adopt new methods to reduce negative externalities.
C)   Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own.
D)   Corrective taxes distort incentives.

Question 5

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Yes,these two quantities coul...

Question 6

Figure 10-10 
-Refer to Figure 10-10.Which graph illustrates a corrective tax?

Accepted Answer

A)   the left graph
B)   the right graph
C)   both graphs
D)   neither graph

Question 7

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.

Question 8

In the absence of externalities,the "invisible hand" leads a market to maximize

Accepted Answer

A)   producer profit from that market.
B)   total benefit to society from that market.
C)   both equality and efficiency in that market.
D)   output of goods or services in that market.

Question 9

An externality is

Accepted Answer

A)   the costs that parties incur in the process of agreeing and following through on a bargain.
B)   the uncompensated impact of one person's actions on the well-being of a bystander.
C)   the proposition that private parties can bargain without cost over the allocation of resources.
D)   a market equilibrium tax.

Question 10

Two types of private solutions to the problem of externalities are

Accepted Answer

A)   charities and the Golden Rule.
B)   charities and subsidies.
C)   the Golden Rule and taxes.
D)   taxes and subsidies.

Question 11

Figure 10-2 
-Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,how much plastic will be produced?

Accepted Answer

A)   200
B)   500
C)   650
D)   900

Question 12

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Accepted Answer

A) True 
 B)False

Question 13

Figure 10-9   
-Refer to Figure 10-9.Which graph represents a market with a negative externality?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) 
D)   Both (b) and (c) are correct.

Question 14

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.

Question 15

Table 10-2
The following table shows the private value,private cost,and social value for a market with a positive externality.
 
-Refer to Table 10-2.What is the socially-optimal level of output in this market?

Accepted Answer

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

Question 16

Suppose that flu shots create a positive externality equal to $12 per shot.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.

Question 17

According to the Coase Theorem,individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Accepted Answer

A) True 
 B)False

Question 18

Corrective taxes enhance efficiency,but the cost to administer them exceeds the revenue they raise for the government.

Accepted Answer

A) True 
 B)False

Question 19

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A)   buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
B)   sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
C)   bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
D)   Both (a) and (b) are correct.

Question 20

In many cases the Coase theorem does not work well because

Accepted Answer

A)   there are too few parties at the negotiation table.
B)   the government does not know about the Coase theorem.
C)   transaction costs are too high.
D)   transaction costs are too low.

Exam 10: Externalities

Correct Answer
verified

An externality arises when a person engages in an activity that influences the well-being of

Correct Answer
verified

In the absence of externalities,the "invisible hand" leads a market to maximize

Correct Answer
verified

In many cases the Coase theorem does not work well because

Correct Answer
verified

Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.What is the socially-optimal level of output in this market?

Correct Answer
verified

An externality is

Correct Answer
verified

What is the difference between command-and-control policies and market-based policies toward externalities?

Correct Answer
verified

Figure 10-10 -Refer to Figure 10-10.Which graph illustrates a corrective tax?

Correct Answer
verified

According to the Coase Theorem,individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Correct Answer
verified

Corrective taxes enhance efficiency,but the cost to administer them exceeds the revenue they raise for the government.

Correct Answer
verified

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,how much plastic will be produced?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

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

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a negative externality?

Correct Answer
verified

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

Correct Answer
verified

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Correct Answer
verified
Yes,these two quantities coul...
View Answer

Two types of private solutions to the problem of externalities are

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Correct Answer
verified

Exam 10: Externalities

Correct AnswerverifiedShow Answer

An externality arises when a person engages in an activity that influences the well-being of

Correct AnswerverifiedShow Answer

In the absence of externalities,the "invisible hand" leads a market to maximize

Correct AnswerverifiedShow Answer

In many cases the Coase theorem does not work well because

Correct AnswerverifiedShow Answer

Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.What is the socially-optimal level of output in this market?

Correct AnswerverifiedShow Answer

An externality is

Correct AnswerverifiedShow Answer

What is the difference between command-and-control policies and market-based policies toward externalities?

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10.Which graph illustrates a corrective tax?

Correct AnswerverifiedShow Answer

According to the Coase Theorem,individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Correct AnswerverifiedShow Answer

Corrective taxes enhance efficiency,but the cost to administer them exceeds the revenue they raise for the government.

Correct AnswerverifiedShow Answer

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,how much plastic will be produced?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a negative externality?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Correct Answerverified Yes,these two quantities coul...View AnswerShow Answer

Two types of private solutions to the problem of externalities are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Yes,these two quantities coul...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified