Question 1

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

Accepted Answer

A)   $760.
B)   $1,080.
C)   $1,440.
D)   $1,920.

Question 2

Figure 10-10 
-Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Accepted Answer

A)   move the market from a socially efficient outcome to a socially inefficient outcome.
B)   reduce the external cost per unit of output.
C)   increase total economic well-being.
D)   not be an action of which a benevolent social planner would approve.

Question 3

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Accepted Answer

A)   One neighbor doesn't mow his lawn.
B)   One neighbor doesn't paint her house.
C)   One neighbor comes home on his noisy motorcycle late at night.
D)   All of the above are correct.

Question 6

The gasoline tax

Accepted Answer

A)   is similar to most other taxes in that it causes deadweight losses.
B)   produces the unfortunate side-effect of making the roads more dangerous.
C)   can be viewed as a corrective tax aimed at multiple negative externalities associated with driving.
D)   can be viewed as a command-and-control policy aimed at discouraging people from driving.

Question 7

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

Accepted Answer

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

Question 8

Table 10-3
 
-Refer to Table 10-3. The table 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 table.

Question 9

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality. What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

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

Question 10

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.

Question 11

A corrective tax is also known as:

Accepted Answer

A)   a command-and-control regulation.
B)   a Coase tax.
C)   a Pigovian tax.
D)   a Smithian tax.

Question 12

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Accepted Answer

A)   control taxes.
B)   command levies.
C)   Pigovian taxes.
D)   Marshallian taxes.

Question 13

Internalizing a positive externality will cause the demand curve to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged. A

Question 14

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)   an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)   an adverse effect on a bystander who is compensated by the person who causes the effect.
C)   a beneficial effect on a bystander who pays the person who causes the effect.
D)   a beneficial effect on a bystander who does not pay the person who causes the effect.

Question 15

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 16

Figure 10-10 
-Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Accepted Answer

A)   120 units
B)   140 units
C)   160 units
D)   The statement is true at all quantities of output.

Question 17

Figure 10-9
 
-Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Accepted Answer

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

Question 18

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

Accepted Answer

A)   20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.
B)   100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air.
C)   50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air.
D)   20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Question 19

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-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.

Question 20

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Accepted Answer

A)   supply curve for paper would shift to the right.
B)   supply curve for paper would shift to the left.
C)   demand curve for paper would shift to the right.
D)   demand curve for paper would shift to the left.

Exam 10: Externalities

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

Correct Answer
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Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Correct Answer
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The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Correct Answer
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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
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Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct Answer
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The gasoline tax

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

Correct Answer
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C

Table 10-3 -Refer to Table 10-3. The table represents a market in which

Correct Answer
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B

Which of the following statements is not correct?

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A corrective tax is also known as:

Correct Answer
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Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Correct Answer
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Internalizing a positive externality will cause the demand curve to

Correct Answer
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A

A positive externality arises when a person engages in an activity that has

Correct Answer
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A technology spillover is a type of negative externality.

Correct Answer
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Figure 10-10 -Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Correct Answer
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Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Correct Answer
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Correct Answer
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Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct Answer
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A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct Answer
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Exam 10: Externalities

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

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Correct AnswerverifiedShow Answer

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

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

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct AnswerverifiedShow Answer

The gasoline tax

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

Table 10-3 -Refer to Table 10-3. The table represents a market in which

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

A corrective tax is also known as:

Correct AnswerverifiedShow Answer

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Correct AnswerverifiedShow Answer

Internalizing a positive externality will cause the demand curve to

Correct AnswerverifiedA

A positive externality arises when a person engages in an activity that has

Correct AnswerverifiedShow Answer

A technology spillover is a type of negative externality.

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct AnswerverifiedShow Answer

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct AnswerverifiedShow Answer

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C

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B

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A

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