Question 1

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)   Social value exceeds private value,and market quantity exceeds the socially optimal quantity.
B)   Social value is less than private value,and market quantity exceeds the socially optimal quantity.
C)   Social value exceeds private value,and market quantity is less than the socially optimal quantity.
D)   Social value seldom exceeds private value; therefore,social quantity is less than private quantity.

Question 2

Which of the following is an example of a positive externality?

Accepted Answer

A)   Sue not catching the flu because she got a flu vaccine
B)   Mary not catching the flu from Sue because Sue got a flu vaccine
C)   Sue catching the flu because she did not get a flu vaccine
D)   Mary catching the flu from Sue because Sue did not get a flu vaccine

Question 3

Which of the following policies is an example of a command-and-control policy?

Accepted Answer

A)   subsidies to education
B)   maximum levels of pollution that factories may emit
C)   tradable pollution permits
D)   None of the above is an example of a command-and-control policy.

Question 4

When externalities cause markets to be inefficient,

Accepted Answer

A)   government action is always needed to solve the problem.
B)   private solutions can be developed to solve the problem.
C)   given enough time,externalities can be solved through normal market adjustments.
D)   there is no way to eliminate the problem of externalities in a market.

Question 5

An externality

Accepted Answer

A)   results in an equilibrium that does not maximize the total benefits to society.
B)   causes demand to exceed supply.
C)   strengthens the role of the "invisible hand" in the marketplace.
D)   affects buyers but not sellers.

Question 6

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.Such costs are called

Accepted Answer

A)   transaction costs.
B)   corrective costs.
C)   input costs.
D)   private costs.

Question 7

Which of the following statements is correct?

Accepted Answer

A)   Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.
B)   Corrective taxes distort economic incentives.
C)   Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate.
D)   Both a and b are correct.

Question 8

Table 10-3
 th unit of output that is produced is A)  $10. B)  $16. C)  $26. D)  $30." class="answers-bank-image d-inline" rel="preload" >
-Refer to Table 10-3.The social value of the 4th unit of output that is produced is

Accepted Answer

A)   $10.
B)   $16.
C)   $26.
D)   $30.

Question 9

Which of the following is a way to address an externality problem?

Accepted Answer

A)   command and control solution
B)   corrective tax
C)   corrective subsidy
D)   all of the above.

Question 10

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.

Question 11

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.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.The government gives each firm 20 pollution permits.Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other.What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

Accepted Answer

A)   $3,000; $1,500
B)   $4,500; $3,500
C)   $4,500; $4,000
D)   $4,500; $2,500

Question 12

Figure 10-19 
-Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

Accepted Answer

A)   the private cost of the good
B)   the social cost of the good
C)   the private value of the good
D)   the external benefit of the good

Question 13

To determine the optimal level of output in a market with negative externalities,a benevolent social planner would look for the level of output at which private cost equals private value.

Accepted Answer

A) True 
 B)False

Question 14

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 15

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.

Question 16

Which of the following is an example of a positive externality?

Accepted Answer

A)   air pollution
B)   a person littering in a public park
C)   a nice garden in front of your neighbor's house
D)   the pollution of a stream

Question 17

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

Question 18

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 19

A negative 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 20

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)   enhance economic efficiency.
B)   do not raise revenue for the government.
C)   cause deadweight loss.
D)   cannot be divided between the buyer and seller.

Exam 10: Externalities

To determine the optimal level of output in a market with negative externalities,a benevolent social planner would look for the level of output at which private cost equals private value.

Correct Answer
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Corrective taxes differ from most taxes in that corrective taxes

Correct Answer
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Which of the following is a way to address an externality problem?

Correct Answer
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Figure 10-19 -Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

Correct Answer
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Which of the following is an example of a positive externality?

Correct Answer
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A negative externality arises when a person engages in an activity that has

Correct Answer
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When externalities cause markets to be inefficient,

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

Correct Answer
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An externality

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According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Correct Answer
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Which of the following is an example of a positive externality?

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

Correct Answer
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Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.Such costs are called

Correct Answer
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Which of the following policies is an example of a command-and-control policy?

Correct Answer
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Table 10-3 -Refer to Table 10-3.The social value of the 4^th unit of output that is produced is

Correct Answer
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Which of the following is true of markets characterized by positive externalities?

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

Correct Answer
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A positive externality will cause a market to produce

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Exam 10: Externalities

To determine the optimal level of output in a market with negative externalities,a benevolent social planner would look for the level of output at which private cost equals private value.

Correct AnswerverifiedShow Answer

Corrective taxes differ from most taxes in that corrective taxes

Correct AnswerverifiedShow Answer

Which of the following is a way to address an externality problem?

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

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Which of the following is an example of a positive externality?

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

Correct AnswerverifiedShow Answer

When externalities cause markets to be inefficient,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An externality

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According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Correct AnswerverifiedShow Answer

Which of the following is an example of a positive externality?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.Such costs are called

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Which of the following policies is an example of a command-and-control policy?

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Table 10-3 -Refer to Table 10-3.The social value of the 4th unit of output that is produced is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is true of markets characterized by positive externalities?

Correct AnswerverifiedShow Answer

A technology spillover is a type of negative externality.

Correct AnswerverifiedShow Answer

A positive externality will cause a market to produce

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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Table 10-3 -Refer to Table 10-3.The social value of the 4^th unit of output that is produced is

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