Question 1

Externalities can be corrected by each of the following except

Accepted Answer

A)  self-interest.
B)  moral codes and social sanctions.
C)  charity.
D)  normal market adjustments.

Question 2

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 3

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages.If there are no government subsidies for MBAs,then which of the following statements is correct?

Accepted Answer

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

Question 4

Figure 10-15 
-Refer to Figure 10-15.The supply of pollution permits is

Accepted Answer

A)  elastic and represented by line A.
B)  inelastic and represented by line A.
C)  elastic and represented by line F
D)  inelastic and represented by line F.

Question 5

When technology spillover occurs,

Accepted Answer

A)  it is the government's responsibility to own firms that are engaged in high-tech research.
B)  a firm's research yields technological knowledge that can then be used by society as a whole.
C)  those firms engaged in technology research should be taxed by the government.
D)  firms invest in the latest production technology and the cost of that technology "spills over" to the prices consumers must pay for the product.

Question 6

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)  if the government does not become involved in the process.
B)  when the number of interested parties is large and bargaining costs are high.
C)  if the firm in the market is a monopoly.
D)  if some people benefit from the externality.

Question 7

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 8

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 9

If only a few people are affected by an externality,then it is likely that

Accepted Answer

A)  corrective taxes will provide the most efficient solution to the externality.
B)  command-and-control regulation will provide the most efficient solution to the externality.
C)  a private solution to the inefficiency will occur.
D)  a private solution will be very difficult to negotiate.

Question 10

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the remedy for climate change that is overwhelmingly supported by economists is

Accepted Answer

A)  a "cap and trade" system in which the government would give away permits to emit carbon.
B)  an expansion of regulations on carbon emissions.
C)  stricter enforcement of existing regulations on carbon emissions.
D)  a tax on carbon emissions.

Question 11

When a negative externality exists in a market,the cost to producers

Accepted Answer

A)  is greater than the cost to society.
B)  will be the same as the cost to society.
C)  will be less than the cost to society.
D)  will differ from the cost to society,regardless of whether an externality is present.

Question 12

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 13

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 14

Externalities tend to cause markets to be

Accepted Answer

A)  inefficient.
B)  unequal.
C)  unnecessary.
D)  overwhelmed.

Question 15

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a positive externality exists,the ...

Question 16

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 17

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A)  an opportunity cost.
B)  an implicit cost.
C)  a sunk cost.
D)  a transaction cost.

Question 18

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)  Producers will choose not to produce any pollution.
B)  Producers will internalize the cost of the pollution.
C)  Producers will maximize production.
D)  The value to consumers at market equilibrium will exceed the social cost of production.

Question 19

Using a supply and demand diagram,demonstrate how a negative externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a negative externality exists,the ...

Question 20

Which of the following policies is not an example of a command-and-control policy?

Accepted Answer

A)  subsidies
B)  Pigovian taxes
C)  tradable pollution permits
D)  None of the above is an example of a command-and-control policy.

Exam 10: Externalities

Externalities can be corrected by each of the following except

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Externalities tend to cause markets to be

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

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If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

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

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The Coase theorem suggests that private markets may not be able to solve the problem of externalities

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If only a few people are affected by an externality,then it is likely that

Correct AnswerverifiedShow Answer

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the remedy for climate change that is overwhelmingly supported by economists is

Correct AnswerverifiedShow Answer

When a negative externality exists in a market,the cost to producers

Correct AnswerverifiedShow Answer

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

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Correct Answerverified When a positive externality exists,the ...View AnswerShow Answer

When technology spillover occurs,

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Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages.If there are no government subsidies for MBAs,then which of the following statements is correct?

Correct AnswerverifiedShow Answer

Using a supply and demand diagram,demonstrate how a negative externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Correct Answerverified When a negative externality exists,the ...View AnswerShow Answer

An optimal tax on pollution would result in which of the following?

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Figure 10-15 -Refer to Figure 10-15.The supply of pollution permits is

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Markets sometimes fail to allocate resources efficiently.

Correct AnswerverifiedShow Answer

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

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

Which of the following policies is not an example of a command-and-control policy?

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When a positive externality exists,the ...
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When a negative externality exists,the ...
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Yes,these two quantities coul...
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