Question 1

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 2

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 3

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A)  increase private profit at the expense of consumers.
B)  internalize some forms of positive externalities.
C)  reduce the impact of government regulations on their business.
D)  increase the private marginal cost of production.E) A) and B)
F) A) and D)

Question 4

Figure 10-2
 
-Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per soccer ball?

Accepted Answer

A)  $3
B)  $5.50
C)  $7.50
D)  $10E) All of the above
F) A) and D)

Question 5

The best remedy for market failure is often

Accepted Answer

A)  properly redirected market forces.
B)  central planning.
C)  government regulations.
D)  ignoring externalities.E) B) and C)
F) All of the above

Question 6

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.E) B) and C)
F) A) and B)

Question 7

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Accepted Answer

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

Question 8

In some cases,tradable pollution permits may be better than a corrective tax because

Accepted Answer

A)  pollution permits allow for a market solution while a corrective tax does not.
B)  pollution permits generate more revenue for the government than a corrective tax.
C)  pollution permits are never preferred over a corrective tax.
D)  the government can set a maximum level of pollution using permits.E) B) and D)
F) None of the above

Question 9

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat 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.E) A) and B)
F) All of the above

Question 10

Figure 10-4
 
-Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Accepted Answer

A)  Q₁.
B)  Q₂.
C)  Q₃.
D)  Q₄.E) A) and D)
F) B) and D)

Question 11

Suppose that Maria wants to dine at a fancy restaurant,but the only available table is in the smoking section.Maria dislikes the smell of cigarette smoke.She notices that only one person,John,is smoking in the smoking section.Maria values the absence of smoke at $25.John values the ability to smoke in the restaurant at $20.In order for Maria to pay John not to smoke,she will need to tip the waiter $10 to facilitate the transaction.Which of the following represents an efficient solution?

Accepted Answer

A)  John continues to smoke because the cost to Maria to pay him not to smoke is between $30 and $35, which exceeds the benefit to her of no smoking ($25) .
B)  Maria offers John between $20 and $25 not to smoke, and she pays the waiter $10.John accepts, and both parties are better off.
C)  Maria offers John between $20 and $25 not to smoke, and she pays the waiter $10.John declines because he has a right to smoke in the smoking section.
D)  Maria offers John $10 not to smoke, and she pays the waiter $10.John accepts, and both parties are better off.E) None of the above
F) A) and D)

Question 12

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 13

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)  opportunity costs.
C)  deadweight loss.
D)  corrective taxes.E) A) and B)
F) A) and C)

Question 14

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.E) A) and B)
F) A) and C)

Question 15

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 16

Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.The benefit to Chad of lower utility bills due to the tree's shade in the summer is $300.The cost to Amy of having her lawn cleaned and reseeded is $350.Based on the Coase theorem,

Accepted Answer

A)  Chad should pay Amy $400 so that he may keep the tree.
B)  Chad should pay Amy $350 to have her lawn repaired and cleaned.
C)  Amy should pay Chad $325 to cut down the tree.
D)  Amy should build a fence.E) B) and D)
F) A) and B)

Question 17

Suppose that Maria wants to dine at a fancy restaurant,but the only available table is in the smoking section.Maria dislikes the smell of cigarette smoke.She notices that only one person,John,is smoking in the smoking section.Maria values the absence of smoke at $25.John values the ability to smoke in the restaurant at $15.Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A)  John continues to smoke because he has a right to smoke in the smoking section.
B)  Maria offers John between $15 and $25 not to smoke.John accepts, and both parties are better off.
C)  Maria offers John between $15 and $25 not to smoke.John 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.E) B) and C)
F) A) and D)

Question 18

Tradable pollution permits

Accepted Answer

A)  have prices that are set by the government.
B)  will be more valuable to firms that can reduce pollution only at high costs.
C)  are likely to create a higher level of total pollution.
D)  are less desirable than corrective taxes in reducing pollution.E) A) and C)
F) All of the above

Question 19

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the railroad is not liable for any damage caused to the crops.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)  The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)  The farmer will incur $1,500 in damages to his crops.
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) None of the above
F) All of the above

Question 20

When the social cost curve is above a product's supply curve,

Accepted Answer

A)  the government has intervened in the market.
B)  a negative externality exists in the market.
C)  a positive externality exists in the market.
D)  the distribution of resources is unfair.E) A) and D)
F) B) and D)

Exam 10: Externalities

The best remedy for market failure is often

Correct Answer
verified

Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.The benefit to Chad of lower utility bills due to the tree's shade in the summer is $300.The cost to Amy of having her lawn cleaned and reseeded is $350.Based on the Coase theorem,

Correct Answer
verified

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Correct Answer
verified

Tradable pollution permits

Correct Answer
verified

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?

Correct Answer
verified

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

Correct Answer
verified

In some cases,tradable pollution permits may be better than a corrective tax because

Correct Answer
verified

Correct Answer
verified

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 Answer
verified
When a negative externality exists,the ...
View Answer

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

Correct Answer
verified

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct Answer
verified

Correct Answer
verified

A technology spillover is a type of negative externality.

Correct Answer
verified

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Correct Answer
verified

A positive externality will cause a market to produce

Correct Answer
verified

Correct Answer
verified

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per soccer ball?

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Correct Answer
verified

When the social cost curve is above a product's supply curve,

Correct Answer
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Firms that are involved in more than one type of business could be evidence of an attempt to

Correct Answer
verified

Exam 10: Externalities

The best remedy for market failure is often

Correct AnswerverifiedShow Answer

Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.The benefit to Chad of lower utility bills due to the tree's shade in the summer is $300.The cost to Amy of having her lawn cleaned and reseeded is $350.Based on the Coase theorem,

Correct AnswerverifiedShow Answer

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Correct AnswerverifiedShow Answer

Tradable pollution permits

Correct AnswerverifiedShow Answer

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In some cases,tradable pollution permits may be better than a corrective tax because

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A technology spillover is a type of negative externality.

Correct AnswerverifiedShow Answer

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Correct AnswerverifiedShow Answer

A positive externality will cause a market to produce

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per soccer ball?

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Correct AnswerverifiedShow Answer

When the social cost curve is above a product's supply curve,

Correct AnswerverifiedShow Answer

Firms that are involved in more than one type of business could be evidence of an attempt to

Correct AnswerverifiedShow Answer

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When a negative externality exists,the ...
View Answer

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