Question 1

Why do private markets fail to reach a socially optimal level when negative externalities are present

Accepted Answer

A)  Private benefit exceeds social benefit at the private market solution.
B)  Private costs exceed social costs at the private market solution.
C)  Social costs exceed private costs at the private market solution.
D)  Social benefit exceeds private benefit at the private market solution.E) C) and D)
F) A) and B)

Question 2

What will a positive externality cause a private market to produce

Accepted Answer

A)  less than is socially desirable
B)  more than is socially desirable
C)  more than market equilibrium
D)  less than market equilibriumE) None of the above
F) B) and D)

Question 3

When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality,what does it do

Accepted Answer

A)  It provides incentives for private decision makers to solve the externality problem on their own.
B)  It typically uses command-and-control techniques.
C)  It follows a rule that the use of taxes is strictly forbidden.
D)  It follows a rule that subsidies are always the best policy.E) All of the above
F) C) and D)

Question 4

According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 5

Figure 10-1
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods.
 
-Refer to Figure 10-1.What does the difference between the social cost curve and the supply curve reflect

Accepted Answer

A)  the profit margin of each concert
B)  the cost of spillover effects from the concert (e.g., noise and traffic) 
C)  the value of concerts to society as a whole
D)  the amount by which the city should subsidize the concert organizersE) A) and B)
F) All of the above

Question 6

Hikers frequently claim that livestock grazing in Wilderness Recreation Areas reduces the satisfaction of their recreational hiking experience.What is the economic explanation for this conflict

Accepted Answer

A)  Hikers do not value livestock as much as ranchers.
B)  Grazing cows create negative externalities that make hiking less pleasant.
C)  Ranchers are insensitive to the recreational use of public lands.
D)  Grazing cows is a profit-generating activity, but hiking is not.E) None of the above
F) A) and D)

Question 7

What does the Coase theorem suggest about private solutions to the externality problem

Accepted Answer

A)  They will always allocate resources efficiently if private parties can bargain without cost.
B)  They are effective under all conditions.
C)  They are only efficient when there are negative externalities.
D)  They may not be possible because of the distribution of property rights.E) B) and D)
F) All of the above

Question 8

How have policymakers chosen to solve the problem of too much car exhaust pollution

Accepted Answer

A)  by setting emission standards and limiting driving by commuters
B)  by setting emission standards and taxing gasoline
C)  by taxing car producers and limiting driving by commuters
D)  by taxing gasoline and taxing car producersE) All of the above
F) C) and D)

Question 9

What does internalizing an externality refer to

Accepted Answer

A)  making buyers and sellers take into account the external effects of their actions
B)  making certain that all transactions benefit only buyers and sellers
C)  making certain government does not disrupt the internal workings of the market
D)  making buyers pay the full price for the products they purchaseE) All of the above
F) A) and B)

Question 10

To enhance the well-being of society,when will a social planner encourage firms to increase production

Accepted Answer

A)  when the firms are producing basic goods
B)  when there is a shortage in the market
C)  when technology spillovers are associated with production
D)  when any negative externalities associated with production are imposed only upon consumersE) C) and D)
F) A) and D)

Question 11

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 12

When correcting for an externality,command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Question 13

How do local governments address the problem of barking dogs

Accepted Answer

A)  by imposing leash laws
B)  by requiring owners to purchase "bark collars" for their pets
C)  by imposing disturbing the peace laws
D)  by funding animal control departmentsE) All of the above
F) C) and D)

Question 14

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 15

What is the difference between a corrective tax and pollution permits

Accepted Answer

A)  A corrective tax sets the price of pollution, and permits set the quantity of pollution.
B)  A corrective tax provides a more efficient outcome than permits.
C)  A corrective tax sets the quantity of pollution, and permits set the price of pollution.
D)  Permits provide a more efficient outcome than a corrective tax.E) None of the above
F) B) and C)

Question 16

What does research into new technologies lead to

Accepted Answer

A)  It provides positive externalities because it creates knowledge others can use.
B)  It results in negative externalities because government funding for research leads to cuts in government spending in other areas.
C)  It results in negative externalities because too many resources are used for the small benefits received by society.
D)  It provides positive externalities because it increases profits for the company that receives government funding for research.E) All of the above
F) A) and B)

Question 17

If only a few people are affected by an externality,what will likely happen

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.E) A) and C)
F) All of the above

Question 18

Figure 10-2
 
-Refer to Figure 10-2.What is the market equilibrium quantity

Accepted Answer

A)  Q₁
B)  Q₂
C)  Q₃
D)  Q₄E) B) and D)
F) B) and C)

Question 19

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Accepted Answer

A) True 
 B)False

Question 20

What are corrective taxes enacted to do

Accepted Answer

A)  give inventors exclusive rights to their inventions
B)  correct for the effects of negative externalities
C)  discourage production of undesirable products
D)  adjust markets with positive externalitiesE) A) and B)
F) B) and C)

Exam 10: Externalities

Figure 10-1 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods. -Refer to Figure 10-1.What does the difference between the social cost curve and the supply curve reflect

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To enhance the well-being of society,when will a social planner encourage firms to increase production

Correct AnswerverifiedShow Answer

Figure 10-2 -Refer to Figure 10-2.What is the market equilibrium quantity

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What does research into new technologies lead to

Correct AnswerverifiedShow Answer

What does internalizing an externality refer to

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When correcting for an externality,command-and-control policies are always preferable to market-based policies.

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What are corrective taxes enacted to do

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How do local governments address the problem of barking dogs

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A technology spillover is a type of negative externality.

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Hikers frequently claim that livestock grazing in Wilderness Recreation Areas reduces the satisfaction of their recreational hiking experience.What is the economic explanation for this conflict

Correct AnswerverifiedShow Answer

Government can be used to solve externality problems that are too costly for private parties to solve.

Correct AnswerverifiedShow Answer

If only a few people are affected by an externality,what will likely happen

Correct AnswerverifiedShow Answer

What is the difference between a corrective tax and pollution permits

Correct AnswerverifiedShow Answer

Why do private markets fail to reach a socially optimal level when negative externalities are present

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Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

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What does the Coase theorem suggest about private solutions to the externality problem

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What will a positive externality cause a private market to produce

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When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality,what does it do

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According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

Correct AnswerverifiedShow Answer

How have policymakers chosen to solve the problem of too much car exhaust pollution

Correct AnswerverifiedShow Answer

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