Question 1

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)   Dick pays Jane $600 for her inconvenience.
B)   Jane pays Dick $650 to give the dog to his parents who live on an isolated farm.
C)   Jane pays Dick $800 to give the dog to his parents who live on an isolated farm.
D)   The current situation is efficient.E) B) and D)
F) C) and D)

Question 2

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.E) A) and D)
F) A) and C)

Question 3

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.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)   $3
B)   $5
C)   $7
D)   $9E) B) and D)
F) A) and B)

Question 4

When externalities are present in a market,the well-being of market participants

Accepted Answer

A)   and market bystanders are both directly affected.
B)   and market bystanders are both indirectly affected.
C)   is directly affected,and market bystanders are indirectly affected.
D)   is indirectly affected,and market bystanders are directly affected.E) A) and B)
F) A) and C)

Question 5

John lives in an apartment building and gets a benefit from playing his stereo.Mary,who lives next door to John and often loses sleep due to the loud music coming from John's stereo,bears a cost from the noise.Mary is threatening to call the police to force John to turn down his stereo.Under which of the following conditions would John be able to offer Mary some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

Accepted Answer

A)   The cost of the noise to Mary must exceed the benefit of the music to John.
B)   The benefit of the music to John must exceed the cost of the noise to Mary.
C)   The Coase Theorem guarantees that Mary and John will always be able to come to an agreement that keeps Mary from calling the police regardless of the individual benefits and costs.
D)   The cost of the noise to Mary must exceed the benefit of the music to John by an amount greater than the transaction costs associated with the agreement.E) A) and D)
F) A) and B)

Question 6

Figure 10-9   
-Refer to Figure 10-9,Panel (b) and Panel (c) .The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,a government policy that internalized the externality would move the quantity of antibiotics used from point

Accepted Answer

A)   Q2 to point Q3.
B)   Q3 to point Q2.
C)   Q4 to point Q5.
D)   Q5 to point Q4.E) A) and C)
F) B) and C)

Question 7

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)   private benefit equals the social benefit at the private market solution.
B)   private cost exceeds the private benefit at the private market solution.
C)   social value exceeds the private value at the private market solution.
D)   private cost exceeds the social benefit at the private market solution.E) None of the above
F) B) and C)

Question 8

If a market is characterized by a positive externality that is not the result of a technology spillover,

Accepted Answer

A)   the socially optimal level of output is less than the equilibrium level of output,and the optimal price is greater than the equilibrium price.
B)   the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is less than the equilibrium price.
C)   the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is greater than the equilibrium price.
D)   the socially optimal level of output is less than the equilibrium level of output,and the socially optimal price is less than the equilibrium price.E) A) and B)
F) A) and C)

Question 9

When a transaction between a buyer and seller directly affects a third party,the effect is called an externality.

Accepted Answer

A) True 
 B)False

Question 10

Table 10-1
The following table shows the private value,private cost,and external cost for various quantities of output in a market.
 
-Refer to Table 10-1.What is the equilibrium quantity of output in the market?

Accepted Answer

A)   2 units
B)   3 units
C)   4 units
D)   5 unitsE) A) and D)
F) C) and D)

Question 11

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

Question 12

Emission controls on automobiles are an example of a

Accepted Answer

A)   corrective tax.
B)   command-and-control policy to increase social efficiency.
C)   policy that reduces pollution by allocating resources through market mechanisms.
D)   policy to reduce congestion on urban freeways.E) None of the above
F) B) and D)

Question 13

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.E) None of the above
F) B) and C)

Question 14

Figure 10-9   
-Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

A)   Q2 to point Q3.
B)   Q3 to point Q2.
C)   Q4 to point Q5.
D)   Q5 to point Q4.E) A) and C)
F) None of the above

Question 15

Figure 10-4 1. B)  Q2. C)  Q3. D)  Q4." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4.The socially optimal quantity would be

Accepted Answer

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

Question 16

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   patents.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 17

When a market experiences a positive externality,

Accepted Answer

A)   the demand curve does not reflect the value to society of the good.
B)   too much of the good is being produced.
C)   the government can internalize the externality by imposing a tax on the product.
D)   the private value is greater than the social value.E) None of the above
F) B) and C)

Question 18

When the government uses a command-and-control policy to solve an externality,it

Accepted Answer

A)   is usually the most effective policy option available.
B)   creates policies that directly regulate behavior.
C)   usually involves taxing the consumption of a commodity.
D)   typically refers to the Coase theorem to structure the policy.E) All of the above
F) B) and C)

Question 19

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

Question 20

Which of the following statements is not correct?

Accepted Answer

A)   Patents help internalize the externalities associated with technological advances.
B)   Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution.
C)   Allowing firms to trade pollution permits will lower the total cost of reducing pollution.
D)   A big impediment to implementing the Coase theorem in many cases is high transactions costs.E) A) and B)
F) A) and C)

Exam 10: Externalities

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Correct Answer
verified

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.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Correct Answer
verified

When externalities are present in a market,the well-being of market participants

Correct Answer
verified

Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the equilibrium quantity of output in the market?

Correct Answer
verified

When the government uses a command-and-control policy to solve an externality,it

Correct Answer
verified

When a transaction between a buyer and seller directly affects a third party,the effect is called an externality.

Correct Answer
verified

If a market is characterized by a positive externality that is not the result of a technology spillover,

Correct Answer
verified

Corrective taxes are typically advocated to correct for the effects of

Correct Answer
verified

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

Correct Answer
verified

Emission controls on automobiles are an example of a

Correct Answer
verified

Corrective taxes differ from most taxes in that corrective taxes

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

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

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,a government policy that internalized the externality would move the quantity of antibiotics used from point

Correct Answer
verified

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Correct Answer
verified

When a market experiences a positive externality,

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4.The socially optimal quantity would be

Correct Answer
verified

Correct Answer
verified

When externalities cause markets to be inefficient,

Correct Answer
verified

Exam 10: Externalities

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

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.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Correct AnswerverifiedShow Answer

When externalities are present in a market,the well-being of market participants

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the equilibrium quantity of output in the market?

Correct AnswerverifiedShow Answer

When the government uses a command-and-control policy to solve an externality,it

Correct AnswerverifiedShow Answer

When a transaction between a buyer and seller directly affects a third party,the effect is called an externality.

Correct AnswerverifiedShow Answer

If a market is characterized by a positive externality that is not the result of a technology spillover,

Correct AnswerverifiedShow Answer

Corrective taxes are typically advocated to correct for the effects of

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

Emission controls on automobiles are an example of a

Correct AnswerverifiedShow Answer

Corrective taxes differ from most taxes in that corrective taxes

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,a government policy that internalized the externality would move the quantity of antibiotics used from point

Correct AnswerverifiedShow Answer

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a market experiences a positive externality,

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.The socially optimal quantity would be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When externalities cause markets to be inefficient,

Correct AnswerverifiedShow Answer

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