Question 1

Figure 10-11 
-Refer to Figure 10-11. On the

Accepted Answer

A)   390th unit of output, private value exceeds private cost.
B)   390th unit of output, private value exceeds external value.
C)   450th unit of output, private value exceeds social value.
D)   450th unit of output, private cost exceeds social value.E) B) and C)
F) A) and C)

Question 2

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Accepted Answer

We call th...

Question 3

When negative externalities are present in a market,

Accepted Answer

A)   producers will be affected but consumers will not.
B)   producers will supply too much of the product.
C)   demand will be too high.
D)   the market will still maximize total benefits.E) B) and C)
F) All of the above

Question 4

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Accepted Answer

A)   social cost
B)   opportunity cost of technology
C)   internalization of an externality
D)   technology spilloverE) A) and B)
F) None of the above

Question 5

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

Accepted Answer

A)   $4.00
B)   $6.00
C)   $7.00
D)   $10.00E) B) and D)
F) None of the above

Question 6

A cost imposed on someone who is neither the consumer nor the producer is called a

Accepted Answer

A)   corrective tax.
B)   command and control policy.
C)   positive externality.
D)   negative externality.E) B) and C)
F) A) and D)

Question 7

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Accepted Answer

A)   Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.
B)   Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200.
C)   Both firms will use their own pollution permits.
D)   Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.E) None of the above
F) C) and D)

Question 8

The Coase theorem states that

Accepted Answer

A)   taxes are an efficient way for governments to remedy negative externalities.
B)   subsidies are an efficient way for governments to remedy positive externalities.
C)   industrial policies encourage technology spillovers.
D)   in the absence of transaction costs, private parties can solve the problem of externalities on their own.E) A) and B)
F) B) and C)

Question 9

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Accepted Answer

A)   maximize attorney fees.
B)   reduce the incentive of attorneys to file class action lawsuits.
C)   reduce the transaction costs of finding a private solution to an externality.
D)   regulate attorney fees.E) A) and B)
F) A) and C)

Question 10

A positive externality occurs when

Accepted Answer

A)   Jack receives a benefit from John's consumption of a certain good.
B)   Jack receives personal benefits from his own consumption of a certain good.
C)   Jack's benefit exceeds John's benefit when they each consume the same good.
D)   Jack's receives a loss from John's consumption of a certain good.E) A) and B)
F) B) and C)

Question 11

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 12

If gasoline taxes were significantly increased in the United States, then

Accepted Answer

A)   some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary.
B)   other taxes, such as income taxes, could be lowered.
C)   it is likely that roads would become safer and the environment would become cleaner.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 13

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)   Prices are set by supply and demand.
B)   Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.
C)   Real-world markets for pollution permits include sulfur dioxide and carbon.
D)   Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.E) A) and B)
F) A) and C)

Question 14

The Golden Rule is an example of a private solution for

Accepted Answer

A)   subsidizing higher education.
B)   internalizing externalities.
C)   increasing production.
D)   reducing scarcity.E) A) and D)
F) A) and C)

Question 15

If education produces positive externalities, we would expect

Accepted Answer

A)   the government to tax education.
B)   the government to subsidize education.
C)   people to realize the benefits, which would increase the demand for education.
D)   colleges to relax admission requirements.E) B) and C)
F) None of the above

Question 16

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go...

Question 17

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

Accepted Answer

A)   $1.90 and 38 units, respectively.
B)   $1.80 and 35 units, respectively.
C)   $1.60 and 42 units, respectively.
D)   $1.35 and 58 units, respectively.E) A) and C)
F) B) and D)

Question 18

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, the external benefit of smokestack scrubber installation is represented by

Accepted Answer

A)   Q3 - Q2.
B)   Q5 - Q4.
C)   P3a - P3c.
D)   P4a - P4b.E) None of the above
F) A) and C)

Question 19

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Accepted Answer

The restoration of h...

Question 20

Figure 10-11 
-Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Accepted Answer

A)   the private value of the last unit of output that was produced and sold
B)   the social value of the last unit of output that was produced and sold
C)   the external benefit of the last unit of output that was produced and sold
D)   the private cost of the last unit of output that was produced and soldE) All of the above
F) A) and C)

Exam 10: Externalities

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

Correct Answer
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If education produces positive externalities, we would expect

Correct Answer
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When negative externalities are present in a market,

Correct Answer
verified

Correct Answer
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The Coase theorem states that

Correct Answer
verified

If gasoline taxes were significantly increased in the United States, then

Correct Answer
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The Golden Rule is an example of a private solution for

Correct Answer
verified

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Correct Answer
verified

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Correct Answer
verified
The restoration of h...
View Answer

Figure 10-11 -Refer to Figure 10-11. On the

Correct Answer
verified

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Correct Answer
verified
The production of go...
View Answer

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Correct Answer
verified
We call th...
View Answer

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct Answer
verified

A positive externality occurs when

Correct Answer
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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, the external benefit of smokestack scrubber installation is represented by

Correct Answer
verified

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

Correct Answer
verified

A cost imposed on someone who is neither the consumer nor the producer is called a

Correct Answer
verified

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Correct Answer
verified

Which of the following is not a characteristic of pollution permits?

Correct Answer
verified

Exam 10: Externalities

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

Correct AnswerverifiedShow Answer

If education produces positive externalities, we would expect

Correct AnswerverifiedShow Answer

When negative externalities are present in a market,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

If gasoline taxes were significantly increased in the United States, then

Correct AnswerverifiedShow Answer

The Golden Rule is an example of a private solution for

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Correct AnswerverifiedShow Answer

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Correct AnswerverifiedThe restoration of h...View AnswerShow Answer

Figure 10-11 -Refer to Figure 10-11. On the

Correct AnswerverifiedShow Answer

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Correct AnswerverifiedThe production of go...View AnswerShow Answer

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Correct AnswerverifiedWe call th...View AnswerShow Answer

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct AnswerverifiedShow Answer

A positive externality occurs when

Correct AnswerverifiedShow Answer

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, the external benefit of smokestack scrubber installation is represented by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A cost imposed on someone who is neither the consumer nor the producer is called a

Correct AnswerverifiedShow Answer

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of pollution permits?

Correct AnswerverifiedShow Answer

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The restoration of h...
View Answer

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The production of go...
View Answer

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We call th...
View Answer

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