Question 1

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

Accepted Answer

A)   stop her messy habits or else move out.
B)   pay you at least $60 but less than $80 to live with the clutter.
C)   continue to be messy and force you to move out.
D)   demand payment of at least $60 but no more than $80 to clean up after herself.E) A) and B)
F) C) and D)

Question 2

A negative externality

Accepted Answer

A)   is a cost to a bystander.
B)   is a cost to the buyer.
C)   is a cost to the seller.
D)   exists with all market transactions.E) A) and B)
F) None of the above

Question 3

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)   the "invisible hand"
B)   the law of diminishing social returns
C)   the Coase theorem
D)   technology policyE) A) and B)
F) A) and C)

Question 4

Accepted Answer

Refer to Figure 10-12. An alternative label for the quantity  would be ) undefined
 ) undefined

Question 5

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)   tax university researchers
B)   offer grants to university researchers
C)   eliminate subsidized student loans
D)   nothingE) None of the above
F) A) and D)

Question 6

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, how much plastic will be produced?

Accepted Answer

A)   200
B)   500
C)   650
D)   900E) A) and D)
F) A) and C)

Question 7

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

Accepted Answer

A)   equalize private value and private cost.
B)   equalize private cost and external cost.
C)   externalize the actions of the buyers and sellers.
D)   internalize the externality.E) A) and C)
F) A) and D)

Question 8

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-9
 
-Refer to Figure 10-9, Panel (c) . The market equilibrium quantity is

Accepted Answer

A)   Q4, which is the socially optimal quantity.
B)   Q5, which is the socially optimal quantity.
C)   Q4, and the socially optimal quantity is Q5.
D)   Q5, and the socially optimal quantity is Q4.E) B) and D)
F) All of the above

Question 10

According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Accepted Answer

A) True 
 B)False

Question 11

The tax on cigarettes is an example of

Accepted Answer

A)   a consumption tax.
B)   a corrective tax.
C)   an income tax.
D)   a command-and-control policy.E) A) and B)
F) A) and C)

Question 12

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0restored historic building entails the following:
-a private cost of $800,000;
-a private value of $650,000;
-a social value of $800,000.
-Refer to Scenario 10-2. Is there an external cost associated with the restoration of the 50th historic building, or is there an external benefit? What is the amount of that external cost or external benefit?

Accepted Answer

There is an external benefit o...

Question 13

Figure 10-4 
-Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Accepted Answer

A)   decreased to Q1.
B)   decreased to Q2.
C)   decreased to Q3.
D)   stayed at Q4.E) All of the above
F) B) and D)

Question 14

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 15

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

Accepted Answer

A)   Wally pays Corrine $600 for her inconvenience.
B)   Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm.
C)   Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm.
D)   The current situation is efficient.E) C) and D)
F) All of the above

Question 16

In a market economy, government intervention

Accepted Answer

A)   will always improve market outcomes.
B)   reduces efficiency in the presence of externalities.
C)   may improve market outcomes in the presence of externalities.
D)   is necessary to control individual greed.E) All of the above
F) None of the above

Question 17

Table 10-4
 
-Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

Accepted Answer

A)   $23.
B)   $7.
C)   $30.
D)   $38.E) A) and B)
F) B) and D)

Question 18

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Accepted Answer

A)   increases the social cost above the private cost.
B)   lowers the social cost below the private cost.
C)   increases the social value above the private benefit.
D)   decreases the social value below the private benefit.E) B) and C)
F) A) and D)

Question 19

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

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) All of the above
F) C) and D)

Question 20

Patents do not

Accepted Answer

A)   provide firms an incentive to research.
B)   assign property rights to inventors.
C)   protect the rights of inventors for their lifetimes.
D)   internalize externalities.E) None of the above
F) B) and C)

Exam 10: Externalities

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct Answer
verified

According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Correct Answer
verified

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

Correct Answer
verified

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

Correct Answer
verified

Table 10-4 -Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

Correct Answer
verified

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

Correct Answer
verified

A negative externality

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9, Panel (c) . The market equilibrium quantity is

Correct Answer
verified

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

Correct Answer
verified

Correct Answer
verified

In a market economy, government intervention

Correct Answer
verified

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

Correct Answer
verified

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Correct Answer
verified

Correct Answer
verified
There is an external benefit o...
View Answer

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Correct Answer
verified

The tax on cigarettes is an example of

Correct Answer
verified

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, how much plastic will be produced?

Correct Answer
verified

Patents do not

Correct Answer
verified

Correct Answer
verified

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct Answer
verified

Exam 10: Externalities

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct AnswerverifiedShow Answer

According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Correct AnswerverifiedShow Answer

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

Correct AnswerverifiedShow Answer

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

Correct AnswerverifiedShow Answer

A negative externality

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (c) . The market equilibrium quantity is

Correct AnswerverifiedShow Answer

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a market economy, government intervention

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThere is an external benefit o...View AnswerShow Answer

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Correct AnswerverifiedShow Answer

The tax on cigarettes is an example of

Correct AnswerverifiedShow Answer

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, how much plastic will be produced?

Correct AnswerverifiedShow Answer

Patents do not

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct AnswerverifiedShow Answer

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There is an external benefit o...
View Answer

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