Question 1

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 2

All externalities

Accepted Answer

A)   cause markets to fail to allocate resources efficiently.
B)   cause equilibrium prices to be too high.
C)   benefit producers at the expense of consumers.
D)   cause equilibrium prices to be too low.E) All of the above
F) C) and D)

Question 3

When a negative externality exists in a market, the cost to producers

Accepted Answer

A)   is greater than the cost to society.
B)   will be the same as the cost to society.
C)   will be less than the cost to society.
D)   will differ from the cost to society, regardless of whether an externality is present.E) A) and B)
F) A) and D)

Question 4

Technology spillover occurs when

Accepted Answer

A)   a firm passes the high costs of technical research on to society through higher prices.
B)   a firm's research yields technical knowledge that is used by society as a whole.
C)   the government subsidizes firms engaged in high-tech research.
D)   copyright laws prohibit firms from profiting from the research of others.E) None of the above
F) A) and B)

Question 5

Which of the following is an example of a positive externality?

Accepted Answer

A)   A college student buys a new car when she graduates.
B)   The mayor of a small town plants flowers in the city park.
C)   Local high school teachers have pizza delivered every Friday for lunch.
D)   An avid fisherman buys new fishing gear for his next fishing trip.E) All of the above
F) C) and D)

Question 6

At any given quantity, the willingness to pay of the marginal buyer is the height of the .

Accepted Answer

The answer of At any given quantity, the willingness to...

Question 7

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Accepted Answer

The new demand curve...

Question 8

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Accepted Answer

A)   If Dick's benefit exceeds Jane's cost, government intervention is necessary.
B)   Dick will pay to keep his dog if his benefit exceeds Jane's cost.
C)   If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog.
D)   If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.E) A) and B)
F) All of the above

Question 9

Since restored historic buildings convey a positive externality, local governments may choose to

Accepted Answer

A)   regulate the demolition of them.
B)   provide tax breaks to owners who restore them.
C)   increase property taxes in historic areas.
D)   Both a and b are correct.E) All of the above
F) C) and D)

Question 10

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Question 11

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Accepted Answer

A) True 
 B)False

Question 12

Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Accepted Answer

A)   fire extinguishers.
B)   immunizations such as flu shots.
C)   education.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 13

Even if possible, it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 14

According to the Coase theorem, in the presence of externalities

Accepted Answer

A)   private parties can bargain to reach an efficient outcome.
B)   government assistance is necessary to reach an efficient outcome.
C)   the assignment of legal rights can prevent externalities.
D)   the initial distribution of property rights will determine the efficient outcome.E) B) and C)
F) A) and D)

Question 15

Private markets fail to account for externalities because

Accepted Answer

A)   externalities don't occur in private markets.
B)   sellers include costs associated with externalities in the price of their product.
C)   decisionmakers in the market fail to include the costs of their behavior to third parties.
D)   the government cannot easily estimate the optimal quantity of pollution.E) B) and C)
F) None of the above

Question 16

Gretchen is a writer who works from her home. Gretchen lives next door to Randall, the trumpet player for a local band. Randall needs lots of practice to earn his share of the band's profit, which will amount to $350. Gretchen gets distracted by Randall's trumpet playing but she needs to get her writing done to earn $570 for her current article. If Gretchen needs to hire a lawyer to help her reach an agreement with Randall, then what price is Gretchen willing to pay the lawyer?

Accepted Answer

A)   less than $350
B)   less than $450
C)   less than $570
D)   less than $920E) B) and D)
F) B) and C)

Question 17

Figure 10-4 
-Refer to Figure 10-4. This market is characterized by

Accepted Answer

A)   government intervention.
B)   a positive externality.
C)   a negative externality.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 18

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Accepted Answer

A)   shift up by an amount equal to the subsidy.
B)   shift down by an amount less than the subsidy.
C)   shift down by an amount equal to the subsidy.
D)   shift down by an amount greater than the subsidy.E) A) and B)
F) B) and C)

Question 19

A command-and-control policy is another term for a

Accepted Answer

A)   pollution permit.
B)   government regulation.
C)   corrective tax.
D)   Both a and b are correct.E) B) and D)
F) B) and C)

Question 20

Figure 10-3 
-Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Accepted Answer

A)   P0.
B)   P1.
C)   P2.
D)   None of the above is correct.E) All of the above
F) None of the above

Exam 10: Externalities

Technology spillover occurs when

Correct Answer
verified

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Correct Answer
verified

Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Correct Answer
verified

Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Correct Answer
verified

Private markets fail to account for externalities because

Correct Answer
verified

When a negative externality exists in a market, the cost to producers

Correct Answer
verified

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

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Correct Answer
verified

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Correct Answer
verified

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Correct Answer
verified
The new demand curve...
View Answer

At any given quantity, the willingness to pay of the marginal buyer is the height of the .

Correct Answer
verified

Which of the following is an example of a positive externality?

Correct Answer
verified

A command-and-control policy is another term for a

Correct Answer
verified

According to the Coase theorem, in the presence of externalities

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

Correct Answer
verified

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Correct Answer
verified

Since restored historic buildings convey a positive externality, local governments may choose to

Correct Answer
verified

Even if possible, it would be inefficient to prohibit all polluting activity.

Correct Answer
verified

All externalities

Correct Answer
verified

Exam 10: Externalities

Technology spillover occurs when

Correct AnswerverifiedShow Answer

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Correct AnswerverifiedShow Answer

Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Correct AnswerverifiedShow Answer

Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Correct AnswerverifiedShow Answer

Private markets fail to account for externalities because

Correct AnswerverifiedShow Answer

When a negative externality exists in a market, the cost to producers

Correct AnswerverifiedShow Answer

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

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Correct AnswerverifiedShow Answer

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Correct AnswerverifiedShow Answer

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Correct AnswerverifiedThe new demand curve...View AnswerShow Answer

At any given quantity, the willingness to pay of the marginal buyer is the height of the .

Correct AnswerverifiedShow Answer

Which of the following is an example of a positive externality?

Correct AnswerverifiedShow Answer

A command-and-control policy is another term for a

Correct AnswerverifiedShow Answer

According to the Coase theorem, in the presence of externalities

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

Correct AnswerverifiedShow Answer

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Correct AnswerverifiedShow Answer

Since restored historic buildings convey a positive externality, local governments may choose to

Correct AnswerverifiedShow Answer

Even if possible, it would be inefficient to prohibit all polluting activity.

Correct AnswerverifiedShow Answer

All externalities

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The new demand curve...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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