Question 1

Research into new technologies

Accepted Answer

A)   provides positive externalities because it creates knowledge others can use.
B)   results in negative externalities because government funding for research causes less government spending in other areas.
C)   is protected by patent laws,which eliminates the need for government intervention.
D)   should only be funded by the corporations that will receive the profits from the research.E) B) and C)
F) A) and D)

Question 2

Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 3

Table 10-5
The following table shows the marginal costs for each of four firms (A,B,C,and D) to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $54,and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
 
-Refer to Table 10-5.If the government wanted to eliminate exactly 11 units of pollution,which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $75
B)   $87
C)   $90
D)   $106E) A) and D)
F) A) and B)

Question 4

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. 
-Refer to Figure 10-13.If 325 units of plastics are produced and consumed,then the

Accepted Answer

A)   social optimum has been reached.
B)   market equilibrium has been reached.
C)   government must have imposed a corrective tax to guide the market to this outcome.
D)   government must have offered a corrective subsidy to guide the market to this outcome.E) B) and D)
F) All of the above

Question 5

Figure 10-11 
-Refer to Figure 10-11."The social value of the last unit produced exceeds the private cost of the last unit produced by $9." This statement is correct at which quantity of output?

Accepted Answer

A)   140 units
B)   180 units
C)   220 units
D)   260 unitsE) A) and D)
F) A) and C)

Question 6

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) C) and D)
F) B) and D)

Question 7

Which of the following is an example of an externality?

Accepted Answer

A)   cigarette smoke that permeates an entire restaurant
B)   a flu shot that prevents a student from transmitting the virus to her roommate
C)   a beautiful flower garden outside of the local post office
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 8

Which of the following statements is correct?

Accepted Answer

A)   Automotive manufacturers prefer stricter fuel economy regulations to higher gasoline taxes.
B)   Higher gasoline taxes have provided a market-based incentive for Europeans to buy more fuel-efficient vehicles.
C)   Higher gasoline taxes have had no effect on the U.S.demand for gasoline because the demand for gasoline is perfectly inelastic.
D)   Fuel efficiency regulations are more effective than gasoline taxes in reducing the demand for gasoline in the United States and Europe.E) B) and C)
F) A) and D)

Question 9

Which of the following statements is not correct?

Accepted Answer

A)   Private markets tend to over-produce products with negative externalities.
B)   Private markets tend to under-produce products with positive externalities.
C)   Private parties can bargain to efficient outcomes even in the presence of externalities.
D)   Private parties are usually more successful in achieving efficient outcomes than government policies.E) A) and B)
F) A) and D)

Question 10

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 11

Figure 10-9   
-Refer to Figure 10-9,Panel (b) and Panel (c) .Which of the following is correct?

Accepted Answer

A)   A tax would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome.
B)   A subsidy would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome.
C)   A tax would move the market in Panel (b) closer to the socially optimal outcome,but a subsidy would move the market in Panel (c) closer to the socially optimal outcome.
D)   A subsidy would move the market in Panel (b) closer to the socially optimal outcome,but a tax would move the market in Panel (c) closer to the socially optimal outcome.E) None of the above
F) A) and B)

Question 12

When negative externalities are present in a market

Accepted Answer

A)   private costs will be greater than social costs.
B)   social costs will be greater than private costs.
C)   only government regulation will solve the problem.
D)   the market will not be able to reach any equilibrium.E) A) and B)
F) A) and C)

Question 13

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.Which of the following statements is correct?

Accepted Answer

A)   If the external benefit per unit of output were $0 instead of $2,then the socially efficient quantity of output would be 4 units.
B)   A tax of $4 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output.
C)   Taking the external cost into account,total surplus declines when the 3rd unit of output is produced and consumed.
D)   The market for flu shots is a market to which the concepts in this table apply very well.E) None of the above
F) B) and C)

Question 14

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 C)
F) C) and D)

Question 15

Figure 10-10 th unit is equal to the cost incurred by the seller of the 120th unit. B)  120 units,since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit. C)  160 units,since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. D)  160 units,since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-10.The socially optimal quantity of output is

Accepted Answer

A)   120 units,since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit.
B)   120 units,since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
C)   160 units,since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
D)   160 units,since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.E) A) and B)
F) A) and C)

Question 16

When the government intervenes in markets with externalities,it does so in order to

Accepted Answer

A)   increase production when negative externalities are present.
B)   protect the interests of bystanders.
C)   make certain all benefits are received by market participants.
D)   reduce production when positive externalities are present.E) A) and D)
F) B) and C)

Question 17

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A)   it is hard to estimate the market demand curve and thus charge the "right" corrective tax.
B)   selling pollution permits create a net increase in pollution.
C)   Corrective taxes distort incentives.
D)   Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.E) All of the above
F) B) and D)

Question 18

Patent protection is one way to deal with technology spillovers.

Accepted Answer

A) True 
 B)False

Question 19

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Accepted Answer

A)   the equilibrium quantity of education will be equal to the socially optimal quantity of education.
B)   the equilibrium quantity of education will be greater than the socially optimal quantity of education.
C)   the equilibrium quantity of education will be less than the socially optimal quantity of education.
D)   There is not enough information to answer the question.E) A) and C)
F) All of the above

Question 20

Transaction costs

Accepted Answer

A)   can keep private parties from solving externality problems.
B)   are incurred in the production process due to externalities.
C)   increase when taxes are imposed to correct negative externalities.
D)   are eliminated when the government intervenes in a market with externalities.E) A) and B)
F) B) and C)

Exam 10: Externalities

Correct Answer
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Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13.If 325 units of plastics are produced and consumed,then the

Correct Answer
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Research into new technologies

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

Correct Answer
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When negative externalities are present in a market

Correct Answer
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Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Correct Answer
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In a market economy,government intervention

Correct Answer
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Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .Which of the following is correct?

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Figure 10-10 -Refer to Figure 10-10.The socially optimal quantity of output is

Correct Answer
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Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Correct Answer
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Patent protection is one way to deal with technology spillovers.

Correct Answer
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Transaction costs

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

Correct Answer
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In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct Answer
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Which of the following is an example of an externality?

Correct Answer
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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.Which of the following statements is correct?

Correct Answer
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Figure 10-11 -Refer to Figure 10-11."The social value of the last unit produced exceeds the private cost of the last unit produced by $9." This statement is correct at which quantity of output?

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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When the government intervenes in markets with externalities,it does so in order to

Correct Answer
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Exam 10: Externalities

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Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13.If 325 units of plastics are produced and consumed,then the

Correct AnswerverifiedShow Answer

Research into new technologies

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When negative externalities are present in a market

Correct AnswerverifiedShow Answer

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Correct AnswerverifiedShow Answer

In a market economy,government intervention

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .Which of the following is correct?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10.The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Correct AnswerverifiedShow Answer

Patent protection is one way to deal with technology spillovers.

Correct AnswerverifiedShow Answer

Transaction costs

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

Correct AnswerverifiedShow Answer

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct AnswerverifiedShow Answer

Which of the following is an example of an externality?

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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.Which of the following statements is correct?

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Figure 10-11 -Refer to Figure 10-11."The social value of the last unit produced exceeds the private cost of the last unit produced by $9." This statement is correct at which quantity of output?

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Which of the following statements is not correct?

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When the government intervenes in markets with externalities,it does so in order to

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