Question 1

Suppose that flu shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

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

Question 2

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0fire extinguisher entails the following:
-a private cost of $10;
-an external cost of $0;
-a private value of $9;
-an external benefit of $3.
-
-Refer to Scenario 10-4. In order to reach the social optimum, should fire extinguishers be taxed or subsidized? What is the appropriate amount of the tax or subsidy on each fire extinguisher?

Accepted Answer

Each fire extinguish...

Question 3

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 4

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 C)
F) C) and D)

Question 5

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Accepted Answer

A)   the equilibrium quantity of education will equal 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) B) and C)
F) C) and D)

Question 6

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Accepted Answer

A) True 
 B)False

Question 7

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Accepted Answer

A) True 
 B)False

Question 8

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) B) and C)
F) A) and B)

Question 9

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.  Multiple Choice - Section 02: Public Policies toward Externalities
-Refer to Figure 10-13. In order to reach the social optimum, the government could

Accepted Answer

A)   impose a tax of $2 per unit on plastics.
B)   impose a tax of $6 per unit on plastics.
C)   impose a tax of $8 per unit on plastics.
D)   offer a subsidy of $6 per unit on plastics.E) None of the above
F) C) and D)

Question 10

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 11

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 externality associated with this market? If your answer is "Yes," is the externality positive or negative?

Accepted Answer

There is a positive ...

Question 12

In some cases, tradable pollution permits may be better than a corrective tax because

Accepted Answer

A)   pollution permits allow for a market solution while a corrective tax does not.
B)   pollution permits generate more revenue for the government than a corrective tax.
C)   pollution permits are never preferred over a corrective tax.
D)   the government can set a maximum level of pollution using permits.E) A) and B)
F) A) and D)

Question 13

Which of the following statements is correct about a market in which pollution is emitted?

Accepted Answer

A)   Both corrective taxes and pollution permits internalize the externality of pollution.
B)   Corrective taxes internalize the externality of pollution, but pollution permits do not internalize that externality.
C)   Corrective taxes fail to internalize the externality of pollution, but corrective taxes internalize that externality.
D)   Neither corrective taxes nor pollution permits internalize the externality of pollution.E) None of the above
F) All of the above

Question 14

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. What is the equilibrium quantity of output in this market?

Accepted Answer

A)   3 units
B)   4 units
C)   5 units
D)   6 unitsE) B) and C)
F) B) and D)

Question 15

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

Accepted Answer

A)   $3,000; $1,500
B)   $4,500; $3,500
C)   $4,500; $4,000
D)   $4,500; $2,500E) C) and D)
F) A) and B)

Question 16

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

Accepted Answer

A)   the value of electricity to consumers equals the private cost of producing electricity.
B)   the value of electricity to consumers equals the social cost of producing electricity.
C)   the cost of the externality is maximized.
D)   the transaction costs of private bargaining are minimized.E) A) and B)
F) B) and D)

Question 17

Which of the following would not be considered a negative externality?

Accepted Answer

A)   Smelter, Inc. creates steel and pollution.
B)   Your friend buys a new puppy that barks every night.
C)   You have an adverse reaction to a medication your doctor prescribed for you.
D)   Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.E) A) and B)
F) All of the above

Question 18

Markets are often inefficient when negative externalities are present because

Accepted Answer

A)   private costs exceed social costs at the private market solution.
B)   externalities cannot be corrected without government regulation.
C)   social costs exceed private costs at the private market solution.
D)   production externalities lead to consumption externalities.E) None of the above
F) B) and C)

Question 19

Scenario 10-3  Suppose the equation for the demand curve in a market is
where is the quantity demanded and is the price.    Also, suppose the equation for the supply curve in the same market is ,
where is the quantity supplied. 
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What is the social cost of producing 30 units of the good?

Accepted Answer

The social cost of p...

Question 20

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Accepted Answer

A)   lower taxes on carbon-based fuels such as gasoline.
B)   more and taller skyscrapers.
C)   policies that encourage people to move from large cities to suburban areas.
D)   policies that encourage people to move from suburban areas to rural areas.E) A) and D)
F) B) and D)

Exam 10: Externalities

Correct Answer
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Each fire extinguish...
View Answer

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Correct Answer
verified

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

Correct Answer
verified

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Correct Answer
verified

In some cases, tradable pollution permits may be better than a corrective tax because

Correct Answer
verified

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Correct Answer
verified

Technology spillover occurs when

Correct Answer
verified

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Correct Answer
verified

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. In order to reach the social optimum, the government could

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. What is the equilibrium quantity of output in this market?

Correct Answer
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Which of the following would not be considered a negative externality?

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Which of the following statements is correct about a market in which pollution is emitted?

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

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

Correct Answer
verified

Suppose that flu shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct Answer
verified

Markets are often inefficient when negative externalities are present because

Correct Answer
verified

The Coase theorem states that

Correct Answer
verified

Correct Answer
verified
The social cost of p...
View Answer

Exam 10: Externalities

Correct AnswerverifiedEach fire extinguish...View AnswerShow Answer

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Correct AnswerverifiedShow Answer

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

Correct AnswerverifiedShow Answer

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Correct AnswerverifiedShow Answer

In some cases, tradable pollution permits may be better than a corrective tax because

Correct AnswerverifiedShow Answer

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Correct AnswerverifiedShow Answer

Technology spillover occurs when

Correct AnswerverifiedShow Answer

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Correct AnswerverifiedShow Answer

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. In order to reach the social optimum, the government could

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. What is the equilibrium quantity of output in this market?

Correct AnswerverifiedShow Answer

Which of the following would not be considered a negative externality?

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Which of the following statements is correct about a market in which pollution is emitted?

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Correct AnswerverifiedThere is a positive ...View AnswerShow Answer

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

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

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct AnswerverifiedShow Answer

Markets are often inefficient when negative externalities are present because

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe social cost of p...View AnswerShow Answer

Correct Answer
verified
Each fire extinguish...
View 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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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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There is a positive ...
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Correct Answer
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Correct Answer
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The production of go...
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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The social cost of p...
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