Question 1

Figure 10-9 
-Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Accepted Answer

A)   Panel (a) .
B)   Panel (b) .
C)   Panel (c) .
D)   Both (b)  and (c)  are correct.E) A) and C)
F) A) and B)

Question 2

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. What are the market equilibrium quantity and price?

Accepted Answer

The market equilibri...

Question 3

If only a few people are affected by an externality, then it is likely that

Accepted Answer

A)   corrective taxes will provide the most efficient solution to the externality.
B)   command-and-control regulation will provide the most efficient solution to the externality.
C)   a private solution to the inefficiency will occur.
D)   a private solution will be very difficult to negotiate.E) B) and C)
F) C) and D)

Question 4

A corrective tax is also known as:

Accepted Answer

A)   a command-and-control regulation.
B)   a Coase tax.
C)   a Pigovian tax.
D)   a Smithian tax.E) C) and D)
F) None of the above

Question 5

Market failure can be caused by

Accepted Answer

A)   too much competition.
B)   externalities.
C)   low consumer demand.
D)   scarcity.E) A) and B)
F) B) and D)

Question 6

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) All of the above
F) None of the above

Question 7

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

Question 8

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Accepted Answer

A)   corrective tax.
B)   subsidy.
C)   command-and-control policy.
D)   market-based policy.E) A) and D)
F) A) and C)

Question 9

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-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) A) and D)
F) A) and C)

Question 10

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium 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 B)
F) A) and C)

Question 11

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 12

The best remedy for market failure is often

Accepted Answer

A)   a market-based solution.
B)   shutdown of the market.
C)   no government intervention.
D)   externalizing the externalities.E) A) and B)
F) A) and C)

Question 13

Which of the following statements is not correct?

Accepted Answer

A)   Government policies may improve the market's allocation of resources when negative externalities are present.
B)   Government policies may improve the market's allocation of resources when positive externalities are present.
C)   A positive externality is an example of a market failure.
D)   Without government intervention, the market will tend to undersupply products that produce negative externalities.E) A) and D)
F) A) and C)

Question 14

Which of the following policies is the government most inclined to use when faced with a positive externality?

Accepted Answer

A)   taxation
B)   permits
C)   subsidies
D)   usage feesE) B) and D)
F) B) and C)

Question 15

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Accepted Answer

A)   Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15) .
B)   Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.
C)   Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section.
D)   Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.E) A) and B)
F) B) and C)

Question 16

Figure 10-4 
-Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) A) and B)
F) None of the above

Question 17

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

Accepted Answer

When there is a large number o...

Question 18

In markets, the invisible hand allocates resources efficiently

Accepted Answer

A)   in all cases.
B)   when the buyers and sellers are the only interested parties.
C)   when there are positive externalities, but not when there are negative externalities.
D)   when there are negative externalities, but not when there are positive externalities.E) B) and C)
F) A) and B)

Question 19

The difference between social cost and private cost is a measure of the

Accepted Answer

A)   loss in profit to the seller as the result of a negative externality.
B)   cost of an externality.
C)   cost reduction when the negative externality is eliminated.
D)   cost incurred by the government when it intervenes in the market.E) None of the above
F) B) and C)

Question 20

All remedies for externalities share the goal of

Accepted Answer

A)   moving the allocation of resources toward the market equilibrium.
B)   moving the allocation of resources toward the socially optimal equilibrium.
C)   increasing the allocation of resources.
D)   decreasing the allocation of resources.E) B) and D)
F) A) and B)

Exam 10: Externalities

A corrective tax is also known as:

Correct Answer
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The difference between social cost and private cost is a measure of the

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
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Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-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

Correct Answer
verified

Correct Answer
verified

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Correct Answer
verified

Which of the following policies is the government most inclined to use when faced with a positive externality?

Correct Answer
verified

Market failure can be caused by

Correct Answer
verified

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Correct Answer
verified

In a market economy, government intervention

Correct Answer
verified

All remedies for externalities share the goal of

Correct Answer
verified

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

Correct Answer
verified
When there is a large number o...
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Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Correct Answer
verified

In markets, the invisible hand allocates resources efficiently

Correct Answer
verified

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Correct Answer
verified

If only a few people are affected by an externality, then it is likely that

Correct Answer
verified

The best remedy for market failure is often

Correct Answer
verified

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. What are the market equilibrium quantity and price?

Correct Answer
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The market equilibri...
View Answer

Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Correct Answer
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Exam 10: Externalities

A corrective tax is also known as:

Correct AnswerverifiedShow Answer

The difference between social cost and private cost is a measure of the

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Correct AnswerverifiedShow Answer

Which of the following policies is the government most inclined to use when faced with a positive externality?

Correct AnswerverifiedShow Answer

Market failure can be caused by

Correct AnswerverifiedShow Answer

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Correct AnswerverifiedShow Answer

In a market economy, government intervention

Correct AnswerverifiedShow Answer

All remedies for externalities share the goal of

Correct AnswerverifiedShow Answer

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

Correct AnswerverifiedWhen there is a large number o...View AnswerShow Answer

Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Correct AnswerverifiedShow Answer

In markets, the invisible hand allocates resources efficiently

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Correct AnswerverifiedShow Answer

If only a few people are affected by an externality, then it is likely that

Correct AnswerverifiedShow Answer

The best remedy for market failure is often

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe market equilibri...View AnswerShow Answer

Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Correct AnswerverifiedShow Answer

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When there is a large number o...
View Answer

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Correct Answer
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Correct Answer
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The market equilibri...
View Answer

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