Question 1

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Accepted Answer

A)   social costs equal private costs at the private market solution.
B)   private costs exceed social costs at the private market solution.
C)   social costs exceed private costs at the private market solution.
D)   they internalize externalities.E) A) and B)
F) None of the above

Question 2

Figure 10-17 
-Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)   An amount equal to P' minus P.
B)   An amount equal to P'.
C)   An amount equal to P.
D)   An amount equal to the external cost.E) C) and D)
F) B) and D)

Question 3

Figure 10-9 
-Refer to Figure 10-9, Panel (b)  and Panel (c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

A)   Q2 to point Q3.
B)   Q3 to point Q2.
C)   Q4 to point Q5.
D)   Q5 to point Q4.E) A) and B)
F) B) and C)

Question 4

Positive externalities

Accepted Answer

A)   result in a larger than efficient equilibrium quantity.
B)   result in smaller than efficient equilibrium quantity.
C)   result in an efficient equilibrium quantity.
D)   can be internalized with a corrective tax.E) None of the above
F) B) and C)

Question 5

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) A) and C)

Question 6

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) A) and D)
F) A) and C)

Question 7

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

Accepted Answer

A)   air pollution
B)   a person littering in a public park
C)   a nice garden in front of your neighbor's house
D)   the pollution of a streamE) A) and C)
F) A) and B)

Question 8

When a transaction between a buyer and seller directly affects a third party, the effect is called an externality.

Accepted Answer

A) True 
 B)False

Question 9

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) B) and D)

Question 10

Economists believe that the optimal level of pollution is zero.

Accepted Answer

A) True 
 B)False

Question 11

Figure 10-19 
-Refer to Figure 10-19. The social optimum can be reached if

Accepted Answer

A)   a subsidy of $36 is applied to each unit of the good.
B)   a subsidy of $23 is applied to each unit of the good.
C)   a tax of $23 is applied to each unit of the good.
D)   a tax of $15 is applied to each unit of the good.E) All of the above
F) B) and C)

Question 12

Figure 10-10 
-Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Accepted Answer

A)   120 units
B)   140 units
C)   160 units
D)   The statement is true at all quantities of output.E) C) and D)
F) B) and C)

Question 13

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

Accepted Answer

A)   The social cost of producing good X includes the private cost plus the cost to bystanders of the externality.
B)   The increased social cost can be graphed as a decrease in demand.
C)   The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere.
D)   Both a and b are correct.E) A) and B)
F) A) and C)

Question 14

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

Question 15

When a market is characterized by an externality, the government

Accepted Answer

A)   can correct the market failure only in the case of positive externalities.
B)   can correct the market failure only in the case of negative externalities.
C)   can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality.
D)   cannot correct for externalities due to the existence of patents.E) B) and D)
F) C) and D)

Question 16

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Yes, these two quantities cou...

Question 17

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. 
-Refer to Figure 10-18. The tax depicted on the graph

Accepted Answer

A)   gives polluting firms an incentive to develop cleaner technologies.
B)   is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution.
C)   has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax.
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 18

Two types of private solutions to the problem of externalities are

Accepted Answer

A)   charities and the Golden Rule.
B)   charities and subsidies.
C)   the Golden Rule and taxes.
D)   taxes and subsidies.E) A) and B)
F) A) and C)

Question 19

An externality exists whenever

Accepted Answer

A)   the economy cannot benefit from government intervention.
B)   markets are not able to reach equilibrium.
C)   a firm sells its product in a foreign market.
D)   Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.E) A) and D)
F) A) and C)

Question 20

Altering incentives so that people take account of the external effects of their actions

Accepted Answer

A)   is called internalizing the externality.
B)   can be done by imposing a corrective tax.
C)   is the role of government in markets with externalities.
D)   All of the above are correct.E) All of the above
F) None of the above

Exam 10: Externalities

Altering incentives so that people take account of the external effects of their actions

Correct Answer
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Economists believe that the optimal level of pollution is zero.

Correct Answer
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Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

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

Correct Answer
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When a market is characterized by an externality, the government

Correct Answer
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Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Correct Answer
verified
Yes, these two quantities cou...
View Answer

Two types of private solutions to the problem of externalities are

Correct Answer
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Positive externalities

Correct Answer
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Figure 10-10 -Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Correct Answer
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All externalities

Correct Answer
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Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

Correct Answer
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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

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When a transaction between a buyer and seller directly affects a third party, the effect is called an externality.

Correct Answer
verified

An externality exists whenever

Correct Answer
verified

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The tax depicted on the graph

Correct Answer
verified

Figure 10-19 -Refer to Figure 10-19. The social optimum can be reached if

Correct Answer
verified

Exam 10: Externalities

Altering incentives so that people take account of the external effects of their actions

Correct AnswerverifiedShow Answer

Economists believe that the optimal level of pollution is zero.

Correct AnswerverifiedShow Answer

Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a market is characterized by an externality, the government

Correct AnswerverifiedShow Answer

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Correct Answerverified Yes, these two quantities cou...View AnswerShow Answer

Two types of private solutions to the problem of externalities are

Correct AnswerverifiedShow Answer

Positive externalities

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Correct AnswerverifiedShow Answer

All externalities

Correct AnswerverifiedShow Answer

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

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

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a transaction between a buyer and seller directly affects a third party, the effect is called an externality.

Correct AnswerverifiedShow Answer

An externality exists whenever

Correct AnswerverifiedShow Answer

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The tax depicted on the graph

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. The social optimum can be reached if

Correct AnswerverifiedShow Answer

Correct Answer
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Yes, these two quantities cou...
View Answer

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