Question 1

Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

Accepted Answer

A)   the after-tax equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked.
B)   the after-tax equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
C)   the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.
D)   There is not enough information to answer the question.E) A) and B)
F) B) and C)

Question 2

When an industry is characterized by technology spillover,what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Accepted Answer

A)   Impose a tax greater than the value of the technology spillover.
B)   Not allow production of any product that causes a technology spillover.
C)   Provide a subsidy equal to the value of the technology spillover.
D)   Require producers to "clean up" any spillover that results from their production process.E) C) and D)
F) B) and D)

Question 3

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.The government will sell 40 pollution permits for $75 each.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.Neither firm produces any less output,but they both conform to the law.It is likely that between the cost of permits and the cost of additional pollution abatement,

Accepted Answer

A)   Firm B will spend $3,500.
B)   Firm A will spend $4,000.
C)   Firm A will spend $4,500.
D)   Firm B will spend $3,000.E) All of the above
F) A) and D)

Question 4

Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 5

Regulations to reduce pollution

Accepted Answer

A)   cause pollution levels to drop below the regulated amount.
B)   are a more costly solution to society than a corrective tax.
C)   allow firms with the lowest cost to reduce pollution by more than those with highest costs.
D)   are a better solution for the environment than a corrective tax.E) A) and B)
F) A) and C)

Question 6

Which of the following is not correct?

Accepted Answer

A)   Markets allocate scarce resources with the forces of supply and demand.
B)   The equilibrium of supply and demand is typically an efficient allocation of resources.
C)   Governments can sometimes improve market outcomes.
D)   Externalities cannot be positive.E) A) and D)
F) A) and C)

Question 7

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 8

Corrective taxes cause deadweight losses,reducing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 9

Market failure can be caused by

Accepted Answer

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

Question 10

If education produces positive externalities and the government does not intervene in the market,we would expect

Accepted Answer

A)   the equilibrium price to be higher than the optimal price.
B)   the equilibrium quantity to be lower than the optimal level.
C)   the equilibrium quantity to be higher than the optimal level.
D)   both a and b are correctE) A) and B)
F) A) and C)

Question 11

Two firms,A and B,each currently emit 100 tons of chemicals into the air.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air.The government gives each firm 40 pollution permits,which it can either use or sell to the other firm.It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air,and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air.It is likely that

Accepted Answer

A)   Firm A will buy all of Firm B's pollution permits.Each one will cost between $100 and $200.
B)   Firm B will buy all of Firm A's pollution permits.Each one will cost between $100 and $200.
C)   Both firms will use their own pollution permits.
D)   Firm A will buy some of Firm B's pollution permits.Each one will cost less than $100.E) A) and C)
F) B) and C)

Question 12

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 the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum,then tax revenue for the government would amount to

Accepted Answer

A)   $1,250.
B)   $1,600.
C)   $2,000.
D)   $2,500.E) All of the above
F) None of the above

Question 13

Assuming education results in a positive externality,which of the following statements is correct?

Accepted Answer

A)   The social cost of producing education exceeds the private cost of producing education.
B)   The positive externality can be depicted on a graph by the vertical distance between the supply curve and the social-cost curve.
C)   The socially optimal quantity of education will exceed the market equilibrium quantity of education.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 14

Table 10-3
 
-Refer to Table 10-3.The market equilibrium quantity of output is

Accepted Answer

A)   3 units.
B)   4 units.
C)   5 units.
D)   6 units.E) A) and B)
F) None of the above

Question 15

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the farmer has the right to compensation for any damage that his crops suffer.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)   The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)   The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)   The farmer will incur $1,500 in damages to his crops.
D)   The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) A) and B)
F) C) and D)

Question 16

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) None of the above
F) B) and C)

Question 17

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

Question 18

One drawback to industrial policy is that

Accepted Answer

A)   technology spillovers are too expensive to control.
B)   measuring the size of spillovers from different markets is difficult.
C)   spillovers often occur in industries that produce undesirable products for society.
D)   positive side effects are often outweighed by negative side effects.E) B) and D)
F) A) and C)

Question 19

Assume that your roommate is very messy.According to campus policy,you have a right to live in an uncluttered apartment.Suppose she gets a $200 benefit from being messy but imposes a $100 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 $100 but less than $200 to live with the clutter.
C)   continue to be messy and force you to move out.
D)   demand payment of at least $100 but no more than $200 to clean up after herself.E) None of the above
F) B) and D)

Question 20

Corrective taxes

Accepted Answer

A)   encourage consumers to avoid sales taxes by shopping online.
B)   are frequently used to discourage imports.
C)   are less efficient than direct regulation.
D)   give factory owners an economic incentive to reduce pollution.E) C) and D)
F) A) and B)

Exam 10: Externalities

Correct Answer
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Correct Answer
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Correct Answer
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If education produces positive externalities and the government does not intervene in the market,we would expect

Correct Answer
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Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

Correct Answer
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Which of the following is not correct?

Correct Answer
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Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

Correct Answer
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Table 10-3 -Refer to Table 10-3.The market equilibrium quantity of output is

Correct Answer
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Assuming education results in a positive externality,which of the following statements is correct?

Correct Answer
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If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Correct Answer
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When an industry is characterized by technology spillover,what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Correct Answer
verified

Corrective taxes

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

Correct Answer
verified

Corrective taxes cause deadweight losses,reducing economic efficiency.

Correct Answer
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Market failure can be caused by

Correct Answer
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One drawback to industrial policy is that

Correct Answer
verified

Assume that your roommate is very messy.According to campus policy,you have a right to live in an uncluttered apartment.Suppose she gets a $200 benefit from being messy but imposes a $100 cost on you.The Coase theorem would suggest that an efficient solution would be for your roommate to

Correct Answer
verified

Correct Answer
verified

In a market economy,government intervention

Correct Answer
verified

Regulations to reduce pollution

Correct Answer
verified

Exam 10: Externalities

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If education produces positive externalities and the government does not intervene in the market,we would expect

Correct AnswerverifiedShow Answer

Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3.The market equilibrium quantity of output is

Correct AnswerverifiedShow Answer

Assuming education results in a positive externality,which of the following statements is correct?

Correct AnswerverifiedShow Answer

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Correct AnswerverifiedShow Answer

When an industry is characterized by technology spillover,what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Correct AnswerverifiedShow Answer

Corrective taxes

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Corrective taxes cause deadweight losses,reducing economic efficiency.

Correct AnswerverifiedShow Answer

Market failure can be caused by

Correct AnswerverifiedShow Answer

One drawback to industrial policy is that

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 a $200 benefit from being messy but imposes a $100 cost on you.The Coase theorem would suggest that an efficient solution would be for your roommate to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a market economy,government intervention

Correct AnswerverifiedShow Answer

Regulations to reduce pollution

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified

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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Correct Answer
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Correct Answer
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