Question 1

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

Question 2

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 3

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway.This is an example of a negative externality.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is correct?

Accepted Answer

A)   Gasoline taxes are an example of an EPA regulation.
B)   Gasoline taxes are higher in many European countries than in the United States.
C)   Gasoline taxes contribute to global warming.
D)   Gasoline taxes are an example of a command-and-control policy.E) A) and D)
F) C) and D)

Question 5

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

Question 6

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.Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal.Which of the following is a likely auction price of the permits?

Accepted Answer

A)   $69
B)   $81
C)   $83
D)   $97E) A) and B)
F) A) and C)

Question 7

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 C)
F) All of the above

Question 8

Figure 10-6 
-Refer to Figure 10-6.Which price represents the equilibrium price of the product in this market?

Accepted Answer

A)   P
B)   P'
C)   Either P or P'.It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price.
D)   Some price between P and P'.The equilibrium price depends on the negotiating skills of the interested parties.E) A) and B)
F) C) and D)

Question 9

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Accepted Answer

A)   One neighbor lets his dog run through another neighbor's garden,damaging her flowers.
B)   One neighbor doesn't mow her yard.
C)   One neighbor plays his music loudly.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 10

The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is not correct?

Accepted Answer

A)   Corrective taxes can be used to place a price on the right to pollute.
B)   Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution.
C)   Corrective taxes provide incentives to develop cleaner technologies.
D)   Corrective taxes require the government to set a target level of pollution.E) C) and D)
F) B) and C)

Question 12

Dick owns a dog whose barking annoys Dick's neighbor Jane.Dick receives personal benefit from owning the dog,and Jane bears a cost of Dick's ownership of the dog.Assuming Jane has the legal right to peace and quiet,which of the following statements is correct?

Accepted Answer

A)   If Dick's benefit exceeds Jane's cost,government intervention is necessary.
B)   Dick will pay to keep his dog if his benefit exceeds Jane's cost.
C)   If Jane's cost exceeds Dick's benefit,Dick will pay Jane to keep his dog.
D)   If Jane has the legal right to peace and quiet,no further transactions will be mutually beneficial.E) A) and B)
F) All of the above

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 move the market toward the social optimum.
B)   Corrective taxes move the market toward the social optimum,but pollution permits do not move the market toward the social optimum.
C)   Pollution permits move the market toward the social optimum,but corrective taxes do not move the market toward the social optimum.
D)   Neither corrective taxes nor pollution permits move the market toward the social optimum.E) B) and D)
F) None of the above

Question 14

Internalizing a positive externality will cause the demand curve to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged.E) All of the above
F) B) and C)

Question 15

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 D)

Question 16

At any given quantity,the cost of the marginal seller is the height of the __________.

Accepted Answer

The answer of At any given quantity,the cost of the...

Question 17

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Accepted Answer

A) True 
 B)False

Question 18

Figure 10-19 
-Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

Accepted Answer

A)   the private cost of the good
B)   the social cost of the good
C)   the private value of the good
D)   the external benefit of the goodE) A) and C)
F) All of the above

Question 19

Figure 10-12 
-Refer to Figure 10-12.Which of the following is an appropriate label for Line 2?

Accepted Answer

A)   social cost
B)   social value
C)   private cost
D)   private valueE) A) and B)
F) None of the above

Question 20

According to the Coase theorem,private parties can solve the problem of externalities if

Accepted Answer

A)   the cost of bargaining is small.
B)   the initial distribution of legal rights favors the person being adversely affected by the externality.
C)   the number of parties involved is sufficiently large.
D)   All of the above are correct.E) C) and D)
F) None of the above

Exam 10: Externalities

Which of the following statements is not correct?

Correct Answer
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All externalities

Correct Answer
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Figure 10-19 -Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

Correct Answer
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When negative externalities are present in a market

Correct Answer
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According to the Coase theorem,private parties can solve the problem of externalities if

Correct Answer
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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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Figure 10-12 -Refer to Figure 10-12.Which of the following is an appropriate label for Line 2?

Correct Answer
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When a driver enters a crowded highway he increases the travel times of all other drivers on the highway.This is an example of a negative externality.

Correct Answer
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Which of the following statements is correct?

Correct Answer
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At any given quantity,the cost of the marginal seller is the height of the __________.

Correct Answer
verified

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

Correct Answer
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The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Correct Answer
verified

Correct Answer
verified

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Correct Answer
verified

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct Answer
verified

Internalizing a positive externality will cause the demand curve to

Correct Answer
verified

The Coase theorem states that

Correct Answer
verified

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

Correct Answer
verified

Figure 10-6 -Refer to Figure 10-6.Which price represents the equilibrium price of the product in this market?

Correct Answer
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Dick owns a dog whose barking annoys Dick's neighbor Jane.Dick receives personal benefit from owning the dog,and Jane bears a cost of Dick's ownership of the dog.Assuming Jane has the legal right to peace and quiet,which of the following statements is correct?

Correct Answer
verified

Exam 10: Externalities

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

All externalities

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

Correct AnswerverifiedShow Answer

When negative externalities are present in a market

Correct AnswerverifiedShow Answer

According to the Coase theorem,private parties can solve the problem of externalities if

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12.Which of the following is an appropriate label for Line 2?

Correct AnswerverifiedShow Answer

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway.This is an example of a negative externality.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

At any given quantity,the cost of the marginal seller is the height of the __________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Correct AnswerverifiedShow Answer

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct AnswerverifiedShow Answer

Internalizing a positive externality will cause the demand curve to

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-6 -Refer to Figure 10-6.Which price represents the equilibrium price of the product in this market?

Correct AnswerverifiedShow Answer

Dick owns a dog whose barking annoys Dick's neighbor Jane.Dick receives personal benefit from owning the dog,and Jane bears a cost of Dick's ownership of the dog.Assuming Jane has the legal right to peace and quiet,which of the following statements is correct?

Correct AnswerverifiedShow Answer

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