Question 1

When negative externalities are present in a market,

Accepted Answer

A)  producers will be affected but consumers will not.
B)  producers will supply too much of the product.
C)  demand will be too high.
D)  the market will still maximize total benefits.E) A) and B)
F) C) and D)

Question 2

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) None of the above
F) All of the above

Question 3

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Accepted Answer

A)  The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly.
B)  The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander.
C)  The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly.
D)  Externalities arise in all of the above cases.E) None of the above
F) A) and C)

Question 4

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Accepted Answer

A)  impose a tax on alcohol that is equal to the per-unit externality
B)  offer a subsidy on alcohol that is equal to the per-unit externality
C)  impose a regulation limiting the amount of alcohol that each consumer can purchase
D)  nothingE) A) and C)
F) A) and B)

Question 5

According to the Coase theorem, in the presence of externalities

Accepted Answer

A)  private parties can bargain to reach an efficient outcome.
B)  government assistance is necessary to reach an efficient outcome.
C)  the assignment of legal rights can prevent externalities.
D)  the initial distribution of property rights will determine the efficient outcome.E) B) and C)
F) None of the above

Question 6

Figure 10-9   
-Refer to Figure 10-9, Panel (b) . The market equilibrium price is

Accepted Answer

A)  P2.
B)  P3a.
C)  P3b.
D)  P3a - P3b.E) A) and D)
F) A) and B)

Question 7

Figure 10-19 
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Accepted Answer

A)  benefit of $15.
B)  benefit of $36.
C)  cost of $15.
D)  cost of $36.E) C) and D)
F) All of the above

Question 8

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

Question 9

The Coase theorem suggests that private solutions to an externality problem

Accepted Answer

A)  are effective under all conditions.
B)  will usually allocate resources efficiently if private parties can bargain without cost.
C)  are only efficient when there are negative externalities.
D)  may not be possible because of the distribution of property rights.E) B) and C)
F) A) and D)

Question 10

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial _________ costs.

Accepted Answer

The answer of In some situations, private economic actors cannot...

Question 11

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

Question 12

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command-and-control policy or is it a market-based policy?

Accepted Answer

A Pigovian...

Question 13

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A)  Ed is allergic to his roommate's cat.
B)  Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada.
C)  Polluted water runoff from farms is making residents of a nearby town sick.
D)  Industrialization around the world is causing global warming.E) All of the above
F) A) and C)

Question 14

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 B)

Question 15

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)  Each party involved holds out for a better deal.
B)  The externality is large.
C)  Only problems with a sufficiently large number of parties can be solved.
D)  There is a lack of government intervention.E) A) and D)
F) A) and C)

Question 16

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, the external benefit of smokestack scrubber installation is represented by

Accepted Answer

A)  Q3 - Q2.
B)  Q5 - Q4.
C)  P3a - P3b.
D)  P4a - P4b.E) A) and B)
F) All of the above

Question 17

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

Accepted Answer

A)  Sue not catching the flu because she got a flu vaccine
B)  Mary not catching the flu from Sue because Sue got a flu vaccine
C)  Sue catching the flu because she did not get a flu vaccine
D)  Mary catching the flu from Sue because Sue did not get a flu vaccineE) B) and C)
F) A) and D)

Question 18

A patent is used to

Accepted Answer

A)  disseminate information.
B)  offset the negative effects of taxes.
C)  protect inventors for as long as they live.
D)  assign property rights.E) A) and C)
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 are the socially optimal quantity and price?

Accepted Answer

The socially optimal...

Question 20

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Accepted Answer

A)  alleviating the negative externalities that are associated with charitable giving.
B)  imposing a negative externality on those who do not pay income taxes.
C)  encouraging a private solution to a positive-externality problem.
D)  encouraging a private solution to a negative-externality problem.E) A) and B)
F) B) and D)

Exam 10: Externalities

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Correct Answer
verified

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Correct Answer
verified

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial _________ costs.

Correct Answer
verified

When negative externalities are present in a market,

Correct Answer
verified

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

Correct Answer
verified

According to the Coase theorem, in the presence of externalities

Correct Answer
verified

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, the external benefit of smokestack scrubber installation is represented by

Correct Answer
verified

A patent is used to

Correct Answer
verified

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9, Panel (b) . The market equilibrium price is

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

Correct Answer
verified
The socially optimal...
View Answer

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Correct Answer
verified

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct Answer
verified

Which of the following is a problem that keeps people from privately solving externality problems?

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command-and-control policy or is it a market-based policy?

Correct Answer
verified
A Pigovian...
View Answer

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

Correct Answer
verified

One drawback to industrial policy is that

Correct Answer
verified

The Coase theorem suggests that private solutions to an externality problem

Correct Answer
verified

Exam 10: Externalities

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Correct AnswerverifiedShow Answer

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Correct AnswerverifiedShow Answer

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial _________ costs.

Correct AnswerverifiedShow Answer

When negative externalities are present in a market,

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

According to the Coase theorem, in the presence of externalities

Correct AnswerverifiedShow Answer

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, the external benefit of smokestack scrubber installation is represented by

Correct AnswerverifiedShow Answer

A patent is used to

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (b) . The market equilibrium price is

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

Correct AnswerverifiedThe socially optimal...View AnswerShow Answer

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Correct AnswerverifiedShow Answer

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct AnswerverifiedShow Answer

Which of the following is a problem that keeps people from privately solving externality problems?

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command-and-control policy or is it a market-based policy?

Correct AnswerverifiedA Pigovian...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

One drawback to industrial policy is that

Correct AnswerverifiedShow Answer

The Coase theorem suggests that private solutions to an externality problem

Correct AnswerverifiedShow 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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The socially optimal...
View 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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A Pigovian...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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