Question 1

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

Question 2

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Question 3

Figure 10-19 
-Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1)  Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2)  private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 74th unit of the good is produced and consumed, social well-being

Accepted Answer

A)  decreases by $2.40.
B)  decreases by $1.60.
C)  increases by $1.00.
D)  increases by $1.40.E) A) and B)
F) A) and C)

Question 4

Which of the following is an example of an externality?

Accepted Answer

A)  cigarette smoke that permeates an entire restaurant
B)  a flu shot that prevents a student from transmitting the virus to her roommate
C)  a beautiful flower garden outside of the local post office
D)  All of the above are correct.E) A) and C)
F) None of the above

Question 5

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)  Prices are set by supply and demand.
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.
C)  Real-world markets for pollution permits include sulfur dioxide and carbon.
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.E) A) and D)
F) A) and B)

Question 6

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

Question 7

The tax on gasoline

Accepted Answer

A)  reduces efficiency by causing large deadweight losses.
B)  reduces efficiency by decreasing consumer surplus and producer surplus.
C)  enhances efficiency by serving as a corrective device in a market with positive externalities.
D)  enhances efficiency by serving as a corrective device in a market with negative externalities.E) A) and B)
F) None of the above

Question 8

Reaching an efficient bargain is difficult when the

Accepted Answer

A)  externality is large.
B)  number of interested parties is large.
C)  externality is negative.
D)  government becomes involved.E) B) and D)
F) B) and C)

Question 9

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Accepted Answer

A)  adherence to the notion of the invisible hand
B)  command-and-control policies
C)  the development and enforcement of regulations
D)  the requirement that decision makers bear the full costs of their actionsE) None of the above
F) B) and D)

Question 10

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Accepted Answer

A)  Karen should pay Danny $400 so that she may keep her cat.
B)  Karen should pay Danny $350 for tissues and allergy medication.
C)  Danny should pay Karen $325 to give away her cat.
D)  Danny should move.E) B) and D)
F) B) and C)

Question 11

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

Question 12

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain? (i) 
Corrective taxes
(ii) 
Tradable pollution permits
(iii) 
Amendments to the Clean Air Act

Accepted Answer

A)  (i)  only
B)  both (i)  and (ii) 
C)  (iii)  only
D)  both (ii)  and (iii) E) C) and D)
F) B) and C)

Question 13

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Accepted Answer

A)  relies on moral codes to reduce the pollution externality.
B)  relies on the Coase Theorem.
C)  discriminates against foreigners.
D)  relies on incentives to reduce the pollution externality.E) A) and B)
F) A) and C)

Question 14

The Coase theorem states that

Accepted Answer

A)  under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present.
B)  government intervention is always required to reach an efficient outcome when an externality is present.
C)  government intervention cannot lead to an efficient outcome when an externality is present.
D)  only negative externalities can be resolved using government intervention.E) A) and D)
F) A) and C)

Question 15

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Is the socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The socially optimal...

Question 16

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

Accepted Answer

A)  the government will play a role in collective action.
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 D)
F) B) and C)

Question 17

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.
​

Accepted Answer

A) True 
 B)False

Question 18

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Accepted Answer

A)  reflect the fact that restored historic buildings convey a positive externality.
B)  reflect the fact that the destruction of historic buildings conveys a positive externality.
C)  are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings.
D)  are likely to decrease the well-being of society as a whole.E) A) and B)
F) A) and C)

Question 19

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

Question 20

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Accepted Answer

A)  the production of good x imposes external costs on society.
B)  the private value of good x exceeds the private cost of good x when 5,000 units are produced.
C)  the private cost of good x exceeds the private value of good x when 5,000 units are produced.
D)  the social cost of good x exceeds the private value of good x when 4,000 units are produced.E) All of the above
F) None of the above

Exam 10: Externalities

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

Correct Answer
verified

The Coase theorem states that

Correct Answer
verified

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Correct Answer
verified

Positive externalities

Correct Answer
verified

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Correct Answer
verified

All remedies for externalities share the goal of

Correct Answer
verified

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct Answer
verified

Corrective taxes

Correct Answer
verified

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Correct Answer
verified

Reaching an efficient bargain is difficult when the

Correct Answer
verified

Correct Answer
verified
The socially optimal...
View Answer

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct Answer
verified

Correct Answer
verified

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain? (i) Corrective taxes (ii) Tradable pollution permits (iii) Amendments to the Clean Air Act

Correct Answer
verified

Which of the following is not a characteristic of pollution permits?

Correct Answer
verified

Which of the following is an example of an externality?

Correct Answer
verified

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Correct Answer
verified

The tax on gasoline

Correct Answer
verified

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

Correct Answer
verified

Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.

Correct Answer
verified

Exam 10: Externalities

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

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Correct AnswerverifiedShow Answer

Positive externalities

Correct AnswerverifiedShow Answer

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Correct AnswerverifiedShow Answer

All remedies for externalities share the goal of

Correct AnswerverifiedShow Answer

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct AnswerverifiedShow Answer

Corrective taxes

Correct AnswerverifiedShow Answer

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Correct AnswerverifiedShow Answer

Reaching an efficient bargain is difficult when the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe socially optimal...View AnswerShow Answer

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain? (i) Corrective taxes (ii) Tradable pollution permits (iii) Amendments to the Clean Air Act

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of pollution permits?

Correct AnswerverifiedShow Answer

Which of the following is an example of an externality?

Correct AnswerverifiedShow Answer

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Correct AnswerverifiedShow Answer

The tax on gasoline

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat. ​

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The socially optimal...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.

Correct Answer
verified