Question 1

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1thS1S1P0 fire extinguisher entails the following:
• a private cost of $10;
• an external cost of $0;
• a private value of $9;
• an external benefit of $3.
-Refer to Scenario 10-4. In order to maximize the total benefit of fire extinguishers to society as a whole, should the number of fire extinguishers produced be less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^th fire extinguisher, the socia...

Question 2

Private markets fail to account for externalities because

Accepted Answer

A)  externalities don't occur in private markets.
B)  sellers include costs associated with externalities in the price of their product.
C)  decisionmakers in the market fail to include the costs of their behavior to third parties.
D)  the government cannot easily estimate the optimal quantity of pollution.E) B) and C)
F) B) and D)

Question 3

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 4

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market. 
-Refer to Table 10-1. Which of the following statements is correct?

Accepted Answer

A)  If the external cost per unit of output were $0 instead of $2, then the socially efficient quantity of output would be 4 units.
B)  A tax of $4 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output.
C)  Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed.
D)  The market for flu shots is a market to which the concepts in this table apply very well.E) A) and B)
F) B) and D)

Question 5

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Accepted Answer

A) True 
 B)False

Question 6

Figure 10-7 1. B) Q2. C) Q3. D) Q4." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Accepted Answer

A)  Q1.
B)  Q2.
C)  Q3.
D)  Q4.E) C) and D)
F) B) and C)

Question 7

Table 10-6
The following table shows the total 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 $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103. 
-Refer to Table 10-6. If the government charged a fee of $85 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  10
B)  12
C)  14
D)  16E) B) and C)
F) A) and B)

Question 8

According to recent research, the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

Question 9

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A)  the government should ban all transportation.
B)  the government should ban all pollution.
C)  society has to weigh the cost and benefits when deciding how much pollution to allow.
D)  refrain from intervening because the market can best solve this problem.E) B) and C)
F) C) and D)

Question 10

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)  positive externalities.
B)  negative externalities.
C)  patents.
D)  All of the above are correct.E) A) and D)
F) A) and C)

Question 11

When externalities cause markets to be inefficient,

Accepted Answer

A)  government action is always needed to solve the problem.
B)  private solutions can be developed to solve the problem.
C)  given enough time, externalities can be solved through normal market adjustments.
D)  there is no way to eliminate the problem of externalities in a market.E) A) and D)
F) None of the above

Question 12

Which of the following is a difference between corrective taxes and tradable pollution permits?

Accepted Answer

A)  Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy.
B)  With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution.
C)  With corrective taxes firms pay for pollution; with tradable pollution permits firms do not.
D)  Corrective taxes internalize the pollution externality while tradable pollution permits do not.E) All of the above
F) A) and D)

Question 13

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were

Accepted Answer

A)  provided a subsidy of $0.30 per gallon of gasoline sold.
B)  provided a subsidy of $0.45 per gallon of gasoline sold.
C)  required to pay a tax of $0.45 per gallon of gasoline sold.
D)  required to pay a tax of $0.30 per gallon of gasoline sold.E) All of the above
F) A) and D)

Question 14

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)  Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly.
B)  Command-and-control policies rely on taxes, whereas market-based policies rely on quotas.
C)  Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior.
D)  Command-and-control policies are efficient, whereas market-based policies are inefficient.E) A) and B)
F) A) and C)

Question 15

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Accepted Answer

A)  pay your roommate at least $25 but no more than $50 to clean up after herself.
B)  pay your roommate at least $51 to clean up after herself.
C)  charge your roommate at least $25 to have you clean up after her.
D)  charge your roommate at least $50 but no more than $100 to keep you from complaining about the mess.E) None of the above
F) A) and B)

Question 16

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Accepted Answer

A)  They are equal.
B)  The equilibrium quantity is greater than the socially optimal quantity.
C)  The equilibrium quantity is less than the socially optimal quantity.
D)  There is not enough information to answer the question.E) B) and D)
F) A) and B)

Question 17

Table 10-4 
-Refer to Table 10-4. The market equilibrium quantity of output is

Accepted Answer

A)  3 units.
B)  4 units.
C)  5 units.
D)  6 units.E) All of the above
F) A) and D)

Question 18

Education yields positive externalities. For example,

Accepted Answer

A)  colleges and universities have benefited, in recent years, from increases in tuition paid by students.
B)  as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages.
C)  a more educated population tends to result in lower crime rates.
D)  All of the above are correct.E) A) and B)
F) All of the above

Question 19

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Accepted Answer

The requirement that...

Question 20

Figure 10-4 1. B) Q2. C) Q3. D) Q4." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Accepted Answer

A)  Q1.
B)  Q2.
C)  Q3.
D)  Q4.E) A) and B)
F) All of the above

Exam 10: Externalities

According to recent research, the gas tax in the United States is lower than the optimal level.

Correct Answer
verified

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Correct Answer
verified

Corrective taxes are typically advocated to correct for the effects of

Correct Answer
verified

When externalities cause markets to be inefficient,

Correct Answer
verified

Private markets fail to account for externalities because

Correct Answer
verified

Correct Answer
verified
For the 500^th fire extinguisher, the socia...
View Answer

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Correct Answer
verified

Education yields positive externalities. For example,

Correct Answer
verified

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Correct Answer
verified

What is the difference between command-and-control policies and market-based policies toward externalities?

Correct Answer
verified

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. Which of the following statements is correct?

Correct Answer
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Figure 10-4 -Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Correct Answer
verified

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Correct Answer
verified

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Correct Answer
verified

Since almost all forms of transportation produce some type of pollution,

Correct Answer
verified

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct Answer
verified

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Correct Answer
verified
The requirement that...
View Answer

Exam 10: Externalities

According to recent research, the gas tax in the United States is lower than the optimal level.

Correct AnswerverifiedShow Answer

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Correct AnswerverifiedShow Answer

Corrective taxes are typically advocated to correct for the effects of

Correct AnswerverifiedShow Answer

When externalities cause markets to be inefficient,

Correct AnswerverifiedShow Answer

Private markets fail to account for externalities because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor the 500th fire extinguisher, the socia...View AnswerShow Answer

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Correct AnswerverifiedShow Answer

Education yields positive externalities. For example,

Correct AnswerverifiedShow Answer

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Correct AnswerverifiedShow Answer

What is the difference between command-and-control policies and market-based policies toward externalities?

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

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Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

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Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Correct AnswerverifiedShow Answer

Since almost all forms of transportation produce some type of pollution,

Correct AnswerverifiedShow Answer

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct AnswerverifiedShow Answer

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Correct AnswerverifiedThe requirement that...View AnswerShow Answer

Correct Answer
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For the 500^th fire extinguisher, the socia...
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Correct Answer
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The requirement that...
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