Question 1

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Accepted Answer

A)   social cost
B)   opportunity cost of technology
C)   internalization of an externality
D)   technology spilloverE) A) and D)
F) All of the above

Question 3

Research into new technologies

Accepted Answer

A)   provides positive externalities because it creates knowledge others can use.
B)   results in negative externalities because government funding for research causes less government spending in other areas.
C)   is protected by patent laws,which eliminates the need for government intervention.
D)   should only be funded by the corporations that will receive the profits from the research.E) B) and D)
F) None of the above

Question 4

Figure 10-1 
-Refer to Figure 10-1.This graph represents the tobacco industry.The socially optimal price and quantity are

Accepted Answer

A)   $1.90 and 38 units,respectively.
B)   $1.80 and 35 units,respectively.
C)   $1.60 and 42 units,respectively.
D)   $1.35 and 58 units,respectively.E) A) and B)
F) B) and D)

Question 5

Table 10-4
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 10-4.Suppose the government wanted to eliminate exactly 10 units of pollution.Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $68
B)   $74
C)   $120
D)   $134E) A) and B)
F) All of the above

Question 6

A gasoline tax is designed to correct each of the following problems except

Accepted Answer

A)   traffic congestion.
B)   traffic accidents.
C)   air pollution.
D)   EPA regulations.E) A) and D)
F) All of the above

Question 7

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.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.The government gives each firm 20 pollution permits.Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other.What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

Accepted Answer

A)   $3,000;$1,500
B)   $4,500;$3,500
C)   $4,500;$4,000
D)   $4,500;$2,500E) None of the above
F) A) and B)

Question 8

Figure 10-1 
-Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Accepted Answer

A)   $1.90 and 38 units,respectively.
B)   $1.80 and 35 units,respectively.
C)   $1.60 and 42 units,respectively.
D)   $1.35 and 58 units,respectively.E) None of the above
F) A) and D)

Question 9

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

Question 10

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Accepted Answer

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

Question 11

Figure 10-10 
-Refer to Figure 10-10.The supply of pollution permits is

Accepted Answer

A)   elastic and represented by line A.
B)   inelastic and represented by line A.
C)   elastic and represented by line F
D)   inelastic and represented by line F.E) C) and D)
F) B) and C)

Question 12

When the social cost curve is above a product's supply curve,

Accepted Answer

A)   the government has intervened in the market.
B)   a negative externality exists in the market.
C)   a positive externality exists in the market.
D)   the distribution of resources is unfair.E) A) and C)
F) All of the above

Question 13

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)   tax university researchers
B)   offer grants to university researchers
C)   eliminate subsidized student loans
D)   nothingE) B) and D)
F) All of the above

Question 14

Corrective taxes cause deadweight losses,reducing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that Bill wants to dine at a fancy restaurant,but the only available table is in the smoking section.Bill dislikes the smell of cigarette smoke.He notices that only one person,Peter,is smoking in the smoking section.Bill values the absence of smoke at $15.Peter values the ability to smoke in the restaurant at $10.In order for Bill to pay Peter not to smoke,he will need to tip the waiter $10 to facilitate the transaction.Which of the following represents an efficient solution?

Accepted Answer

A)   Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25,which exceeds the benefit to him of no smoking ($15) .
B)   Bill offers Peter between $10 and $15 not to smoke,and he pays the waiter $10.Peter accepts,and both parties are better off.
C)   Bill offers Peter between $10 and $15 not to smoke,and he pays the waiter $10.Peter declines because he has a right to smoke in the smoking section.
D)   Bill offers Peter $5 not to smoke,and he pays the waiter $10.Peter accepts,and both parties are better off.E) A) and D)
F) A) and C)

Question 16

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) C) and D)
F) All of the above

Question 17

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)   corrective taxes will provide the most efficient solution to the externality.
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) All of the above
F) A) and D)

Question 19

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)   They are equal.
B)   The after-tax equilibrium quantity is greater than the socially optimal quantity.
C)   The after-tax equilibrium quantity is less than the socially optimal quantity.
D)   There is not enough information to answer the question.E) None of the above
F) A) and B)

Question 20

When the government intervenes in markets with externalities,it does so in order to

Accepted Answer

A)   increase production when negative externalities are present.
B)   protect the interests of bystanders.
C)   make certain all benefits are received by market participants.
D)   reduce production when positive externalities are present.E) A) and B)
F) B) and C)

Exam 10: Externalities

Figure 10-10 -Refer to Figure 10-10.The supply of pollution permits is

Correct Answer
verified

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The socially optimal price and quantity are

Correct Answer
verified

Research into new technologies

Correct Answer
verified

The Coase theorem states that

Correct Answer
verified

Correct Answer
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Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Correct Answer
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Correct Answer
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Corrective taxes cause deadweight losses,reducing economic efficiency.

Correct Answer
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When the government intervenes in markets with externalities,it does so in order to

Correct Answer
verified

A gasoline tax is designed to correct each of the following problems except

Correct Answer
verified

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

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

Correct Answer
verified

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Correct Answer
verified

Reaching an efficient bargain is difficult when the

Correct Answer
verified

Correct Answer
verified

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Correct Answer
verified

Correct Answer
verified

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct Answer
verified

When the social cost curve is above a product's supply curve,

Correct Answer
verified

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Correct Answer
verified

Exam 10: Externalities

Figure 10-10 -Refer to Figure 10-10.The supply of pollution permits is

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The socially optimal price and quantity are

Correct AnswerverifiedShow Answer

Research into new technologies

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Corrective taxes cause deadweight losses,reducing economic efficiency.

Correct AnswerverifiedShow Answer

When the government intervenes in markets with externalities,it does so in order to

Correct AnswerverifiedShow Answer

A gasoline tax is designed to correct each of the following problems except

Correct AnswerverifiedShow Answer

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Correct AnswerverifiedShow Answer

Reaching an efficient bargain is difficult when the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Correct AnswerverifiedShow Answer

When the social cost curve is above a product's supply curve,

Correct AnswerverifiedShow Answer

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Correct AnswerverifiedShow Answer

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