Question 1

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) A) and C)

Question 2

Tradable pollution permits

Accepted Answer

A)   have prices that are set by the government.
B)   will be more valuable to firms that can reduce pollution only at high costs.
C)   are likely to create a higher level of total pollution.
D)   are less desirable than corrective taxes in reducing pollution.E) C) and D)
F) A) and B)

Question 3

When the government uses a command-and-control policy to solve an externality,it

Accepted Answer

A)   is usually the most effective policy option available.
B)   creates policies that directly regulate behavior.
C)   usually involves taxing the consumption of a commodity.
D)   typically refers to the Coase theorem to structure the policy.E) A) and D)
F) B) and C)

Question 4

A corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 5

When an industry is characterized by technology spillover,what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Accepted Answer

A)   Impose a tax greater than the value of the technology spillover.
B)   Not allow production of any product that causes a technology spillover.
C)   Provide a subsidy equal to the value of the technology spillover.
D)   Require producers to "clean up" any spillover that results from their production process.E) A) and B)
F) A) and C)

Question 6

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

Question 7

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

Question 8

Most economists prefer corrective taxes to regulation to correct the pollution problem because:

Accepted Answer

A)   the market-based solution is less costly to society.
B)   the market-based solution can result in a greater reduction in pollution.
C)   the market-based solution raises revenue for the government.
D)   all of the above.E) B) and C)
F) All of the above

Question 9

Which of the following is NOT a way of internalizing technology spillovers?

Accepted Answer

A)   subsidies
B)   patent protection
C)   industrial policy
D)   taxesE) A) and B)
F) A) and C)

Question 10

Emission controls on automobiles are an example of a

Accepted Answer

A)   corrective tax.
B)   command-and-control policy to increase social efficiency.
C)   policy that reduces pollution by allocating resources through market mechanisms.
D)   policy to reduce congestion on urban freeways.E) B) and C)
F) A) and B)

Question 11

According to the Coase Theorem,individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Accepted Answer

A) True 
 B)False

Question 12

With pollution permits,the supply curve for pollution rights is

Accepted Answer

A)   perfectly elastic.
B)   perfectly inelastic.
C)   upward sloping.
D)   downward sloping.E) A) and B)
F) B) and C)

Question 13

Since air pollution creates a negative externality,

Accepted Answer

A)   social welfare will be enhanced when some,but not all air pollution is eliminated.
B)   social welfare is optimal when all air pollution is eliminated.
C)   governments should encourage private firms to consider only private costs.
D)   the free market result maximizes social welfare.E) B) and C)
F) None of the above

Question 14

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

Question 15

Figure 10-15 B must be equivalent to the corrective tax. B)  QA must be equivalent to the amount of pollution allowed to the pollution permit holders. C)  The equilibrium price and quantity of pollution must be the same in both graphs. D)  The amount of pollution emitted by each firm must be the same." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-15.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Accepted Answer

A)   PB must be equivalent to the corrective tax.
B)   QA must be equivalent to the amount of pollution allowed to the pollution permit holders.
C)   The equilibrium price and quantity of pollution must be the same in both graphs.
D)   The amount of pollution emitted by each firm must be the same.E) C) and D)
F) A) and B)

Question 16

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

Question 17

Figure 10-10 
-Refer to Figure 10-10.Taking into account private and external costs,the maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $760.
B)   $1,080.
C)   $1,440.
D)   $1,920.E) None of the above
F) B) and D)

Question 18

Figure 10-2.The graph depicts the market for plastic. 
-Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,how much plastic will be produced?

Accepted Answer

A)   200
B)   500
C)   650
D)   900E) B) and C)
F) A) and C)

Question 19

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 B)
F) A) and D)

Question 20

Patents do not

Accepted Answer

A)   provide firms an incentive to research.
B)   assign property rights to inventors.
C)   protect the rights of inventors for their lifetimes.
D)   internalize externalities.E) All of the above
F) A) and B)

Exam 10: Externalities

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

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Patents do not

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A patent is used to

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One drawback to industrial policy is that

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Tradable pollution permits

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Figure 10-15 -Refer to Figure 10-15.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

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Figure 10-2.The graph depicts the market for plastic. -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,how much plastic will be produced?

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A corrective tax places a price on the right to pollute.

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When the government uses a command-and-control policy to solve an externality,it

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With pollution permits,the supply curve for pollution rights is

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Positive externalities

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Which of the following is NOT a way of internalizing technology spillovers?

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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

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Since air pollution creates a negative externality,

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Emission controls on automobiles are an example of a

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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?

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According to the Coase Theorem,individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

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When an industry is characterized by technology spillover,what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

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Figure 10-10 -Refer to Figure 10-10.Taking into account private and external costs,the maximum total surplus that can be achieved in this market is

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Most economists prefer corrective taxes to regulation to correct the pollution problem because:

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