Question 1

An externality exists whenever

Accepted Answer

A)   the economy cannot benefit from government intervention.
B)   markets are not able to reach equilibrium.
C)   a firm sells its product in a foreign market.
D)   Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.E) B) and C)
F) A) and D)

Question 2

Many charities like the Sierra Club are established to deal with externalities.

Accepted Answer

A) True 
 B)False

Question 3

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Accepted Answer

A)   One neighbor lets his dog run through another neighbor's garden,damaging her flowers.
B)   One neighbor doesn't mow her yard.
C)   One neighbor plays his music loudly.
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 4

Table 10-3
 
-Refer to Table 10-3.The market equilibrium quantity of output is

Accepted Answer

A)   3 units.
B)   4 units.
C)   5 units.
D)   6 units.E) A) and B)
F) A) and C)

Question 5

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) All of the above
F) None of the above

Question 6

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Accepted Answer

A) True 
 B)False

Question 7

When externalities are present,reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Question 8

At any given quantity,the willingness to pay in the market for gasoline is reflected in the

Accepted Answer

A)   height of the demand curve at that quantity.
B)   height of the supply curve at that quantity.
C)   value to the producer of the last unit of gasoline sold.
D)   total quantity of gasoline exchanged in the market.E) A) and B)
F) C) and D)

Question 9

The term market failure refers to

Accepted Answer

A)   a market that fails to allocate resources efficiently.
B)   an unsuccessful advertising campaign which reduces demand.
C)   ruthless competition among firms.
D)   a firm that is forced out of business because of losses.E) A) and D)
F) B) and C)

Question 10

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

Question 11

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Accepted Answer

Pigovian taxes allow markets to coordina...

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

Question 13

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. 
-Refer to Figure 10-13.Each unit of plastics that is produced results in an external

Accepted Answer

A)   cost of $6.
B)   cost of $8.
C)   benefit of $6.
D)   benefit of $8.E) A) and B)
F) All of the above

Question 14

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A)   increase private profit at the expense of consumers.
B)   internalize some forms of positive externalities.
C)   reduce the impact of government regulations on their business.
D)   increase the private marginal cost of production.E) A) and D)
F) None of the above

Question 15

Figure 10-3 
-Refer to Figure 10-3.The difference between the social cost curve and the supply curve reflects the

Accepted Answer

A)   profit margin of each concert.
B)   cost of spillover effects from the concert (e.g.,noise and traffic) .
C)   value of concerts to society as a whole.
D)   amount by which the city should subsidize the concert organizers.E) A) and D)
F) A) and B)

Question 16

Figure 10-18.The graph represents a corrective tax to reduce pollution.On the axes,Q denotes the quantity of pollution and P represents the price of pollution. 
-Refer to Figure 10-18.The tax depicted on the graph

Accepted Answer

A)   gives polluting firms an incentive to develop cleaner technologies.
B)   is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution.
C)   has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 17

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 18

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the farmer has the right to compensation for any damage that his crops suffer.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)   The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)   The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)   The farmer will incur $1,500 in damages to his crops.
D)   The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) B) and D)
F) None of the above

Question 19

Max lives in an apartment building and gets a benefit from playing his stereo.Lily,who lives next door to Max and often loses sleep due to the loud music coming from Max's stereo,bears a cost from the noise.Lily is threatening to call the police to force Max to turn down his stereo.Under which of the following conditions would Max be able to offer Lily some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

Accepted Answer

A)   The cost of the noise to Lily must exceed the benefit of the music to Max.
B)   The benefit of the music to Max must exceed the cost of the noise to Lily.
C)   The Coase Theorem guarantees that Lily and Max will always be able to come to an agreement that keeps Lily from calling the police regardless of the individual benefits and costs.
D)   The cost of the noise to Lily must exceed the benefit of the music to Max by an amount greater than the transaction costs associated with the agreement.E) All of the above
F) B) and C)

Question 20

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)   the "invisible hand"
B)   the law of diminishing social returns
C)   the Coase theorem
D)   technology policyE) A) and B)
F) None of the above

Exam 10: Externalities

Firms that are involved in more than one type of business could be evidence of an attempt to

Correct Answer
verified

Figure 10-3 -Refer to Figure 10-3.The difference between the social cost curve and the supply curve reflects the

Correct Answer
verified

An externality exists whenever

Correct Answer
verified

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct Answer
verified

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Correct Answer
verified

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct Answer
verified

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Correct Answer
verified

Table 10-3 -Refer to Table 10-3.The market equilibrium quantity of output is

Correct Answer
verified

The term market failure refers to

Correct Answer
verified

Figure 10-18.The graph represents a corrective tax to reduce pollution.On the axes,Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18.The tax depicted on the graph

Correct Answer
verified

Correct Answer
verified

At any given quantity,the willingness to pay in the market for gasoline is reflected in the

Correct Answer
verified

Many charities like the Sierra Club are established to deal with externalities.

Correct Answer
verified

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13.Each unit of plastics that is produced results in an external

Correct Answer
verified

When externalities are present,reaching an efficient outcome is especially difficult when the number of interested parties is large.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Correct Answer
verified
Pigovian taxes allow markets to coordina...
View Answer

Correct Answer
verified

Exam 10: Externalities

Firms that are involved in more than one type of business could be evidence of an attempt to

Correct AnswerverifiedShow Answer

Figure 10-3 -Refer to Figure 10-3.The difference between the social cost curve and the supply curve reflects the

Correct AnswerverifiedShow Answer

An externality exists whenever

Correct AnswerverifiedShow Answer

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct AnswerverifiedShow Answer

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Correct AnswerverifiedShow Answer

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct AnswerverifiedShow Answer

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3.The market equilibrium quantity of output is

Correct AnswerverifiedShow Answer

The term market failure refers to

Correct AnswerverifiedShow Answer

Figure 10-18.The graph represents a corrective tax to reduce pollution.On the axes,Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18.The tax depicted on the graph

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

At any given quantity,the willingness to pay in the market for gasoline is reflected in the

Correct AnswerverifiedShow Answer

Many charities like the Sierra Club are established to deal with externalities.

Correct AnswerverifiedShow Answer

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13.Each unit of plastics that is produced results in an external

Correct AnswerverifiedShow Answer

When externalities are present,reaching an efficient outcome is especially difficult when the number of interested parties is large.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Correct AnswerverifiedPigovian taxes allow markets to coordina...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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Pigovian taxes allow markets to coordina...
View Answer

Correct Answer
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