Question 1

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A)   an opportunity cost.
B)   an implicit cost.
C)   a sunk cost.
D)   a transaction cost.E) None of the above
F) B) and C)

Question 2

In a market economy, government intervention

Accepted Answer

A)   will always improve market outcomes.
B)   reduces efficiency in the presence of externalities.
C)   may improve market outcomes in the presence of externalities.
D)   is necessary to control individual greed.E) B) and D)
F) A) and D)

Question 3

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Accepted Answer

The phenomenon of ex...

Question 4

Figure 10-11 
-Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $5,880.
B)   $9,480.
C)   $13,230.
D)   $15,360.E) A) and B)
F) A) and C)

Question 5

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Accepted Answer

A)   externalize the positive externality.
B)   externalize the negative externality.
C)   internalize the positive externality.
D)   internalize the negative externality.E) A) and C)
F) C) and D)

Question 6

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A)   Ed is allergic to his roommate's cat.
B)   Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada.
C)   Polluted water runoff from farms is making residents of a nearby town sick.
D)   Industrialization around the world is causing global warming.E) B) and C)
F) A) and B)

Question 7

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

Question 8

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A)   social cost
B)   social value
C)   private cost
D)   private valueE) C) and D)
F) B) and D)

Question 9

The Coase theorem asserts that, in the presence of externalities,

Accepted Answer

A)   private economic actors sometimes can reach a bargain that produces an efficient outcome.
B)   private economic actors always can reach a bargain that makes everyone better off.
C)   private solutions cannot be very effective.
D)   corrective taxes cannot be very effective.E) B) and C)
F) All of the above

Question 10

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Accepted Answer

A)   impose a corrective tax on any firm producing a technology spillover.
B)   offer tax credits to consumers who are adversely affected by the new technology.
C)   subsidize producers by an amount equal to the value of the technology spillover.
D)   provide research grants to those firms not currently engaging in research to increase competition in the industry.E) A) and C)
F) B) and C)

Question 11

Figure 10-6 
-Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

Accepted Answer

A)   Q
B)   Q'
C)   Either Q or Q'. It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity.
D)   Some quantity between Q and Q'. The socially-optimal quantity depends on the negotiating skills of the interested parties.E) All of the above
F) B) and D)

Question 12

Externalities tend to cause markets to be

Accepted Answer

A)   inefficient.
B)   unequal.
C)   unnecessary.
D)   overwhelmed.E) A) and B)
F) A) and C)

Question 13

The best remedy for market failure is often

Accepted Answer

A)   a market-based solution.
B)   shutdown of the market.
C)   no government intervention.
D)   externalizing the externalities.E) A) and D)
F) C) and D)

Question 14

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

Accepted Answer

A)   a negative externality requires a subsidy to move the market equilibrium closer to the social optimum.
B)   the social cost of education exceeds the private cost of education.
C)   the social value of education exceeds the private value of education.
D)   the market-equilibrium quantity of education exceeds the optimal quantity of education.E) A) and C)
F) B) and D)

Question 15

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 16

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 17

Figure 10-9
 
-Refer to Figure 10-9, Panel b)  and Panel c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

A)   Q2 to point Q3.
B)   Q3 to point Q2.
C)   Q4 to point Q5.
D)   Q5 to point Q4.E) B) and C)
F) All of the above

Question 18

Which of the following statements is not correct?

Accepted Answer

A)   Private markets tend to over-produce products with negative externalities.
B)   Private markets tend to under-produce products with positive externalities.
C)   Private parties can bargain to efficient outcomes even in the presence of externalities.
D)   Private parties are usually more successful in achieving efficient outcomes than government policies.E) B) and D)
F) B) and C)

Question 19

Figure 10-4 
-Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Accepted Answer

A)   decreased to Q1.
B)   decreased to Q2.
C)   decreased to Q3.
D)   stayed at Q4.E) None of the above
F) A) and C)

Question 20

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. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)   $2
B)   $3
C)   $9
D)   $10E) B) and C)
F) None of the above

Exam 10: Externalities

Externalities tend to cause markets to be

Correct Answer
verified

In a market economy, government intervention

Correct Answer
verified

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.

Correct Answer
verified

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

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

Figure 10-11 -Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Correct Answer
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Correct Answer
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Which of the following statements is not correct?

Correct Answer
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In which of the following cases is the Coase theorem most likely to solve the externality?

Correct Answer
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Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

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
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Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct Answer
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Figure 10-6 -Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

Correct Answer
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Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Correct Answer
verified

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Correct Answer
verified
The phenomenon of ex...
View Answer

The best remedy for market failure is often

Correct Answer
verified

The Coase theorem asserts that, in the presence of 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. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct Answer
verified

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

Correct Answer
verified

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Correct Answer
verified

Exam 10: Externalities

Externalities tend to cause markets to be

Correct AnswerverifiedShow Answer

In a market economy, government intervention

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

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

Figure 10-11 -Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct AnswerverifiedShow Answer

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

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

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

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Figure 10-6 -Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Correct AnswerverifiedShow Answer

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Correct AnswerverifiedThe phenomenon of ex...View AnswerShow Answer

The best remedy for market failure is often

Correct AnswerverifiedShow Answer

The Coase theorem asserts that, in the presence of 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. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct AnswerverifiedShow Answer

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

Correct AnswerverifiedShow Answer

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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The requirement that...
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The phenomenon of ex...
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