Question 1

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Accepted Answer

A)   $4.
B)   $8.
C)   $12.
D)   $16.E) C) and D)
F) None of the above

Question 2

Beverly owns a rabbit and receives a $600 benefit from owning it. Sometimes Beverly's rabbit makes its way onto the lawn of her neighbor, Charles, and eats the vegetables in Charles' garden. This intrusion by the rabbit costs Charles $400. Can both individuals become better off if Charles pays Beverly some amount of money to get rid of the rabbit? Explain.

Accepted Answer

No, since Beverly would requir...

Question 3

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 4

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

Accepted Answer

A)   a situation in which the Coase theorem fails to explain the lawn mowing arrangement.
B)   an improper allocation of resources.
C)   a private solution to a negative externality problem.
D)   an exploitation of a common resource.E) C) and D)
F) A) and D)

Question 5

Altering incentives so that people take account of the external effects of their actions

Accepted Answer

A)   is called internalizing the externality.
B)   can be done by imposing a corrective tax.
C)   is the role of government in markets with externalities.
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 6

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) None of the above
F) A) and C)

Question 7

Which of the following statements is correct?

Accepted Answer

A)   Government should tax goods with either positive or negative externalities.
B)   Government should tax goods with negative externalities and subsidize goods with positive externalities.
C)   Government should subsidize goods with either positive or negative externalities.
D)   Government should tax goods with positive externalities and subsidize goods with negative externalities.E) None of the above
F) A) and D)

Question 8

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

Question 9

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

Question 10

Figure 10-11 
-Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Accepted Answer

A)   210 units
B)   270 units
C)   330 units
D)   390 unitsE) A) and B)
F) A) and C)

Question 11

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Accepted Answer

A) True 
 B)False

Question 12

Gretchen is a writer who works from her home. Gretchen lives next door to Randall, the trumpet player for a local band. Randall needs lots of practice to earn his share of the band's profit, which will amount to $350. Gretchen gets distracted by Randall's trumpet playing but she needs to get her writing done to earn $570 for her current article. If Gretchen needs to hire a lawyer to help her reach an agreement with Randall, then what price is Gretchen willing to pay the lawyer?

Accepted Answer

A)   less than $350
B)   less than $450
C)   less than $570
D)   less than $920E) All of the above
F) A) and D)

Question 13

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

Question 14

In the absence of externalities, the "invisible hand" leads a market to maximize

Accepted Answer

A)   producer profit from that market.
B)   total benefit to society from that market.
C)   both equality and efficiency in that market.
D)   output of goods or services in that market.E) All of the above
F) B) and C)

Question 15

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A)   taxing goods that have negative externalities
B)   subsidizing goods that have positive externalities
C)   The government cannot improve upon the outcomes of private markets.
D)   Both a and b are correct.E) None of the above
F) All of the above

Question 17

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Accepted Answer

A)   the externalities that are present are positive, not negative.
B)   government assigns property rights to the harmed party.
C)   private parties can bargain with sufficiently low transaction costs.
D)   businesses determine an appropriate level of production.E) C) and D)
F) All of the above

Question 18

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged.E) A) and B)
F) A) and C)

Question 19

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Accepted Answer

A)   The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly.
B)   The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander.
C)   The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly.
D)   Externalities arise in all of the above cases.E) All of the above
F) C) and D)

Question 20

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)   Prices are set by supply and demand.
B)   Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.
C)   Real-world markets for pollution permits include sulfur dioxide and carbon.
D)   Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.E) None of the above
F) A) and B)

Exam 10: Externalities

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Correct Answer
verified

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct Answer
verified

Altering incentives so that people take account of the external effects of their actions

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Correct Answer
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Correct Answer
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Correct Answer
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No, since Beverly would requir...
View Answer

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Correct Answer
verified

Education yields positive externalities. For example,

Correct Answer
verified

In the absence of externalities, the "invisible hand" leads a market to maximize

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

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

Which of the following is not a characteristic of pollution permits?

Correct Answer
verified

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Correct Answer
verified

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Correct Answer
verified

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Correct Answer
verified

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

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

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

Correct Answer
verified

Which of the following represents a way that a government can help the private market to internalize an externality?

Correct Answer
verified

Exam 10: Externalities

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Correct AnswerverifiedShow Answer

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct AnswerverifiedShow Answer

Altering incentives so that people take account of the external effects of their actions

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNo, since Beverly would requir...View AnswerShow Answer

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Correct AnswerverifiedShow Answer

Education yields positive externalities. For example,

Correct AnswerverifiedShow Answer

In the absence of externalities, the "invisible hand" leads a market to maximize

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow 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

Which of the following is not a characteristic of pollution permits?

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Correct AnswerverifiedShow Answer

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Correct AnswerverifiedShow Answer

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Correct AnswerverifiedShow Answer

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

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

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

Correct AnswerverifiedShow Answer

Which of the following represents a way that a government can help the private market to internalize an externality?

Correct AnswerverifiedShow Answer

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No, since Beverly would requir...
View Answer

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