Question 1

The Coase theorem states that

Accepted Answer

A)   taxes are an efficient way for governments to remedy negative externalities.
B)   subsidies are an efficient way for governments to remedy positive externalities.
C)   industrial policies encourage technology spillovers.
D)   in the absence of transaction costs, private parties can solve the problem of externalities on their own.E) B) and C)
F) A) and C)

Question 2

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Accepted Answer

A)   Despite the increase in the carbon tax, emissions of greenhouse gases in British Columbia have continued to increase at a rapid rate.
B)   Along with the increase in the carbon tax, British Columbia has decreased income-tax rates on individuals and corporations.
C)   Few, if any, economists favor carbon taxes such as the one that British Columbia has imposed.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 3

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Question 4

Corrective taxes are unlike most other taxes because they

Accepted Answer

A)   distort incentives.
B)   move the allocation of resources away from the social optimum.
C)   raise revenue for the government.
D)   move the allocation of resources closer to the social optimum.E) A) and B)
F) B) and C)

Question 5

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)   an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)   an adverse effect on a bystander who is compensated by the person who causes the effect.
C)   a beneficial effect on a bystander who pays the person who causes the effect.
D)   a beneficial effect on a bystander who does not pay the person who causes the effect.E) A) and D)
F) A) and B)

Question 6

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

Question 7

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Accepted Answer

A)   The groundwater pollution reduces the cost of large-scale pork production.
B)   The economic impact of a large-scale pork production facility is localized in a small geographic area.
C)   The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility.
D)   Consumers will not reap the benefits of lower production cost from large-scale pork production.E) None of the above
F) A) and D)

Question 8

Figure 10-12 
-Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Accepted Answer

A)   private value.
B)   external value.
C)   private cost.
D)   external cost.E) A) and B)
F) A) and C)

Question 9

Figure 10-9
 
-Refer to Figure 10-9, Panel b)  and Panel c) . Which of the following is correct?

Accepted Answer

A)   A tax would move the market in Panel b)  and the market in Panel c)  closer to the socially optimal outcome.
B)   A subsidy would move the market in Panel b)  and the market in Panel c)  closer to the socially optimal outcome.
C)   A tax would move the market in Panel b)  closer to the socially optimal outcome, but a subsidy would move the market in Panel c)  closer to the socially optimal outcome.
D)   A subsidy would move the market in Panel b)  closer to the socially optimal outcome, but a tax would move the market in Panel c)  closer to the socially optimal outcome.E) A) and B)
F) A) and C)

Question 10

Which of the following statements is not correct?

Accepted Answer

A)   Corrective taxes can be used to place a price on the right to pollute.
B)   Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution.
C)   Corrective taxes provide incentives to develop cleaner technologies.
D)   Corrective taxes require the government to set a target level of pollution.E) B) and D)
F) A) and D)

Question 11

The Environmental Protection Agency EPA) cannot reach a target level of pollution through the use of pollution permits.

Accepted Answer

A) True 
 B)False

Question 12

Figure 10-17 
-Refer to Figure 10-17. 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)   An amount equal to P' minus P.
B)   An amount equal to P'.
C)   An amount equal to P.
D)   An amount equal to the external cost.E) A) and C)
F) A) and B)

Question 13

Figure 10-10 
-Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Accepted Answer

A)   move the market from a socially efficient outcome to a socially inefficient outcome.
B)   reduce the external cost per unit of output.
C)   increase total economic well-being.
D)   not be an action of which a benevolent social planner would approve.E) None of the above
F) All of the above

Question 14

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 doesn't mow his lawn.
B)   One neighbor doesn't paint her house.
C)   One neighbor comes home on his noisy motorcycle late at night.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 15

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 16

Which of the following is NOT an example of a negative externality?

Accepted Answer

A)   air pollution from a manufacturing plant.
B)   disrupted sleep from a neighbor's loud music.
C)   an illness caused by secondhand cigarette smoke.
D)   a decrease in your property value from neglecting your lawn and garden.E) A) and B)
F) A) and D)

Question 17

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)   an economic dilemma.
B)   deadweight loss.
C)   a multi-party problem.
D)   an externality.E) None of the above
F) A) and B)

Question 18

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

Accepted Answer

A) True 
 B)False

Question 19

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50th restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Is the market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The market equilibri...

Question 20

According to recent research, the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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A positive externality arises when a person engages in an activity that has

Correct Answer
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Correct Answer
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Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Correct Answer
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Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct Answer
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Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c) . Which of the following is correct?

Correct Answer
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Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

Correct Answer
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Which of the following is NOT an example of a negative externality?

Correct Answer
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The Environmental Protection Agency EPA) cannot reach a target level of pollution through the use of pollution permits.

Correct Answer
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The Coase theorem states that

Correct Answer
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Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Correct Answer
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Correct Answer
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The market equilibri...
View Answer

The impact of one person's actions on the well-being of a bystander is called

Correct Answer
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Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

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
verified

According to recent research, the gas tax in the United States is lower than the optimal level.

Correct Answer
verified

Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

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
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Corrective taxes are unlike most other taxes because they

Correct Answer
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Exam 10: Externalities

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

A positive externality arises when a person engages in an activity that has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Correct AnswerverifiedShow Answer

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c) . Which of the following is correct?

Correct AnswerverifiedShow Answer

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

Correct AnswerverifiedShow Answer

Which of the following is NOT an example of a negative externality?

Correct AnswerverifiedShow Answer

The Environmental Protection Agency EPA) cannot reach a target level of pollution through the use of pollution permits.

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe market equilibri...View AnswerShow Answer

The impact of one person's actions on the well-being of a bystander is called

Correct AnswerverifiedShow Answer

Figure 10-17 -Refer to Figure 10-17. 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

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

According to recent research, the gas tax in the United States is lower than the optimal level.

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

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

Corrective taxes are unlike most other taxes because they

Correct AnswerverifiedShow Answer

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The market equilibri...
View Answer

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