Question 1

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Accepted Answer

A)   Externalities lead to government intervention in markets, which exacerbates the problems associated with externalities.
B)   Externalities result in prices that are too high for many consumers to pay.
C)   Markets fail to produce the maximum total benefit to society when positive or negative externalities are present.
D)   Markets produce too little of a good when positive or negative externalities are present.E) A) and B)
F) B) and D)

Question 2

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an example of a positive externality?

Accepted Answer

A)   Sue not catching the flu because she got a flu vaccine
B)   Mary not catching the flu from Sue because Sue got a flu vaccine
C)   Sue catching the flu because she did not get a flu vaccine
D)   Mary catching the flu from Sue because Sue did not get a flu vaccineE) A) and B)
F) B) and D)

Question 4

Table 10-4 
-Refer to Table 10-4. The market equilibrium quantity of output is

Accepted Answer

A)   3 units.
B)   4 units.
C)   5 units.
D)   6 units.E) All of the above
F) A) and B)

Question 5

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. What is the socially-optimal quantity of output in this market?

Accepted Answer

A)   1 unit
B)   2 units
C)   3 units
D)   4 unitsE) B) and C)
F) A) and D)

Question 6

According to the Coase theorem, private parties can solve the problem of externalities if

Accepted Answer

A)   the cost of bargaining is small.
B)   the initial distribution of legal rights favors the person being adversely affected by the externality.
C)   the number of parties involved is sufficiently large.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 7

Figure 10-9 
-Refer to Figure 10-9. Which graph represents a market with no externality?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) 
D)   None of the above is correct.E) None of the above
F) C) and D)

Question 8

Table 10-4 
-Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible) . The maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $29.
B)   $35.
C)   $40.
D)   $46.E) A) and B)
F) All of the above

Question 9

Figure 10-4 
-Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Accepted Answer

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

Question 10

Table 10-5
The following table shows the marginal costs for each of four firms (A, B, C, and D)  to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. 
-Refer to Table 10-5. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

Accepted Answer

A)   $69
B)   $81
C)   $83
D)   $97E) C) and D)
F) None of the above

Question 11

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 12

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct?

Accepted Answer

A)   One point on the social-cost curve is (Q = 1,000, P = $0.45) .
B)   One point on the supply curve is (Q = 1,000, P = $3.10) .
C)   One point on the demand curve is (Q = 1,000, P = $3.55) .
D)   The socially optimal quantity of gasoline is less than 1,000 gallons.E) C) and D)
F) A) and B)

Question 13

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Accepted Answer

A)   increases the social cost above the private cost.
B)   lowers the social cost below the private cost.
C)   increases the social value above the private benefit.
D)   decreases the social value below the private benefit.E) A) and C)
F) None of the above

Question 14

Corrective taxes are more efficient than regulations for keeping the environment clean.

Accepted Answer

A) True 
 B)False

Question 15

Two firms, A and B, each currently dump 20 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. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. 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. After the two firms buy or sell pollution permits from each other, we would expect that

Accepted Answer

A)   Firm A will no longer pollute, and Firm B will not reduce its pollution at all.
B)   Firm B will no longer pollute, and Firm A will not reduce its pollution at all.
C)   Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of pollution into the river.
D)   Firm A will increase its pollution and Firm B will reduce its pollution.E) A) and B)
F) All of the above

Question 16

Figure 10-4 
-Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Accepted Answer

A)   increased beyond Q4.
B)   decreased to Q1.
C)   increased to Q3.
D)   stayed at Q2.E) A) and B)
F) A) and C)

Question 17

Figure 10-11 
-Refer to Figure 10-11. Which of the following statements is correct?

Accepted Answer

A)   The private value of the 240th unit of output is $24.
B)   The social value of the 240th unit of output is $42.
C)   The external benefit of the 240th unit of output is $18.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 18

If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should

Accepted Answer

A)   encourage the production of computer chips with subsidies.
B)   discourage the production of potato chips with taxes.
C)   encourage the production of potato chips with subsidies.
D)   discourage the production of computer chips with taxes.E) B) and C)
F) B) and D)

Question 19

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0fire extinguisher entails the following:
-a private cost of $10;
-an external cost of $0;
-a private value of $9;
-an external benefit of $3.
-
-Refer to Scenario 10-4. In order to maximize the total benefit of fire extinguishers to society as a whole, should the number of fire extinguishers produced be less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^t^hfire extinguisher, the social...

Question 20

Figure 10-10 
-Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Accepted Answer

A)   move the market from a socially efficient outcome to a socially inefficient outcome.
B)   increase the external cost per unit of output.
C)   increase total economic well-being.
D)   be an action of which a benevolent social planner would approve.E) A) and D)
F) A) and B)

Exam 10: Externalities

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

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

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Correct Answer
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Which of the following is an example of a positive externality?

Correct Answer
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Figure 10-4 -Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Correct Answer
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Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Correct Answer
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Correct Answer
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Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

Correct Answer
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Correct Answer
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Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no externality?

Correct Answer
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If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should

Correct Answer
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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. What is the socially-optimal quantity of output in this market?

Correct Answer
verified

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Correct Answer
verified

Correct Answer
verified
For the 500^t^hfire extinguisher, the social...
View Answer

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Correct Answer
verified

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Correct Answer
verified

Correct Answer
verified

Corrective taxes are more efficient than regulations for keeping the environment clean.

Correct Answer
verified

Correct Answer
verified

According to the Coase theorem, private parties can solve the problem of externalities if

Correct Answer
verified

Exam 10: Externalities

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct AnswerverifiedShow Answer

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

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Correct AnswerverifiedShow Answer

Which of the following is an example of a positive externality?

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no externality?

Correct AnswerverifiedShow Answer

If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should

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. What is the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor the 500th fire extinguisher, the social...View AnswerShow Answer

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Corrective taxes are more efficient than regulations for keeping the environment clean.

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible) . The maximum total surplus that can be achieved in this market is

Correct AnswerverifiedShow Answer

According to the Coase theorem, private parties can solve the problem of externalities if

Correct AnswerverifiedShow Answer

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

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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For the 500^t^hfire extinguisher, the social...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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