Question 1

Which of the following statements is correct about a market in which pollution is emitted?

Accepted Answer

A) Both corrective taxes and pollution permits move the market toward the social optimum. 
B) Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum. 
C) Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum. 
D) Neither corrective taxes nor pollution permits move the market toward the social optimum. 
A) Both corrective taxes and pollution permits move the market toward the social optimum. 
B) Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum. 
C) Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum. 
D) Neither corrective taxes nor pollution permits move the market toward the social optimum.

Question 2

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. 
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.

Question 3

Scenario 10-3
Suppose the equation for the demand curve in a market is   , where   is the quantity demanded and   is the price. Also, suppose the equation for the supply curve in the same market is   , where   is the quantity supplied.
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What is the equation of the social-cost curve?

Accepted Answer

The equati

Question 4

Figure 10-7  
-Refer to Figure 10-7. To internalize the externality in this market, the government should

Accepted Answer

A) impose a tax on this product. 
B) provide a subsidy for this product. 
C) forbid production. 
D) produce the product itself. 
A) impose a tax on this product. 
B) provide a subsidy for this product. 
C) forbid production. 
D) produce the product itself.

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 equilibrium quantity of output in the market?

Accepted Answer

A) 2 units 
B) 3 units 
C) 4 units 
D) 5 units 
A) 2 units 
B) 3 units 
C) 4 units 
D) 5 units

Question 6

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

Accepted Answer

A) The private cost of producing the 160th unit of output is $16. 
B) The social cost of producing the 160th unit of output is $22. 
C) The external cost of producing the 160th unit of output is $6. 
D) All of the above are correct. 
A) The private cost of producing the 160th unit of output is $16. 
B) The social cost of producing the 160th unit of output is $22. 
C) The external cost of producing the 160th unit of output is $6. 
D) All of the above are correct.

Question 7

In some cases, selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A) it is hard to estimate the market demand curve and thus charge the "right" corrective tax. 
B) selling pollution permits create a net increase in pollution. 
C) Corrective taxes distort incentives. 
D) Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. 
A) it is hard to estimate the market demand curve and thus charge the "right" corrective tax. 
B) selling pollution permits create a net increase in pollution. 
C) Corrective taxes distort incentives. 
D) Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.

Question 8

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go

Question 9

Technology spillover is one type of

Accepted Answer

A) negative externality. 
B) positive externality. 
C) subsidy. 
D) producer surplus. 
A) negative externality. 
B) positive externality. 
C) subsidy. 
D) producer surplus.

Question 10

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Accepted Answer

We use the term mark

Question 11

The concept of external benefit is associated with a negative externality, but not with a positive externality.

Accepted Answer

A) True 
 B)False

Question 12

A negative externality

Accepted Answer

A) is an adverse impact on a bystander. 
B) causes the product in a market to be under-produced. 
C) is an adverse impact on market participants. 
D) is present in markets where the good or service does not have any impact on bystanders. 
A) is an adverse impact on a bystander. 
B) causes the product in a market to be under-produced. 
C) is an adverse impact on market participants. 
D) is present in markets where the good or service does not have any impact on bystanders.

Question 13

Figure 10-8  
-Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Accepted Answer

A) introduce a subsidy of $2 per unit. 
B) impose a tax of $2 per unit. 
C) introduce a subsidy of $4 per unit. 
D) impose a tax of $4 per unit. 
A) introduce a subsidy of $2 per unit. 
B) impose a tax of $2 per unit. 
C) introduce a subsidy of $4 per unit. 
D) impose a tax of $4 per unit.

Question 14

A negative 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. 
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.

Question 15

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 16

Which of the following statements is not correct?

Accepted Answer

A) Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. 
B) Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. 
C) Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. 
D) Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment. 
A) Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. 
B) Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. 
C) Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. 
D) Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.

Question 17

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. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A) $67 
B) $68 
C) $81 
D) $83 
A) $67 
B) $68 
C) $81 
D) $83

Question 18

​Figure 10-20. ​  
-Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, what is the equilibrium price of fertilizer?

Accepted Answer

A) $​100 
B) $200 
C) $250 
D) ​$300 
A) $​100 
B) $200 
C) $250 
D) ​$300

Question 19

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Accepted Answer

A) the supply curve would adequately reflect the marginal social cost of production. 
B) consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C) the market equilibrium quantity will not be the socially optimal quantity. 
D) producers will produce less steel than they otherwise would if the externality were internalized. 
A) the supply curve would adequately reflect the marginal social cost of production. 
B) consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C) the market equilibrium quantity will not be the socially optimal quantity. 
D) producers will produce less steel than they otherwise would if the externality were internalized.

Question 20

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go

Which of the following statements is correct about a market in which pollution is emitted?

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

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

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 equilibrium quantity of output in the market?

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

In some cases, selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Technology spillover is one type of

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

The concept of external benefit is associated with a negative externality, but not with a positive externality.

A negative externality

Figure 10-8 -Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

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

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

Which of the following statements is not correct?

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, what is the equilibrium price of fertilizer?

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

Exam 10: Externalities

Which of the following statements is correct about a market in which pollution is emitted?

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

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

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 equilibrium quantity of output in the market?

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

In some cases, selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Technology spillover is one type of

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

The concept of external benefit is associated with a negative externality, but not with a positive externality.

A negative externality

Figure 10-8 -Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

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

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

Which of the following statements is not correct?

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, what is the equilibrium price of fertilizer?

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, what is the equilibrium price of fertilizer?