Question 1

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Accepted Answer

A) True 
 B)False

Question 2

​Figure 10-20. ​  
-​Refer to Figure 10-20. The socially optimal price and quantity are $250 and 250 units, respectively.

Accepted Answer

A) True 
 B)False

Question 3

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Accepted Answer

A) control taxes. 
B) command levies. 
C) Pigovian taxes. 
D) Marshallian taxes. 
A) control taxes. 
B) command levies. 
C) Pigovian taxes. 
D) Marshallian taxes.

Question 4

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 5

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Accepted Answer

A) Impose a tax greater than the value of the technology spillover. 
B) Not allow production of any product that causes a technology spillover. 
C) Provide a subsidy equal to the value of the technology spillover. 
D) Require producers to "clean up" any spillover that results from their production process. 
A) Impose a tax greater than the value of the technology spillover. 
B) Not allow production of any product that causes a technology spillover. 
C) Provide a subsidy equal to the value of the technology spillover. 
D) Require producers to "clean up" any spillover that results from their production process.

Question 6

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

Accepted Answer

A) Both corrective taxes and pollution permits internalize the externality of pollution. 
B) Corrective taxes internalize the externality of pollution, but pollution permits do not internalize that externality. 
C) Corrective taxes fail to internalize the externality of pollution, but corrective taxes internalize that externality. 
D) Neither corrective taxes nor pollution permits internalize the externality of pollution. 
A) Both corrective taxes and pollution permits internalize the externality of pollution. 
B) Corrective taxes internalize the externality of pollution, but pollution permits do not internalize that externality. 
C) Corrective taxes fail to internalize the externality of pollution, but corrective taxes internalize that externality. 
D) Neither corrective taxes nor pollution permits internalize the externality of pollution.

Question 7

​Figure 10-20. ​  
-Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Accepted Answer

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

Question 8

Emission controls on automobiles are an example of a

Accepted Answer

A) corrective tax. 
B) command-and-control policy to increase social efficiency. 
C) policy that reduces pollution by allocating resources through market mechanisms. 
D) policy to reduce congestion on urban freeways. 
A) corrective tax. 
B) command-and-control policy to increase social efficiency. 
C) policy that reduces pollution by allocating resources through market mechanisms. 
D) policy to reduce congestion on urban freeways.

Question 9

Table 10-4  
-Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

Accepted Answer

A) $7. 
B) $23. 
C) $30. 
D) $38. 
A) $7. 
B) $23. 
C) $30. 
D) $38.

Question 10

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. 
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.

Question 11

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution.  
-Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

Accepted Answer

A) "Demand for clean air" 
B) "Demand for pollution rights" 
C) "Supply of pollution permits" 
D) "Tax paid to government" 
A) "Demand for clean air" 
B) "Demand for pollution rights" 
C) "Supply of pollution permits" 
D) "Tax paid to government"

Question 12

When a market is characterized by an externality, the government

Accepted Answer

A) can correct the market failure only in the case of positive externalities. 
B) can correct the market failure only in the case of negative externalities. 
C) can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D) cannot correct for externalities due to the existence of patents. 
A) can correct the market failure only in the case of positive externalities. 
B) can correct the market failure only in the case of negative externalities. 
C) can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D) cannot correct for externalities due to the existence of patents.

Question 13

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. What are the market equilibrium quantity and price?

Accepted Answer

The market equilibri

Question 14

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000S1U1P1thS1S1P0 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. 
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.

Question 15

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

Accepted Answer

A) is always needed because private solutions can never be attained. 
B) is needed when private solutions fail to arise. 
C) will be needed only to correct for positive externalities. 
D) will be needed only to correct for negative externalities. 
A) is always needed because private solutions can never be attained. 
B) is needed when private solutions fail to arise. 
C) will be needed only to correct for positive externalities. 
D) will be needed only to correct for negative externalities.

Question 16

What economic argument suggests that if transactions costs are sufficiently low, the post-bargaining equilibrium is economically efficient regardless of how property rights are distributed?

Accepted Answer

A) the Coase theorem 
B) the laws of supply and demand 
C) the law of comparative advantage 
D) the law of externalities 
A) the Coase theorem 
B) the laws of supply and demand 
C) the law of comparative advantage 
D) the law of externalities

Question 17

The goal of industrial policy should be that

Accepted Answer

A) industries yielding the largest positive externalities should receive the biggest subsidies. 
B) any industry that produces negative externalities should be heavily taxed. 
C) any production process that produces negative externalities should be shut down. 
D) all industries that produce positive externalities should be equally subsidized. 
A) industries yielding the largest positive externalities should receive the biggest subsidies. 
B) any industry that produces negative externalities should be heavily taxed. 
C) any production process that produces negative externalities should be shut down. 
D) all industries that produce positive externalities should be equally subsidized.

Question 18

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. 
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.

Question 19

​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Accepted Answer

A) ​the socially optimal quantity of rain barrels will be larger than the equilibrium quantity of rain barrels. 
B) ​the socially optimal quantity of rain barrels will be smaller than the equilibrium quantity of rain barrels. 
C) ​the socially optimal price of rain barrels will be lower than the equilibrium price of rain barrels. 
D) the market for rain barrels would benefit from a tax on rain barrels. 
A) ​the socially optimal quantity of rain barrels will be larger than the equilibrium quantity of rain barrels. 
B) ​the socially optimal quantity of rain barrels will be smaller than the equilibrium quantity of rain barrels. 
C) ​the socially optimal price of rain barrels will be lower than the equilibrium price of rain barrels. 
D) the market for rain barrels would benefit from a tax on rain barrels.

Question 20

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be 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. 
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.

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Figure 10-20. -Refer to Figure 10-20. The socially optimal price and quantity are $250 and 250 units, respectively.

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

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

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Emission controls on automobiles are an example of a

Table 10-4 -Refer to Table 10-4. The social cost of the 2^nd unit of output that is produced is

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

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

When a market is characterized by an externality, the government

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

What economic argument suggests that if transactions costs are sufficiently low, the post-bargaining equilibrium is economically efficient regardless of how property rights are distributed?

The goal of industrial policy should be that

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

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

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

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

​Figure 10-20. ​ -​Refer to Figure 10-20. The socially optimal price and quantity are $250 and 250 units, respectively.

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

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

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Emission controls on automobiles are an example of a

Table 10-4 -Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

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

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

When a market is characterized by an externality, the government

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

What economic argument suggests that if transactions costs are sufficiently low, the post-bargaining equilibrium is economically efficient regardless of how property rights are distributed?

The goal of industrial policy should be that

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

​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

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 socially optimal price and quantity are $250 and 250 units, respectively.

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Table 10-4 -Refer to Table 10-4. The social cost of the 2^nd unit of output that is produced is

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then