Question 1

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Accepted Answer

A) maximize attorney fees. 
B) reduce the incentive of attorneys to file class action lawsuits. 
C) reduce the transaction costs of finding a private solution to an externality. 
D) regulate attorney fees. 
A) maximize attorney fees. 
B) reduce the incentive of attorneys to file class action lawsuits. 
C) reduce the transaction costs of finding a private solution to an externality. 
D) regulate attorney fees.

Question 2

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Accepted Answer

When the governmental authority (e.g., E

Question 3

To enhance the well-being of society, a social planner will encourage firms to increase production when

Accepted Answer

A) the firms are producing basic goods. 
B) there is a shortage in the market. 
C) technology spillovers are associated with production. 
D) negative externalities "spill over" into production. 
A) the firms are producing basic goods. 
B) there is a shortage in the market. 
C) technology spillovers are associated with production. 
D) negative externalities "spill over" into production.

Question 4

An optimal tax on pollution would result in which of the following?

Accepted Answer

A) Producers will choose not to produce any pollution. 
B) Producers will internalize the cost of the pollution. 
C) Producers will maximize production. 
D) The value to consumers at market equilibrium will exceed the social cost of production. 
A) Producers will choose not to produce any pollution. 
B) Producers will internalize the cost of the pollution. 
C) Producers will maximize production. 
D) The value to consumers at market equilibrium will exceed the social cost of production.

Question 5

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. 
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.

Question 6

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 7

Figure 10-4  
-Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4.

Question 8

Figure 10-19  
-Refer to Figure 10-19. Which of the following decreases as the quantity of the good is increased?

Accepted Answer

A) the private cost of the good 
B) the social cost of the good 
C) the private value of the good 
D) the external benefit of the good 
A) the private cost of the good 
B) the social cost of the good 
C) the private value of the good 
D) the external benefit of the good

Question 9

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Accepted Answer

A) True 
 B)False

Question 10

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Accepted Answer

With a corrective ta

Question 12

Figure 10-9      
-Refer to Figure 10-9, Panel (c). The market equilibrium quantity is

Accepted Answer

A) Q4, which is the socially optimal quantity. 
B) Q5, which is the socially optimal quantity. 
C) Q4, and the socially optimal quantity is Q5. 
D) Q5, and the socially optimal quantity is Q4. 
A) Q4, which is the socially optimal quantity. 
B) Q5, which is the socially optimal quantity. 
C) Q4, and the socially optimal quantity is Q5. 
D) Q5, and the socially optimal quantity is Q4.

Question 13

If the social value of producing a good is always higher than the private value of producing it, then there is a

Accepted Answer

A) negative externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
B) negative externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity. 
C) positive externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
D) positive externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity. 
A) negative externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
B) negative externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity. 
C) positive externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
D) positive externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.

Question 14

Figure 10-19  
-Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by

Accepted Answer

A) $28.00. 
B) $31.40. 
C) $33.60. 
D) $36.00. 
A) $28.00. 
B) $31.40. 
C) $33.60. 
D) $36.00.

Question 15

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2015 dollars, would be about

Accepted Answer

A) $0.50 per gallon. 
B) $0.90 per gallon. 
C) $2.58 per gallon. 
D) $2.78 per gallon. 
A) $0.50 per gallon. 
B) $0.90 per gallon. 
C) $2.58 per gallon. 
D) $2.78 per gallon.

Question 16

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.  
-Refer to Figure 10-13. In order to reach the social optimum, the government could

Accepted Answer

A) impose a tax of $2 per unit on plastics. 
B) impose a tax of $6 per unit on plastics. 
C) impose a tax of $8 per unit on plastics. 
D) offer a subsidy of $6 per unit on plastics. 
A) impose a tax of $2 per unit on plastics. 
B) impose a tax of $6 per unit on plastics. 
C) impose a tax of $8 per unit on plastics. 
D) offer a subsidy of $6 per unit on plastics.

Question 17

A corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 18

A positive externality will cause a market to produce

Accepted Answer

A) more than is socially desirable. 
B) less than is socially desirable. 
C) the socially optimal equilibrium amount. 
D) more than the same market would produce in the presence of a negative externality. 
A) more than is socially desirable. 
B) less than is socially desirable. 
C) the socially optimal equilibrium amount. 
D) more than the same market would produce in the presence of a negative externality.

Question 19

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Accepted Answer

A) regulation and corrective taxes 
B) regulation and tradable pollution permits 
C) corrective taxes and tradable pollution permits 
D) All of these policies produce the same economic effects. 
A) regulation and corrective taxes 
B) regulation and tradable pollution permits 
C) corrective taxes and tradable pollution permits 
D) All of these policies produce the same economic effects.

Question 20

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

Accepted Answer

A) stop her messy habits or else move out. 
B) pay you at least $60 but less than $80 to live with the clutter. 
C) continue to be messy and force you to move out. 
D) demand payment of at least $60 but no more than $80 to clean up after herself. 
A) stop her messy habits or else move out. 
B) pay you at least $60 but less than $80 to live with the clutter. 
C) continue to be messy and force you to move out. 
D) demand payment of at least $60 but no more than $80 to clean up after herself.

Exam 10: Externalities

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

To enhance the well-being of society, a social planner will encourage firms to increase production when

An optimal tax on pollution would result in which of the following?

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

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.

Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Figure 10-19 -Refer to Figure 10-19. Which of the following decreases as the quantity of the good is increased?

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Markets sometimes fail to allocate resources efficiently.

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Figure 10-9 -Refer to Figure 10-9, Panel (c). The market equilibrium quantity is

If the social value of producing a good is always higher than the private value of producing it, then there is a

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2015 dollars, would be about

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13. In order to reach the social optimum, the government could

A corrective tax places a price on the right to pollute.

A positive externality will cause a market to produce

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

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

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