Question 1

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Accepted Answer

A) a subsidy. 
B) a regulation. 
C) a corrective tax. 
D) an application of the Coase theorem. 
A) a subsidy. 
B) a regulation. 
C) a corrective tax. 
D) an application of the Coase theorem.

Question 2

Dioxin emission that results from the production of paper is a good example of a negative externality because

Accepted Answer

A) self-interested paper firms are generally unaware of environmental regulations. 
B) there are fines for producing too much dioxin. 
C) self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D) toxic emissions are the best example of an externality. 
A) self-interested paper firms are generally unaware of environmental regulations. 
B) there are fines for producing too much dioxin. 
C) self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D) toxic emissions are the best example of an externality.

Question 3

When a transaction between a buyer and seller directly affects a third party, the effect is called an externality.

Accepted Answer

A) True 
 B)False

Question 4

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A) buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B) sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C) bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D) Both (a) and (b) are correct. 
A) buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B) sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C) bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D) Both (a) and (b) are correct.

Question 5

Two types of private solutions to the problem of externalities are

Accepted Answer

A) charities and the Golden Rule. 
B) charities and subsidies. 
C) the Golden Rule and taxes. 
D) taxes and subsidies. 
A) charities and the Golden Rule. 
B) charities and subsidies. 
C) the Golden Rule and taxes. 
D) taxes and subsidies.

Question 6

Figure 10-1  
-Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Accepted Answer

A) $1.90 and 38 units, respectively. 
B) $1.80 and 35 units, respectively. 
C) $1.60 and 42 units, respectively. 
D) $1.35 and 58 units, respectively. 
A) $1.90 and 38 units, respectively. 
B) $1.80 and 35 units, respectively. 
C) $1.60 and 42 units, respectively. 
D) $1.35 and 58 units, respectively.

Question 7

A cost imposed on someone who is neither the consumer nor the producer is called a

Accepted Answer

A) corrective tax. 
B) command and control policy. 
C) positive externality. 
D) negative externality. 
A) corrective tax. 
B) command and control policy. 
C) positive externality. 
D) negative externality.

Question 8

When firms internalize a negative externality, the market supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 9

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A) assisted technology. 
B) intervention policy. 
C) industrial technology assistance. 
D) industrial policy. 
A) assisted technology. 
B) intervention policy. 
C) industrial technology assistance. 
D) industrial policy.

Question 10

Table 10-4  
-Refer to Table 10-4. The table represents a market in which

Accepted Answer

A) there is no externality. 
B) there is a positive externality. 
C) there is a negative externality. 
D) The answer cannot be determined from inspection of the table. 
A) there is no externality. 
B) there is a positive externality. 
C) there is a negative externality. 
D) The answer cannot be determined from inspection of the table.

Question 11

​Figure 10-20. ​  
-Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal quantity of fertilizer?

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 12

Tradable pollution permits

Accepted Answer

A) are widely viewed as a cost-effective way to reduce pollution. 
B) have helped reduce carbon emissions in Canada. 
C) have helped reduce sulfur dioxide emissions in the United States. 
D) All of the above are correct. 
A) are widely viewed as a cost-effective way to reduce pollution. 
B) have helped reduce carbon emissions in Canada. 
C) have helped reduce sulfur dioxide emissions in the United States. 
D) All of the above are correct.

Question 13

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Accepted Answer

A) True 
 B)False

Question 14

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Accepted Answer

A) True 
 B)False

Question 15

When the production of a good results in a positive externality, the social value curve is

Accepted Answer

A) below the demand curve, indicating that the total value to society is less than the private benefit. 
B) above the demand curve, indicating that the total value to society is greater than the private benefit. 
C) identical to the demand curve, indicating that the total cost to society is the equal to the private benefit. 
D) above the supply curve, indicating that the total cost to society exceeds the private cost. 
A) below the demand curve, indicating that the total value to society is less than the private benefit. 
B) above the demand curve, indicating that the total value to society is greater than the private benefit. 
C) identical to the demand curve, indicating that the total cost to society is the equal to the private benefit. 
D) above the supply curve, indicating that the total cost to society exceeds the private cost.

Question 16

A negative externality will cause a private market to produce

Accepted Answer

A) less than is socially desirable. 
B) more than is socially desirable. 
C) exactly the quantity that is socially desirable. 
D) less than the same market would produce in the presence of a positive externality. 
A) less than is socially desirable. 
B) more than is socially desirable. 
C) exactly the quantity that is socially desirable. 
D) less than the same market would produce in the presence of a positive externality.

Question 17

A positive externality

Accepted Answer

A) causes the product to be overproduced. 
B) provides an additional benefit to market participants. 
C) benefits consumers because it results in a lower equilibrium price. 
D) is a benefit to a market bystander. 
A) causes the product to be overproduced. 
B) provides an additional benefit to market participants. 
C) benefits consumers because it results in a lower equilibrium price. 
D) is a benefit to a market bystander.

Question 18

Figure 10-4  
-Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Accepted Answer

A) decreased to Q1. 
B) decreased to Q2. 
C) decreased to Q3. 
D) stayed at Q4. 
A) decreased to Q1. 
B) decreased to Q2. 
C) decreased to Q3. 
D) stayed at Q4.

Question 19

Figure 10-2. The graph depicts the market for plastic.  
-Refer to Figure 10-2. A benevolent social planner would like to see

Accepted Answer

A) 200 units of plastic produced. 
B) 500 units of plastic produced. 
C) 650 units of plastic produced. 
D) more than 650 units of plastic produced. 
A) 200 units of plastic produced. 
B) 500 units of plastic produced. 
C) 650 units of plastic produced. 
D) more than 650 units of plastic produced.

Question 20

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1thS1S1P0 fire 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. Does the production of fire extinguishers convey a positive externality, a negative externality, or neither?

Accepted Answer

The social value exceeds the p

Exam 10: Externalities

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Dioxin emission that results from the production of paper is a good example of a negative externality because

When a transaction between a buyer and seller directly affects a third party, the effect is called an externality.

An externality arises when a person engages in an activity that influences the well-being of

Two types of private solutions to the problem of externalities are

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

A cost imposed on someone who is neither the consumer nor the producer is called a

When firms internalize a negative externality, the market supply curve shifts to the left.

Government intervention that aims to promote technology-enhancing industries is called

Table 10-4 -Refer to Table 10-4. The table represents a market in which

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal quantity of fertilizer?

Tradable pollution permits

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

When the production of a good results in a positive externality, the social value curve is

A negative externality will cause a private market to produce

A positive externality

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. A benevolent social planner would like to see

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. What is the socially optimal quantity of fertilizer?

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q₄, then total economic well-being would be maximized if output