Question 1

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Accepted Answer

A) ​increases the value of other properties in the neighborhood. 
B) ​decreases the value of Josiah's home. 
C) ​is visually appealing to Josiah's neighbors. 
D) ​creates a safety hazard for neighborhood children. 
A) ​increases the value of other properties in the neighborhood. 
B) ​decreases the value of Josiah's home. 
C) ​is visually appealing to Josiah's neighbors. 
D) ​creates a safety hazard for neighborhood children.

Question 2

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Accepted Answer

A) shift up by an amount equal to the subsidy. 
B) shift down by an amount less than the subsidy. 
C) shift down by an amount equal to the subsidy. 
D) shift down by an amount greater than the subsidy. 
A) shift up by an amount equal to the subsidy. 
B) shift down by an amount less than the subsidy. 
C) shift down by an amount equal to the subsidy. 
D) shift down by an amount greater than the subsidy.

Question 3

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. Is the market-equilibrium quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^th fire extinguisher,

Question 4

Figure 10-5  
-Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Accepted Answer

A) P0 and Q1. 
B) P2 and Q1. 
C) P1 and Q0. 
D) P2 and Q0. 
A) P0 and Q1. 
B) P2 and Q1. 
C) P1 and Q0. 
D) P2 and Q0.

Question 5

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A) They are equal. 
B) The after-tax equilibrium quantity is greater than the socially optimal quantity. 
C) The after-tax 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 after-tax equilibrium quantity is greater than the socially optimal quantity. 
C) The after-tax equilibrium quantity is less than the socially optimal quantity. 
D) There is not enough information to answer the question.

Question 6

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A) an opportunity cost. 
B) an implicit cost. 
C) a sunk cost. 
D) a transaction cost. 
A) an opportunity cost. 
B) an implicit cost. 
C) a sunk cost. 
D) a transaction cost.

Question 7

The externality associated with technology spillovers

Accepted Answer

A) cannot be internalized by government. 
B) is a negative externality. 
C) can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. 
D) can be internalized, potentially, through patent protection. 
A) cannot be internalized by government. 
B) is a negative externality. 
C) can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. 
D) can be internalized, potentially, through patent protection.

Question 8

Figure 10-12  
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A) social cost minus social value 
B) social value minus private cost 
C) demand 
D) private cost 
A) social cost minus social value 
B) social value minus private cost 
C) demand 
D) private cost

Question 9

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 social cost of producing 30 units of the good?

Accepted Answer

The social cost of p

Question 10

Which of the following policies is the government most inclined to use when faced with a positive externality?

Accepted Answer

A) taxation 
B) permits 
C) subsidies 
D) usage fees 
A) taxation 
B) permits 
C) subsidies 
D) usage fees

Question 11

Two farmers, A and B, each apply 100 tons of manure on their fields. To reduce manure runoff, the government has decided to require a permit for each ton of manure applied. The government gives each farmer 50 tradeable permits. Farmer A incurs losses of $25 for each ton of manure he does not apply, and Farmer B incurs losses of $50 for each ton of manure he does not apply. After permit trading, we would expect that

Accepted Answer

A) ​farmer A will no longer apply manure, and farmer B will not reduce his manure application at all. 
B) ​farmer B will no longer apply manure, and farmer A will not reduce his manure application at all. 
C) ​farmer A and B will each apply 50 tons of manure. 
D) ​farmer A will apply 25 tons of manure, and farmer B will apply 50 tons of manure. 
A) ​farmer A will no longer apply manure, and farmer B will not reduce his manure application at all. 
B) ​farmer B will no longer apply manure, and farmer A will not reduce his manure application at all. 
C) ​farmer A and B will each apply 50 tons of manure. 
D) ​farmer A will apply 25 tons of manure, and farmer B will apply 50 tons of manure.

Question 12

The best remedy for market failure is often

Accepted Answer

A) a market-based solution. 
B) shutdown of the market. 
C) no government intervention. 
D) externalizing the externalities. 
A) a market-based solution. 
B) shutdown of the market. 
C) no government intervention. 
D) externalizing the externalities.

Question 13

Figure 10-19  
-Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Accepted Answer

A) fewer than 58 
B) 58 
C) 73 
D) 94 
A) fewer than 58 
B) 58 
C) 73 
D) 94

Question 14

Research into new technologies

Accepted Answer

A) provides positive externalities because it creates knowledge others can use. 
B) results in negative externalities because government funding for research causes less government spending in other areas. 
C) is protected by patent laws, which eliminates the need for government intervention. 
D) should only be funded by the corporations that will receive the profits from the research. 
A) provides positive externalities because it creates knowledge others can use. 
B) results in negative externalities because government funding for research causes less government spending in other areas. 
C) is protected by patent laws, which eliminates the need for government intervention. 
D) should only be funded by the corporations that will receive the profits from the research.

Question 15

Which of the following statements is correct?

Accepted Answer

A) Government should tax goods with either positive or negative externalities. 
B) Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C) Government should subsidize goods with either positive or negative externalities. 
D) Government should tax goods with positive externalities and subsidize goods with negative externalities. 
A) Government should tax goods with either positive or negative externalities. 
B) Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C) Government should subsidize goods with either positive or negative externalities. 
D) Government should tax goods with positive externalities and subsidize goods with negative externalities.

Question 16

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 17

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

Accepted Answer

A) A college student buys a new car when she graduates. 
B) The mayor of a small town plants flowers in the city park. 
C) Local high school teachers have pizza delivered every Friday for lunch. 
D) An avid fisherman buys new fishing gear for his next fishing trip. 
A) A college student buys a new car when she graduates. 
B) The mayor of a small town plants flowers in the city park. 
C) Local high school teachers have pizza delivered every Friday for lunch. 
D) An avid fisherman buys new fishing gear for his next fishing trip.

Question 18

Figure 10-8  
-Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

Accepted Answer

A) 8 units 
B) Between 8 and 10 units 
C) 10 units 
D) More than 10 units 
A) 8 units 
B) Between 8 and 10 units 
C) 10 units 
D) More than 10 units

Question 19

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Accepted Answer

A) social value = private value = private cost  private value = social value > private cost. 
C) social cost = private cost = private value  private value. 
A) social value = private value = private cost  private value = social value > private cost. 
C) social cost = private cost = private value  private value.

Question 20

​Figure 10-20. ​  
-Refer to Figure 10-20. Without government intervention,

Accepted Answer

A) the equilibrium quantity is less than the socially optimal quantity. 
B) the equilibrium quantity is larger than the socially optimal quantity. 
C) the equilibrium quantity equals the socially optimal quantity. 
D) there is no clear relationship between the equilibrium quantity and socially optimal quantity. 
A) the equilibrium quantity is less than the socially optimal quantity. 
B) the equilibrium quantity is larger than the socially optimal quantity. 
C) the equilibrium quantity equals the socially optimal quantity. 
D) there is no clear relationship between the equilibrium quantity and socially optimal quantity.

Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

The externality associated with technology spillovers

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Which of the following policies is the government most inclined to use when faced with a positive externality?

The best remedy for market failure is often

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Research into new technologies

Which of the following statements is correct?

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

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

Figure 10-8 -Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Figure 10-20. -Refer to Figure 10-20. Without government intervention,

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

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

The externality associated with technology spillovers

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Which of the following policies is the government most inclined to use when faced with a positive externality?

The best remedy for market failure is often

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Research into new technologies

Which of the following statements is correct?

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

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

Figure 10-8 -Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

​Figure 10-20. ​ -Refer to Figure 10-20. Without government intervention,

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

Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Figure 10-20. -Refer to Figure 10-20. Without government intervention,