Question 1

An externality is an example of

Accepted Answer

A) a corrective tax. 
B) a tradable pollution permit. 
C) a market failure. 
D) Both a and b are correct. 
A) a corrective tax. 
B) a tradable pollution permit. 
C) a market failure. 
D) Both a and b are correct.

Question 2

With pollution permits, the supply curve for pollution rights is

Accepted Answer

A) perfectly elastic. 
B) perfectly inelastic. 
C) upward sloping. 
D) downward sloping. 
A) perfectly elastic. 
B) perfectly inelastic. 
C) upward sloping. 
D) downward sloping.

Question 3

Figure 10-10  
-Refer to Figure 10-10. The socially optimal quantity of output is

Accepted Answer

A) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit. 
B) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit. 
C) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. 
D) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit. 
A) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit. 
B) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit. 
C) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. 
D) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.

Question 4

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. The tax depicted on the graph

Accepted Answer

A) gives polluting firms an incentive to develop cleaner technologies. 
B) is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution. 
C) has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax. 
D) All of the above are correct. 
A) gives polluting firms an incentive to develop cleaner technologies. 
B) is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution. 
C) has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax. 
D) All of the above are correct.

Question 5

Internalizing a positive externality will cause the demand curve to

Accepted Answer

A) shift to the right. 
B) shift to the left. 
C) become more elastic. 
D) remain unchanged. 
A) shift to the right. 
B) shift to the left. 
C) become more elastic. 
D) remain unchanged.

Question 6

Figure 10-10  
-Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

Accepted Answer

A) $760. 
B) $1,080. 
C) $1,440. 
D) $1,920. 
A) $760. 
B) $1,080. 
C) $1,440. 
D) $1,920.

Question 7

Because there are positive externalities from higher education,

Accepted Answer

A) private markets will under-supply college classes. 
B) private markets will over-supply college classes. 
C) the government should impose a tax on college students. 
D) government intervention cannot improve the market for college classes. 
A) private markets will under-supply college classes. 
B) private markets will over-supply college classes. 
C) the government should impose a tax on college students. 
D) government intervention cannot improve the market for college classes.

Question 8

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 charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A) 7 
B) 8 
C) 9 
D) 10 
A) 7 
B) 8 
C) 9 
D) 10

Question 9

Technology spillover occurs when

Accepted Answer

A) a firm passes the high costs of technical research on to society through higher prices. 
B) a firm's research yields technical knowledge that is used by society as a whole. 
C) the government subsidizes firms engaged in high-tech research. 
D) copyright laws prohibit firms from profiting from the research of others. 
A) a firm passes the high costs of technical research on to society through higher prices. 
B) a firm's research yields technical knowledge that is used by society as a whole. 
C) the government subsidizes firms engaged in high-tech research. 
D) copyright laws prohibit firms from profiting from the research of others.

Question 10

The tax on cigarettes is an example of

Accepted Answer

A) a consumption tax. 
B) a corrective tax. 
C) an income tax. 
D) a command-and-control policy. 
A) a consumption tax. 
B) a corrective tax. 
C) an income tax. 
D) a command-and-control policy.

Question 11

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Accepted Answer

A) height of the demand curve at that quantity. 
B) height of the supply curve at that quantity. 
C) value to the producer of the last unit of gasoline sold. 
D) total quantity of gasoline exchanged in the market. 
A) height of the demand curve at that quantity. 
B) height of the supply curve at that quantity. 
C) value to the producer of the last unit of gasoline sold. 
D) total quantity of gasoline exchanged in the market.

Question 12

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Accepted Answer

A) the market-based solution is less costly to society. 
B) the market-based solution can result in a greater reduction in pollution. 
C) the market-based solution raises revenue for the government. 
D) All of the above are correct. 
A) the market-based solution is less costly to society. 
B) the market-based solution can result in a greater reduction in pollution. 
C) the market-based solution raises revenue for the government. 
D) All of the above are correct.

Question 13

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Accepted Answer

A) True 
 B)False

Question 14

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 15

If a market is characterized by a positive externality that is not the result of a technology spillover,

Accepted Answer

A) the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price. 
B) the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
C) the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price. 
D) the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
A) the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price. 
B) the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
C) the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price. 
D) the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.

Question 16

An externality is the impact of

Accepted Answer

A) society's decisions on the well-being of society. 
B) a person's actions on that person's well-being. 
C) one person's actions on the well-being of a bystander. 
D) society's decisions on the poorest person in the society. 
A) society's decisions on the well-being of society. 
B) a person's actions on that person's well-being. 
C) one person's actions on the well-being of a bystander. 
D) society's decisions on the poorest person in the society.

Question 17

Table 10-4  
-Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Accepted Answer

A) 2nd unit. 
B) 3rd unit. 
C) 4th unit. 
D) 5th unit. 
A) 2nd unit. 
B) 3rd unit. 
C) 4th unit. 
D) 5th unit.

Question 18

Which of the following statements is not correct?

Accepted Answer

A) Corrective taxes can be used to place a price on the right to pollute. 
B) Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C) Corrective taxes provide incentives to develop cleaner technologies. 
D) Corrective taxes require the government to set a target level of pollution. 
A) Corrective taxes can be used to place a price on the right to pollute. 
B) Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C) Corrective taxes provide incentives to develop cleaner technologies. 
D) Corrective taxes require the government to set a target level of pollution.

Question 19

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Accepted Answer

A) the equilibrium quantity of education will equal the socially optimal quantity of education. 
B) the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C) the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D) There is not enough information to answer the question. 
A) the equilibrium quantity of education will equal the socially optimal quantity of education. 
B) the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C) the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D) There is not enough information to answer the question.

Question 20

Externalities can be corrected by each of the following except

Accepted Answer

A) self-interest. 
B) moral codes and social sanctions. 
C) charity. 
D) normal market adjustments. 
A) self-interest. 
B) moral codes and social sanctions. 
C) charity. 
D) normal market adjustments.

Exam 10: Externalities

An externality is an example of

With pollution permits, the supply curve for pollution rights is

Figure 10-10 -Refer to Figure 10-10. The socially optimal quantity of output is

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. The tax depicted on the graph

Internalizing a positive externality will cause the demand curve to

Figure 10-10 -Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

Because there are positive externalities from higher education,

Technology spillover occurs when

The tax on cigarettes is an example of

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

If a market is characterized by a positive externality that is not the result of a technology spillover,

An externality is the impact of

Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Which of the following statements is not correct?

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Externalities can be corrected by each of the following except

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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