Question 1

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

Accepted Answer

A) Sue not catching the flu because she got a flu vaccine 
B) Mary not catching the flu from Sue because Sue got a flu vaccine 
C) Sue catching the flu because she did not get a flu vaccine 
D) Mary catching the flu from Sue because Sue did not get a flu vaccine 
A) Sue not catching the flu because she got a flu vaccine 
B) Mary not catching the flu from Sue because Sue got a flu vaccine 
C) Sue catching the flu because she did not get a flu vaccine 
D) Mary catching the flu from Sue because Sue did not get a flu vaccine

Question 2

Figure 10-10  
-Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Accepted Answer

A) move the market from a socially efficient outcome to a socially inefficient outcome. 
B) reduce the external cost per unit of output. 
C) increase total economic well-being. 
D) not 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) reduce the external cost per unit of output. 
C) increase total economic well-being. 
D) not be an action of which a benevolent social planner would approve.

Question 3

Briefly explain how research into new technologies gives rise to a positive externality.

Accepted Answer

Research into new technologies

Question 4

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.

Question 5

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 6

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 7

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Accepted Answer

A) even if private parties experience substantial costs of bargaining. 
B) even if the initial distribution of legal rights is skewed in favor of some private parties over others. 
C) only when there is a large number of private parties that engage in bargaining. 
D) All of the above are correct. 
A) even if private parties experience substantial costs of bargaining. 
B) even if the initial distribution of legal rights is skewed in favor of some private parties over others. 
C) only when there is a large number of private parties that engage in bargaining. 
D) All of the above are correct.

Question 8

Figure 10-11  
-Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Accepted Answer

A) $3,850. 
B) $4,320. 
C) $4,980. 
D) $5,530. 
A) $3,850. 
B) $4,320. 
C) $4,980. 
D) $5,530.

Question 9

Table 10-4  
-Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is

Accepted Answer

A) $29. 
B) $35. 
C) $40. 
D) $46. 
A) $29. 
B) $35. 
C) $40. 
D) $46.

Question 10

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Accepted Answer

Since Liz's cost exceeds Tyler's benefit

Question 11

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Accepted Answer

A) social costs equal private costs at the private market solution. 
B) private costs exceed social costs at the private market solution. 
C) social costs exceed private costs at the private market solution. 
D) they internalize externalities. 
A) social costs equal private costs at the private market solution. 
B) private costs exceed social costs at the private market solution. 
C) social costs exceed private costs at the private market solution. 
D) they internalize externalities.

Question 12

Positive externalities

Accepted Answer

A) result in a larger than efficient equilibrium quantity. 
B) result in smaller than efficient equilibrium quantity. 
C) result in an efficient equilibrium quantity. 
D) can be internalized with a corrective tax. 
A) result in a larger than efficient equilibrium quantity. 
B) result in smaller than efficient equilibrium quantity. 
C) result in an efficient equilibrium quantity. 
D) can be internalized with a corrective tax.

Question 13

Figure 10-9      
-Refer to Figure 10-9. Which graph represents a market with a positive externality?

Accepted Answer

A) Panel (a) 
B) Panel (b) 
C) Panel (c) 
D) Both (b) and (c) are correct. 
A) Panel (a) 
B) Panel (b) 
C) Panel (c) 
D) Both (b) and (c) are correct.

Question 14

In many cases the Coase theorem does not work well because

Accepted Answer

A) there are too few parties at the negotiation table. 
B) the government does not know about the Coase theorem. 
C) transaction costs are too high. 
D) transaction costs are too low. 
A) there are too few parties at the negotiation table. 
B) the government does not know about the Coase theorem. 
C) transaction costs are too high. 
D) transaction costs are too low.

Question 15

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Technology spillover is one type of

Accepted Answer

A) negative externality. 
B) positive externality. 
C) subsidy. 
D) producer surplus. 
A) negative externality. 
B) positive externality. 
C) subsidy. 
D) producer surplus.

Question 18

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 19

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

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

Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Briefly explain how research into new technologies gives rise to a positive externality.

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?

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

Which of the following statements is not correct?

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Table 10-4 -Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Positive externalities

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a positive externality?

In many cases the Coase theorem does not work well because

Government intervention is necessary to correct all externalities.

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

Technology spillover is one type of

Technology spillover occurs when

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

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

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters