Question 1

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Accepted Answer

Most econo

Question 2

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 3

All externalities impose a cost on others. ​

Accepted Answer

A) True 
 B)False

Question 4

A positive externality arises when a person engages in an activity that has

Accepted Answer

A) an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B) an adverse effect on a bystander who is compensated by the person who causes the effect. 
C) a beneficial effect on a bystander who pays the person who causes the effect. 
D) a beneficial effect on a bystander who does not pay the person who causes the effect. 
A) an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B) an adverse effect on a bystander who is compensated by the person who causes the effect. 
C) a beneficial effect on a bystander who pays the person who causes the effect. 
D) a beneficial effect on a bystander who does not pay the person who causes the effect.

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

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A) an economic dilemma. 
B) deadweight loss. 
C) a multi-party problem. 
D) an externality. 
A) an economic dilemma. 
B) deadweight loss. 
C) a multi-party problem. 
D) an externality.

Question 7

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Accepted Answer

A) the supply curve would adequately reflect the marginal social cost of production. 
B) consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C) the market equilibrium quantity will not be the socially optimal quantity. 
D) producers will produce less steel than they otherwise would if the externality were internalized. 
A) the supply curve would adequately reflect the marginal social cost of production. 
B) consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C) the market equilibrium quantity will not be the socially optimal quantity. 
D) producers will produce less steel than they otherwise would if the externality were internalized.

Question 8

Figure 10-9      
-Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

A) Q2 to point Q3. 
B) Q3 to point Q2. 
C) Q4 to point Q5. 
D) Q5 to point Q4. 
A) Q2 to point Q3. 
B) Q3 to point Q2. 
C) Q4 to point Q5. 
D) Q5 to point Q4.

Question 9

Figure 10-9      
-Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

Accepted Answer

A) Q2 to point Q3. 
B) Q3 to point Q2. 
C) Q4 to point Q5. 
D) Q5 to point Q4. 
A) Q2 to point Q3. 
B) Q3 to point Q2. 
C) Q4 to point Q5. 
D) Q5 to point Q4.

Question 10

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Could the government impose a tax or provide a subsidy to move the market to the social optimum? If your answer is "Yes," should it be a tax or should it be a subsidy?

Accepted Answer

The government could

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

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 13

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a

Question 14

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.  
-Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A) $2 
B) $3 
C) $9 
D) $10 
A) $2 
B) $3 
C) $9 
D) $10

Question 15

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

Accepted Answer

A) Q2, which is the socially optimal quantity. 
B) Q3, which is the socially optimal quantity. 
C) Q2, and the socially optimal quantity is Q3. 
D) Q3, and the socially optimal quantity is Q2. 
A) Q2, which is the socially optimal quantity. 
B) Q3, which is the socially optimal quantity. 
C) Q2, and the socially optimal quantity is Q3. 
D) Q3, and the socially optimal quantity is Q2.

Question 16

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 17

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000S1U1P1thS1S1P0 gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were

Accepted Answer

A) provided a subsidy of $0.30 per gallon of gasoline sold. 
B) provided a subsidy of $0.45 per gallon of gasoline sold. 
C) required to pay a tax of $0.45 per gallon of gasoline sold. 
D) required to pay a tax of $0.30 per gallon of gasoline sold. 
A) provided a subsidy of $0.30 per gallon of gasoline sold. 
B) provided a subsidy of $0.45 per gallon of gasoline sold. 
C) required to pay a tax of $0.45 per gallon of gasoline sold. 
D) required to pay a tax of $0.30 per gallon of gasoline sold.

Question 18

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Accepted Answer

A) Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. 
B) Abe pays Jenny $350 for her inconvenience. 
C) Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. 
D) There is no private transaction that would improve this situation. 
A) Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. 
B) Abe pays Jenny $350 for her inconvenience. 
C) Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. 
D) There is no private transaction that would improve this situation.

Question 19

Table 10-3  
-Refer to Table 10-3. The socially optimal quantity of output is

Accepted Answer

A) 3 units. 
B) 4 units. 
C) 5 units. 
D) 6 units. 
A) 3 units. 
B) 4 units. 
C) 5 units. 
D) 6 units.

Question 20

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.

Exam 10: Externalities

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

The externality associated with technology spillovers

All externalities impose a cost on others. ​

A positive externality arises when a person engages in an activity that has

Two types of private solutions to the problem of externalities are

The impact of one person's actions on the well-being of a bystander is called

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

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

A negative externality will cause a private market to produce

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

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

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

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Table 10-3 -Refer to Table 10-3. The socially optimal quantity of output is

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

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

All externalities impose a cost on others.