Question 1

If education produces positive externalities, we would expect

Accepted Answer

A) the government to tax education. 
B) the government to subsidize education. 
C) people to realize the benefits, which would increase the demand for education. 
D) colleges to relax admission requirements. 
A) the government to tax education. 
B) the government to subsidize education. 
C) people to realize the benefits, which would increase the demand for education. 
D) colleges to relax admission requirements.

Question 2

​Figure 10-20. ​  
-​Refer to Figure 10-20. This market is characterized by a negative externality.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

Table 10-4  
-Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Accepted Answer

A) a tax of $4 per unit of output 
B) a subsidy of $4 per unit of output 
C) a tax of $6 per unit of output 
D) a subsidy of $6 per unit of output 
A) a tax of $4 per unit of output 
B) a subsidy of $4 per unit of output 
C) a tax of $6 per unit of output 
D) a subsidy of $6 per unit of output

Question 6

Corrective taxes cause deadweight losses, reducing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at $40. Sam values the ability to smoke in the restaurant at $15. Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A) Sam continues to smoke because he has a right to smoke in the smoking section. 
B) Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C) Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D) Only a government policy banning smoking in restaurants will solve this problem. 
A) Sam continues to smoke because he has a right to smoke in the smoking section. 
B) Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C) Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D) Only a government policy banning smoking in restaurants will solve this problem.

Question 8

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-4  
-Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4.

Question 10

If only a few people are affected by an externality, then it is likely that

Accepted Answer

A) the government will play a role in collective action. 
B) command-and-control regulation will provide the most efficient solution to the externality. 
C) a private solution to the inefficiency will occur. 
D) a private solution will be very difficult to negotiate. 
A) the government will play a role in collective action. 
B) command-and-control regulation will provide the most efficient solution to the externality. 
C) a private solution to the inefficiency will occur. 
D) a private solution will be very difficult to negotiate.

Question 11

Which of the following statements is correct?

Accepted Answer

A) Gasoline taxes are an example of an EPA regulation. 
B) Gasoline taxes are higher in many European countries than in the United States. 
C) Gasoline taxes contribute to global warming. 
D) Gasoline taxes are an example of a command-and-control policy. 
A) Gasoline taxes are an example of an EPA regulation. 
B) Gasoline taxes are higher in many European countries than in the United States. 
C) Gasoline taxes contribute to global warming. 
D) Gasoline taxes are an example of a command-and-control policy.

Question 12

The concept of external benefit is associated with a negative externality, but not with a positive externality.

Accepted Answer

A) True 
 B)False

Question 13

Table 10-3  
-Refer to Table 10-3. What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Accepted Answer

A) $2 
B) $3 
C) $5 
D) $10 
A) $2 
B) $3 
C) $5 
D) $10

Question 14

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A) Prices are set by supply and demand. 
B) Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C) Real-world markets for pollution permits include sulfur dioxide and carbon. 
D) Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive. 
A) Prices are set by supply and demand. 
B) Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C) Real-world markets for pollution permits include sulfur dioxide and carbon. 
D) Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.

Question 15

Which of the following policies is not an example of a command-and-control policy?

Accepted Answer

A) subsidies 
B) Pigovian taxes 
C) tradable pollution permits 
D) None of the above is an example of a command-and-control policy. 
A) subsidies 
B) Pigovian taxes 
C) tradable pollution permits 
D) None of the above is an example of a command-and-control policy.

Question 16

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. The production of the 1,000th gallon of gasoline entails an

Accepted Answer

A) external cost of $0.15. 
B) external cost of $0.45. 
C) external benefit of $0.15. 
D) external benefit of $0.45. 
A) external cost of $0.15. 
B) external cost of $0.45. 
C) external benefit of $0.15. 
D) external benefit of $0.45.

Question 17

Figure 10-19  
-Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by

Accepted Answer

A) $28.00. 
B) $31.40. 
C) $33.60. 
D) $36.00. 
A) $28.00. 
B) $31.40. 
C) $33.60. 
D) $36.00.

Question 18

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Accepted Answer

A) The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly. 
B) The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander. 
C) The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly. 
D) Externalities arise in all of the above cases. 
A) The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly. 
B) The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander. 
C) The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly. 
D) Externalities arise in all of the above cases.

Question 19

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Accepted Answer

A) If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B) Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C) If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D) If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial. 
A) If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B) Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C) If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D) If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.

Question 20

​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.

Exam 10: Externalities

If education produces positive externalities, we would expect

​Figure 10-20. ​ -​Refer to Figure 10-20. This market is characterized by a negative externality.

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

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

Table 10-4 -Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Corrective taxes cause deadweight losses, reducing economic efficiency.

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Figure 10-4 -Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

If only a few people are affected by an externality, then it is likely that

Which of the following statements is correct?

The concept of external benefit is associated with a negative externality, but not with a positive externality.

Table 10-3 -Refer to Table 10-3. What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Which of the following is not a characteristic of pollution permits?

Which of the following policies is not an example of a command-and-control policy?

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

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

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

Figure 10-20. -Refer to Figure 10-20. This market is characterized by a negative externality.

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