Question 1

​Figure 10-20. ​  
-Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Accepted Answer

A) ​100 units 
B) 200 units 
C) 250 units 
D) ​300 units 
A) ​100 units 
B) 200 units 
C) 250 units 
D) ​300 units

Question 2

Negative externalities lead markets to produce

Accepted Answer

A) greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B) smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C) greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D) efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
A) greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B) smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C) greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D) efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

Question 3

By allowing an income-tax deduction for charitable contributions, the government

Accepted Answer

A) encourages a private solution to a particular positive-externality problem. 
B) discourages a private solution to a particular positive-externality problem. 
C) encourages a private solution to a particular negative-externality problem. 
D) discourages a private solution to a particular negative-externality problem. 
A) encourages a private solution to a particular positive-externality problem. 
B) discourages a private solution to a particular positive-externality problem. 
C) encourages a private solution to a particular negative-externality problem. 
D) discourages a private solution to a particular negative-externality problem.

Question 4

A positive externality occurs when

Accepted Answer

A) Jack receives a benefit from John's consumption of a certain good. 
B) Jack receives personal benefits from his own consumption of a certain good. 
C) Jack's benefit exceeds John's benefit when they each consume the same good. 
D) Jack's receives a loss from John's consumption of a certain good. 
A) Jack receives a benefit from John's consumption of a certain good. 
B) Jack receives personal benefits from his own consumption of a certain good. 
C) Jack's benefit exceeds John's benefit when they each consume the same good. 
D) Jack's receives a loss from John's consumption of a certain good.

Question 5

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Accepted Answer

A) True 
 B)False

Question 6

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 7

Industrial policy aims to

Accepted Answer

A) reduce pollution by requiring factories to reduce their pollution by a certain number of tons per year. 
B) reduce pollution by levying a tax on factories of a certain number of dollars for every ton of pollution that the factory emits. 
C) encourage business firms to subsidize continuing education for their employees. 
D) promote technology-enhancing industries. 
A) reduce pollution by requiring factories to reduce their pollution by a certain number of tons per year. 
B) reduce pollution by levying a tax on factories of a certain number of dollars for every ton of pollution that the factory emits. 
C) encourage business firms to subsidize continuing education for their employees. 
D) promote technology-enhancing industries.

Question 8

A negative externality

Accepted Answer

A) is an adverse impact on a bystander. 
B) causes the product in a market to be under-produced. 
C) is an adverse impact on market participants. 
D) is present in markets where the good or service does not have any impact on bystanders. 
A) is an adverse impact on a bystander. 
B) causes the product in a market to be under-produced. 
C) is an adverse impact on market participants. 
D) is present in markets where the good or service does not have any impact on bystanders.

Question 9

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Accepted Answer

A) external cost of good x exceeds the private value of good x. 
B) external cost of good x equals the private value of good x. 
C) social cost of good x exceeds the private value of good x. 
D) social cost of good x equals the private value of good x. 
A) external cost of good x exceeds the private value of good x. 
B) external cost of good x equals the private value of good x. 
C) social cost of good x exceeds the private value of good x. 
D) social cost of good x equals the private value of good x.

Question 10

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A) reduce economic efficiency. 
B) do not raise revenue for the government. 
C) do not cause deadweight losses. 
D) always result in a high burden on sellers of goods to which the corrective tax applies. 
A) reduce economic efficiency. 
B) do not raise revenue for the government. 
C) do not cause deadweight losses. 
D) always result in a high burden on sellers of goods to which the corrective tax applies.

Question 11

Figure 10-10  
-Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Accepted Answer

A) move the market from a socially efficient outcome to a socially inefficient outcome. 
B) increase the external cost per unit of output. 
C) increase total economic well-being. 
D) 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) increase the external cost per unit of output. 
C) increase total economic well-being. 
D) be an action of which a benevolent social planner would approve.

Question 12

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Accepted Answer

A) Externalities lead to government intervention in markets, which exacerbates the problems associated with externalities. 
B) Externalities result in prices that are too high for many consumers to pay. 
C) Markets fail to produce the maximum total benefit to society when positive or negative externalities are present. 
D) Markets produce too little of a good when positive or negative externalities are present. 
A) Externalities lead to government intervention in markets, which exacerbates the problems associated with externalities. 
B) Externalities result in prices that are too high for many consumers to pay. 
C) Markets fail to produce the maximum total benefit to society when positive or negative externalities are present. 
D) Markets produce too little of a good when positive or negative externalities are present.

Question 13

Which of the following policies is an example of a command-and-control policy?

Accepted Answer

A) subsidies to education 
B) maximum levels of pollution that factories may emit 
C) tradable pollution permits 
D) None of the above is an example of a command-and-control policy. 
A) subsidies to education 
B) maximum levels of pollution that factories may emit 
C) tradable pollution permits 
D) None of the above is an example of a command-and-control policy.

Question 14

The goal of industrial policy should be that

Accepted Answer

A) industries yielding the largest positive externalities should receive the biggest subsidies. 
B) any industry that produces negative externalities should be heavily taxed. 
C) any production process that produces negative externalities should be shut down. 
D) all industries that produce positive externalities should be equally subsidized. 
A) industries yielding the largest positive externalities should receive the biggest subsidies. 
B) any industry that produces negative externalities should be heavily taxed. 
C) any production process that produces negative externalities should be shut down. 
D) all industries that produce positive externalities should be equally subsidized.

Question 15

​Figure 10-20. ​  
-Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Accepted Answer

A) $​100 
B) $200 
C) $250 
D) ​$300 
A) $​100 
B) $200 
C) $250 
D) ​$300

Question 16

Since air pollution creates a negative externality,

Accepted Answer

A) social welfare will be enhanced when some, but not all air pollution is eliminated. 
B) social welfare is optimal when all air pollution is eliminated. 
C) governments should encourage private firms to consider only private costs. 
D) the free market result maximizes social welfare. 
A) social welfare will be enhanced when some, but not all air pollution is eliminated. 
B) social welfare is optimal when all air pollution is eliminated. 
C) governments should encourage private firms to consider only private costs. 
D) the free market result maximizes social welfare.

Question 17

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A) Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly. 
B) Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. 
C) Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior. 
D) Command-and-control policies are efficient, whereas market-based policies are inefficient. 
A) Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly. 
B) Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. 
C) Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior. 
D) Command-and-control policies are efficient, whereas market-based policies are inefficient.

Question 18

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.
​

Accepted Answer

A) True 
 B)False

Question 19

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 20

Table 10-6
The following table shows the total 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 $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103.  
-Refer to Table 10-6. Suppose the government wanted to reduce pollution from 16 units to exactly 6 units. Which one of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A) $65 
B) $70 
C) $75 
D) $95 
A) $65 
B) $70 
C) $75 
D) $95

Exam 10: Externalities

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Negative externalities lead markets to produce

By allowing an income-tax deduction for charitable contributions, the government

A positive externality occurs when

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Industrial policy aims to

A negative externality

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Corrective taxes differ from most taxes in that corrective taxes

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Which of the following policies is an example of a command-and-control policy?

The goal of industrial policy should be that

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Since air pollution creates a negative externality,

What is the difference between command-and-control policies and market-based policies toward externalities?

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat. ​

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

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. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.