Question 1

A corrective tax is also known as:

Accepted Answer

A) a command-and-control regulation. 
B) a Coase tax. 
C) a Pigovian tax. 
D) a Smithian tax. 
A) a command-and-control regulation. 
B) a Coase tax. 
C) a Pigovian tax. 
D) a Smithian tax.

Question 2

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Accepted Answer

A) a corrective tax, but not by regulation. 
B) regulation, but not by a corrective tax. 
C) either regulation or a corrective tax. 
D) neither regulation nor a corrective tax. 
A) a corrective tax, but not by regulation. 
B) regulation, but not by a corrective tax. 
C) either regulation or a corrective tax. 
D) neither regulation nor a corrective tax.

Question 3

According to the Coase theorem, private parties can solve the problem of externalities if

Accepted Answer

A) the cost of bargaining is small. 
B) the initial distribution of legal rights favors the person being adversely affected by the externality. 
C) the number of parties involved is sufficiently large. 
D) All of the above are correct. 
A) the cost of bargaining is small. 
B) the initial distribution of legal rights favors the person being adversely affected by the externality. 
C) the number of parties involved is sufficiently large. 
D) All of the above are correct.

Question 4

​The requirement that a minimum volume of ethanol is blended into the U.S. fuel supply is an example of

Accepted Answer

A) ​a corrective tax. 
B) ​a corrective subsidy. 
C) ​a command-and-control policy. 
D) ​the Coase Theorem. 
A) ​a corrective tax. 
B) ​a corrective subsidy. 
C) ​a command-and-control policy. 
D) ​the Coase Theorem.

Question 5

Figure 10-16  
-Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Accepted Answer

A) $50 
B) $500 
C) $1,000 
D) $2,000 
A) $50 
B) $500 
C) $1,000 
D) $2,000

Question 6

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 7

Many charities like the Sierra Club are established to deal with externalities.

Accepted Answer

A) True 
 B)False

Question 8

Figure 10-11  
-Refer to Figure 10-11. On the

Accepted Answer

A) 390th unit of output, private value exceeds private cost. 
B) 390th unit of output, private value exceeds external value. 
C) 450th unit of output, private value exceeds social value. 
D) 450th unit of output, private cost exceeds social value. 
A) 390th unit of output, private value exceeds private cost. 
B) 390th unit of output, private value exceeds external value. 
C) 450th unit of output, private value exceeds social value. 
D) 450th unit of output, private cost exceeds social value.

Question 9

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2015 dollars, would be about

Accepted Answer

A) $0.50 per gallon. 
B) $0.90 per gallon. 
C) $2.58 per gallon. 
D) $2.78 per gallon. 
A) $0.50 per gallon. 
B) $0.90 per gallon. 
C) $2.58 per gallon. 
D) $2.78 per gallon.

Question 10

With a corrective tax, the supply curve for pollution is

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward-sloping. 
D) downward-sloping. 
A) vertical. 
B) horizontal. 
C) upward-sloping. 
D) downward-sloping.

Question 11

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality.  
-Refer to Table 10-2. What is the socially-optimal level of output in this market?

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 12

Figure 10-11  
-Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Accepted Answer

A) 210 units 
B) 270 units 
C) 330 units 
D) 390 units 
A) 210 units 
B) 270 units 
C) 330 units 
D) 390 units

Question 13

According to the Coase theorem, in the presence of externalities

Accepted Answer

A) private parties can bargain to reach an efficient outcome. 
B) government assistance is necessary to reach an efficient outcome. 
C) the assignment of legal rights can prevent externalities. 
D) the initial distribution of property rights will determine the efficient outcome. 
A) private parties can bargain to reach an efficient outcome. 
B) government assistance is necessary to reach an efficient outcome. 
C) the assignment of legal rights can prevent externalities. 
D) the initial distribution of property rights will determine the efficient outcome.

Question 14

​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Accepted Answer

A) ​the socially optimal quantity of rain barrels will be larger than the equilibrium quantity of rain barrels. 
B) ​the socially optimal quantity of rain barrels will be smaller than the equilibrium quantity of rain barrels. 
C) ​the socially optimal price of rain barrels will be lower than the equilibrium price of rain barrels. 
D) the market for rain barrels would benefit from a tax on rain barrels. 
A) ​the socially optimal quantity of rain barrels will be larger than the equilibrium quantity of rain barrels. 
B) ​the socially optimal quantity of rain barrels will be smaller than the equilibrium quantity of rain barrels. 
C) ​the socially optimal price of rain barrels will be lower than the equilibrium price of rain barrels. 
D) the market for rain barrels would benefit from a tax on rain barrels.

Question 15

Table 10-4  
-Refer to Table 10-4. The market equilibrium 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 16

Figure 10-9      
-Refer to Figure 10-9. Which graph represents a market with a negative 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 17

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Accepted Answer

A) their respective markets would move closer to the social optimum. 
B) their respective markets would move further away from the social optimum. 
C) total surplus in their respective markets would decrease. 
D) the merger would serve as an example of a misguided public policy toward externalities. 
A) their respective markets would move closer to the social optimum. 
B) their respective markets would move further away from the social optimum. 
C) total surplus in their respective markets would decrease. 
D) the merger would serve as an example of a misguided public policy toward externalities.

Question 18

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a way to address an externality problem?

Accepted Answer

A) command and control solution 
B) corrective tax 
C) corrective subsidy 
D) all of the above. 
A) command and control solution 
B) corrective tax 
C) corrective subsidy 
D) all of the above.

Question 20

A corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

A corrective tax is also known as:

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

According to the Coase theorem, private parties can solve the problem of externalities if

​The requirement that a minimum volume of ethanol is blended into the U.S. fuel supply is an example of

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

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

Many charities like the Sierra Club are established to deal with externalities.

Figure 10-11 -Refer to Figure 10-11. On the

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2015 dollars, would be about

With a corrective tax, the supply curve for pollution is

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the socially-optimal level of output in this market?

Figure 10-11 -Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

According to the Coase theorem, in the presence of externalities

​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

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

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Which of the following is a way to address an externality problem?

A corrective tax places a price on the right to pollute.

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

The requirement that a minimum volume of ethanol is blended into the U.S. fuel supply is an example of

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then