Question 1

When a market experiences a positive externality,

Accepted Answer

A) the demand curve does not reflect the value to society of the good. 
B) too much of the good is being produced. 
C) the government can internalize the externality by imposing a tax on the product. 
D) the private value is greater than the social value. 
A) the demand curve does not reflect the value to society of the good. 
B) too much of the good is being produced. 
C) the government can internalize the externality by imposing a tax on the product. 
D) the private value is greater than the social value.

Question 2

Which of the following is not correct?

Accepted Answer

A) Markets allocate scarce resources with the forces of supply and demand. 
B) The equilibrium of supply and demand is typically an efficient allocation of resources. 
C) Governments can sometimes improve market outcomes. 
D) Externalities cannot be positive. 
A) Markets allocate scarce resources with the forces of supply and demand. 
B) The equilibrium of supply and demand is typically an efficient allocation of resources. 
C) Governments can sometimes improve market outcomes. 
D) Externalities cannot be positive.

Question 3

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Accepted Answer

A) True 
 B)False

Question 4

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A) buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B) sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C) bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D) Both (a) and (b) are correct. 
A) buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B) sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C) bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D) Both (a) and (b) are correct.

Question 5

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 6

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Accepted Answer

A) social value = private value = private cost  private value = social value > private cost. 
C) social cost = private cost = private value  private value. 
A) social value = private value = private cost  private value = social value > private cost. 
C) social cost = private cost = private value  private value.

Question 7

Figure 10-4  
-Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Accepted Answer

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

Question 8

Figure 10-15  
-Refer to Figure 10-15. Which graph illustrates a corrective tax?

Accepted Answer

A) the left graph 
B) the right graph 
C) both graphs 
D) neither graph 
A) the left graph 
B) the right graph 
C) both graphs 
D) neither graph

Question 9

Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 10

What are the three externalities that are associated with driving cars and trucks?

Accepted Answer

The negative externa

Question 11

​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. What can the government do to equate the equilibrium quantity of rain barrels and the socially optimal quantity of rain barrels?

Accepted Answer

A) ​impose a tax on rain barrels that is equal to the per-unit externality 
B) ​offer a subsidy on rain barrels that is equal to the per-unit externality 
C) ​encourage homeowners to bargain with rain barrel producers 
D) nothing​ 
A) ​impose a tax on rain barrels that is equal to the per-unit externality 
B) ​offer a subsidy on rain barrels that is equal to the per-unit externality 
C) ​encourage homeowners to bargain with rain barrel producers 
D) nothing​

Question 12

Figure 10-9      
-Refer to Figure 10-9. Which graph represents a market with no externality?

Accepted Answer

A) Panel (a) 
B) Panel (b) 
C) Panel (c) 
D) None of the above is correct. 
A) Panel (a) 
B) Panel (b) 
C) Panel (c) 
D) None of the above is correct.

Question 13

Which of the following policies is the government most inclined to use when faced with a positive externality?

Accepted Answer

A) taxation 
B) permits 
C) subsidies 
D) usage fees 
A) taxation 
B) permits 
C) subsidies 
D) usage fees

Question 14

Figure 10-8  
-Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

Accepted Answer

A) 8 units 
B) Between 8 and 10 units 
C) 10 units 
D) More than 10 units 
A) 8 units 
B) Between 8 and 10 units 
C) 10 units 
D) More than 10 units

Question 15

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 equilibrium quantity of gasoline is 1,150 gallons; that is, QMARKET = 1,150. Then the equilibrium price of a gallon could be

Accepted Answer

A) $2.80. 
B) $3.00. 
C) $3.30. 
D) $3.80. 
A) $2.80. 
B) $3.00. 
C) $3.30. 
D) $3.80.

Question 16

Which of the following is the most effective way to internalize a technology spillover?

Accepted Answer

A) taxes 
B) patents 
C) government regulations 
D) free markets 
A) taxes 
B) patents 
C) government regulations 
D) free markets

Question 17

When negative externalities are present in a market

Accepted Answer

A) private costs will be greater than social costs. 
B) social costs will be greater than private costs. 
C) only government regulation will solve the problem. 
D) the market will not be able to reach any equilibrium. 
A) private costs will be greater than social costs. 
B) social costs will be greater than private costs. 
C) only government regulation will solve the problem. 
D) the market will not be able to reach any equilibrium.

Question 18

Figure 10-9      
-Refer to Figure 10-9, Panel (c). The market equilibrium price is

Accepted Answer

A) P4a. 
B) P4b. 
C) P5. 
D) P4a - P4b. 
A) P4a. 
B) P4b. 
C) P5. 
D) P4a - P4b.

Question 19

Altering incentives so that people take account of the external effects of their actions

Accepted Answer

A) is called internalizing the externality. 
B) can be done by imposing a corrective tax. 
C) is the role of government in markets with externalities. 
D) All of the above are correct. 
A) is called internalizing the externality. 
B) can be done by imposing a corrective tax. 
C) is the role of government in markets with externalities. 
D) All of the above are correct.

Question 20

Figure 10-11  
-Refer to Figure 10-11. Which of the following statements is correct?

Accepted Answer

A) The private value of the 240th unit of output is $24. 
B) The social value of the 240th unit of output is $42. 
C) The external benefit of the 240th unit of output is $18. 
D) All of the above are correct. 
A) The private value of the 240th unit of output is $24. 
B) The social value of the 240th unit of output is $42. 
C) The external benefit of the 240th unit of output is $18. 
D) All of the above are correct.

Exam 10: Externalities

When a market experiences a positive externality,

Which of the following is not correct?

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

An externality arises when a person engages in an activity that influences the well-being of

A technology spillover is a type of negative externality.

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a corrective tax?

Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized.

What are the three externalities that are associated with driving cars and trucks?

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no externality?

Which of the following policies is the government most inclined to use when faced with a positive externality?

Figure 10-8 -Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

Which of the following is the most effective way to internalize a technology spillover?

When negative externalities are present in a market

Figure 10-9 -Refer to Figure 10-9, Panel (c). The market equilibrium price is

Altering incentives so that people take account of the external effects of their actions

Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

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