Question 1

Which of the following statements is correct?

Accepted Answer

A) The use of pollution permits and corrective taxes reduces the cost of environmental protection. 
B) Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C) Clean water and clean air are goods to which the law of demand applies. 
D) All of the above are correct. 
A) The use of pollution permits and corrective taxes reduces the cost of environmental protection. 
B) Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C) Clean water and clean air are goods to which the law of demand applies. 
D) All of the above are correct.

Question 2

If the social value of producing a good is always higher than the private value of producing it, then there is a

Accepted Answer

A) negative externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
B) negative externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity. 
C) positive externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
D) positive externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity. 
A) negative externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
B) negative externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity. 
C) positive externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity. 
D) positive externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.

Question 3

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Accepted Answer

A) lower levels of nutrition, health care, and housing 
B) a lower standard of living 
C) slowing or reversing technological advancement 
D) the elimination of all pollution 
A) lower levels of nutrition, health care, and housing 
B) a lower standard of living 
C) slowing or reversing technological advancement 
D) the elimination of all pollution

Question 4

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

Accepted Answer

A) a market-based policy. 
B) a command-and-control policy. 
C) tradable pollution permits. 
D) transaction costs. 
A) a market-based policy. 
B) a command-and-control policy. 
C) tradable pollution permits. 
D) transaction costs.

Question 5

According to recent research, the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

Question 6

Figure 10-19  
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Accepted Answer

A) benefit of $15. 
B) benefit of $36. 
C) cost of $15. 
D) cost of $36. 
A) benefit of $15. 
B) benefit of $36. 
C) cost of $15. 
D) cost of $36.

Question 7

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Accepted Answer

A) control taxes. 
B) command levies. 
C) Pigovian taxes. 
D) Marshallian taxes. 
A) control taxes. 
B) command levies. 
C) Pigovian taxes. 
D) Marshallian taxes.

Question 8

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Accepted Answer

A) the production of good x imposes external costs on society. 
B) the private value of good x exceeds the private cost of good x when 5,000 units are produced. 
C) the private cost of good x exceeds the private value of good x when 5,000 units are produced. 
D) the social cost of good x exceeds the private value of good x when 4,000 units are produced. 
A) the production of good x imposes external costs on society. 
B) the private value of good x exceeds the private cost of good x when 5,000 units are produced. 
C) the private cost of good x exceeds the private value of good x when 5,000 units are produced. 
D) the social cost of good x exceeds the private value of good x when 4,000 units are produced.

Question 9

Which of the following is an advantage of tradable pollution permits?

Accepted Answer

A) Each firm is allowed to pollute exactly the same amount. 
B) Revenue from the sale of permits is greater than revenue from a corrective tax. 
C) The initial allocation of permits to firms does not affect the efficiency of the market. 
D) Firms will engage in joint research efforts to reduce pollution. 
A) Each firm is allowed to pollute exactly the same amount. 
B) Revenue from the sale of permits is greater than revenue from a corrective tax. 
C) The initial allocation of permits to firms does not affect the efficiency of the market. 
D) Firms will engage in joint research efforts to reduce pollution.

Question 10

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A) Ed is allergic to his roommate's cat. 
B) Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. 
C) Polluted water runoff from farms is making residents of a nearby town sick. 
D) Industrialization around the world is causing global warming. 
A) Ed is allergic to his roommate's cat. 
B) Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. 
C) Polluted water runoff from farms is making residents of a nearby town sick. 
D) Industrialization around the world is causing global warming.

Question 11

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Accepted Answer

We call th

Question 12

Figure 10-12  
-Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Accepted Answer

A) private value. 
B) external value. 
C) private cost. 
D) external cost. 
A) private value. 
B) external value. 
C) private cost. 
D) external cost.

Question 13

Figure 10-1  
-Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Accepted Answer

A) positive externalities. 
B) negative externalities. 
C) no externalities. 
D) no equilibrium in the market. 
A) positive externalities. 
B) negative externalities. 
C) no externalities. 
D) no equilibrium in the market.

Question 14

Figure 10-12  
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A) social cost 
B) social value 
C) private cost 
D) private value 
A) social cost 
B) social value 
C) private cost 
D) private value

Question 15

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Accepted Answer

A) maximize attorney fees. 
B) reduce the incentive of attorneys to file class action lawsuits. 
C) reduce the transaction costs of finding a private solution to an externality. 
D) regulate attorney fees. 
A) maximize attorney fees. 
B) reduce the incentive of attorneys to file class action lawsuits. 
C) reduce the transaction costs of finding a private solution to an externality. 
D) regulate attorney fees.

Question 16

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. Is the socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The socially optimal

Question 17

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

Accepted Answer

A) a situation in which the Coase theorem fails to explain the lawn mowing arrangement. 
B) an improper allocation of resources. 
C) a private solution to a negative externality problem. 
D) an exploitation of a common resource. 
A) a situation in which the Coase theorem fails to explain the lawn mowing arrangement. 
B) an improper allocation of resources. 
C) a private solution to a negative externality problem. 
D) an exploitation of a common resource.

Question 18

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Accepted Answer

A) the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B) the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C) the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D) There is not enough information to answer the question. 
A) the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B) the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C) the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D) There is not enough information to answer the question.

Question 19

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. Is the market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The market equilibri

Question 20

In some cases, tradable pollution permits may be better than a corrective tax because

Accepted Answer

A) pollution permits allow for a market solution while a corrective tax does not. 
B) pollution permits generate more revenue for the government than a corrective tax. 
C) pollution permits are never preferred over a corrective tax. 
D) the government can set a maximum level of pollution using permits. 
A) pollution permits allow for a market solution while a corrective tax does not. 
B) pollution permits generate more revenue for the government than a corrective tax. 
C) pollution permits are never preferred over a corrective tax. 
D) the government can set a maximum level of pollution using permits.

Exam 10: Externalities

Which of the following statements is correct?

If the social value of producing a good is always higher than the private value of producing it, then there is a

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

According to recent research, the gas tax in the United States is lower than the optimal level.

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Which of the following is an advantage of tradable pollution permits?

In which of the following cases is the Coase theorem most likely to solve the externality?

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

In some cases, tradable pollution permits may be better than a corrective tax because

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

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