Question 1

Figure 10-3  
-Refer to Figure 10-3. 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 2

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Accepted Answer

The new supply curve

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) property rights aren't clearly defined. 
C) the number of parties involved is sufficiently large. 
D) the initial distribution of legal rights favors the person being adversely affected by the externality. 
A) the cost of bargaining is small. 
B) property rights aren't clearly defined. 
C) the number of parties involved is sufficiently large. 
D) the initial distribution of legal rights favors the person being adversely affected by the externality.

Question 4

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Accepted Answer

A) True 
 B)False

Question 5

Figure 10-1  
-Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Accepted Answer

A) $8.40 and 48 units, respectively. 
B) $9.00 and 60 units, respectively. 
C) $6.21 and 76 units, respectively. 
D) $4.50 and 100 units, respectively. 
A) $8.40 and 48 units, respectively. 
B) $9.00 and 60 units, respectively. 
C) $6.21 and 76 units, respectively. 
D) $4.50 and 100 units, respectively.

Question 6

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

@#IMG-DLM& ​
When a positive externality exists, t

Question 7

An externality is the uncompensated impact of

Accepted Answer

A) society's decisions on the well-being of society. 
B) a person's actions on that person's well-being. 
C) one person's actions on the well-being of a bystander. 
D) society's decisions on the poorest person in the society. 
A) society's decisions on the well-being of society. 
B) a person's actions on that person's well-being. 
C) one person's actions on the well-being of a bystander. 
D) society's decisions on the poorest person in the society.

Question 8

Figure 10-4
  
-Refer to Figure 10-4. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Accepted Answer

A) Graph (a). 
B) Graph (b) only. 
C) Graph (c) only. 
D) Graphs (b) and (c). 
A) Graph (a). 
B) Graph (b) only. 
C) Graph (c) only. 
D) Graphs (b) and (c).

Question 9

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Accepted Answer

A) corrective tax. 
B) subsidy. 
C) command-and-control policy. 
D) market-based policy. 
A) corrective tax. 
B) subsidy. 
C) command-and-control policy. 
D) market-based policy.

Question 10

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Accepted Answer

A) At the current output level, the marginal social cost exceeds the marginal private cost. 
B) The current output level is inefficiently high. 
C) A per-shot tax could turn an inefficient situation into an efficient one. 
D) At the current output level, the marginal social benefit exceeds the marginal private benefit. 
A) At the current output level, the marginal social cost exceeds the marginal private cost. 
B) The current output level is inefficiently high. 
C) A per-shot tax could turn an inefficient situation into an efficient one. 
D) At the current output level, the marginal social benefit exceeds the marginal private benefit.

Question 11

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Accepted Answer

The other type of po

Question 12

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Accepted Answer

The requirement that

Question 13

Scenario 10-3
​
Suppose the equation for the demand curve in a market is P = 120 - (1/5) QS1U1P1DS1S1P0 , where QS1U1P1DS1S1P0 is the quantity demanded and $P$ is the price. Also, suppose the equation for the supply curve in the same market is P = (1/10) QS1U1P1S S1S1P0, where QS1U1P1SS1S1P0 is the quantity supplied.
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What are the socially optimal quantity and price?

Accepted Answer

The socially optimal

Question 14

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Accepted Answer

With a corrective ta

Question 15

Sabrina installed a wooden sculpture in her front yard. A negative externality arises if the sculpture

Accepted Answer

A) creates a safety hazard for neighborhood children. 
B) decreases the value of Sabrina's home. 
C) is visually appealing to Sabrina's neighbors. 
D) increases the value of other properties in the neighborhood. 
A) creates a safety hazard for neighborhood children. 
B) decreases the value of Sabrina's home. 
C) is visually appealing to Sabrina's neighbors. 
D) increases the value of other properties in the neighborhood.

Question 16

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 17

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Question 18

Corrective taxes are more efficient than regulations for keeping the environment clean.

Accepted Answer

A) True 
 B)False

Question 19

Dioxin emission that results from the production of paper is a good example of a negative externality because

Accepted Answer

A) self-interested paper firms are generally unaware of environmental regulations. 
B) there are fines for producing too much dioxin. 
C) self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D) toxic emissions cause firms to produce less than the socially optimal amount of paper. 
A) self-interested paper firms are generally unaware of environmental regulations. 
B) there are fines for producing too much dioxin. 
C) self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D) toxic emissions cause firms to produce less than the socially optimal amount of paper.

Question 20

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Figure 10-3 -Refer to Figure 10-3. What is the socially optimal quantity of output in this market?

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

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

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

An externality is the uncompensated impact of

Figure 10-4 -Refer to Figure 10-4. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Sabrina installed a wooden sculpture in her front yard. A negative externality arises if the sculpture

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

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Corrective taxes are more efficient than regulations for keeping the environment clean.

Dioxin emission that results from the production of paper is a good example of a negative externality because

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

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 Nations 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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