Question 1

Internalising a negative consumption externality will cause the market supply curve to shift to the left.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following could be associated with positive consumption externalities?
(i) child immunisations (ensuring that the general population is vaccinated against communicable diseases)
(ii) alcohol consumption
(iii) maintaining the appearance of historic buildings

Accepted Answer

A) (i), (ii) and (iii) 
B) (ii) and (iii) only 
C) (i) and (iii) only 
D) (i) and (ii) only 
A) (i), (ii) and (iii) 
B) (ii) and (iii) only 
C) (i) and (iii) only 
D) (i) and (ii) only

Question 3

Suppose people plant flowering trees near their homes to encourage rare native birds to feed.If people believe that an increase in native bird populations is valuable, people who plant these trees:

Accepted Answer

A) generate a negative consumption externality for their neighbours 
B) generate a positive production externality for their neighbours 
C) generate a positive consumption externality for their neighbours 
D) generate a negative production externality for their neighbours 
A) generate a negative consumption externality for their neighbours 
B) generate a positive production externality for their neighbours 
C) generate a positive consumption externality for their neighbours 
D) generate a negative production externality for their neighbours

Question 4

Which of the following is one problem that keeps people from privately solving externalities?

Accepted Answer

A) each party involved holds out for a better deal 
B) an efficient bargain price is unattainable 
C) only problems with a sufficiently large number of parties can be solved 
D) there is a lack of government intervention 
A) each party involved holds out for a better deal 
B) an efficient bargain price is unattainable 
C) only problems with a sufficiently large number of parties can be solved 
D) there is a lack of government intervention

Question 5

Which policy would best suit a positive externality?

Accepted Answer

A) taxes 
B) pollution permits 
C) regulation 
D) subsidies 
A) taxes 
B) pollution permits 
C) regulation 
D) subsidies

Question 6

Graph 10-3   This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees.
-Refer to Graph 10-3.What price and quantity combination best represents the optimum price and number of kiwifruit trays that should be produced?

Accepted Answer

A) P₁, Q₁ 
B) P₂, q₀ 
C) P₃, Q₁ 
D) The optimum quantity is zero kiwifruit as long as honey production by beekeepers is lower because of pesticide use. 
A) P₁, Q₁ 
B) P₂, q₀ 
C) P₃, Q₁ 
D) The optimum quantity is zero kiwifruit as long as honey production by beekeepers is lower because of pesticide use.

Question 7

Graph 10-4  
-Refer to Graph 10-4.The equivalence of a Pigovian tax and a pollution permit would require that:

Accepted Answer

A) PB be equivalent to the Pigovian tax 
B) QA be equivalent to the amount of pollution allowed by the pollution permit holders 
C) the equilibrium price and quantity of pollution be the same in both panel A and panel B 
D) all of the above conditions hold 
A) PB be equivalent to the Pigovian tax 
B) QA be equivalent to the amount of pollution allowed by the pollution permit holders 
C) the equilibrium price and quantity of pollution be the same in both panel A and panel B 
D) all of the above conditions hold

Question 8

When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality:

Accepted Answer

A) it provides incentives to private decision makers to induce them to solve the externality problem on their own 
B) it typically uses command-and-control techniques 
C) the use of taxes is strictly forbidden 
D) subsidies are always the best policy 
A) it provides incentives to private decision makers to induce them to solve the externality problem on their own 
B) it typically uses command-and-control techniques 
C) the use of taxes is strictly forbidden 
D) subsidies are always the best policy

Question 9

Katie owns a rabbit which loves to roam in the neighbours' garden and eat the grass, as Katie only has a courtyard.However, when Katie's parents buy the property next door and she moves in with her family, Katie decides to keep her rabbit in a cage.What can explain the change in Katie's behaviour?

Accepted Answer

The change in behavior is beca

Question 10

Tim and Tom are having an argument because they can't agree on which television show to watch and they have only one television in their house, which they share.A possible solution to this problem is:

Accepted Answer

A) to compromise and watch half of Tim's show and half of Tom's show 
B) for Tom to pay Tim enough such that he will allow him to watch his preferred show 
C) to turn to a third party to moderate their negotiations 
D) not possible to give as there is not enough information to answer this question 
A) to compromise and watch half of Tim's show and half of Tom's show 
B) for Tom to pay Tim enough such that he will allow him to watch his preferred show 
C) to turn to a third party to moderate their negotiations 
D) not possible to give as there is not enough information to answer this question

Question 11

The height of the supply curve at any given quantity of coal shows the:

Accepted Answer

A) value to the consumer of the last unit of coal bought 
B) consumer's willingness to pay for coal at each quantity 
C) cost to the producer of the last unit of coal sold 
D) total quantity of coal exchanged in the market 
A) value to the consumer of the last unit of coal bought 
B) consumer's willingness to pay for coal at each quantity 
C) cost to the producer of the last unit of coal sold 
D) total quantity of coal exchanged in the market

Question 12

Which of the following statements about internalising a negative production externality is LEAST correct?

Accepted Answer

A) internalising a negative production externality will cause the supply curve for the good to shift to the left 
B) internalising a negative production externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced 
C) internalising a negative production externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced 
D) internalising a negative production externality will cause an industry to move closer to the socially optimal price and quantity of the good 
A) internalising a negative production externality will cause the supply curve for the good to shift to the left 
B) internalising a negative production externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced 
C) internalising a negative production externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced 
D) internalising a negative production externality will cause an industry to move closer to the socially optimal price and quantity of the good

Question 13

A market for pollution permits can efficiently allocate the right to pollute through the forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 14

Pigovian taxes:

Accepted Answer

A) encourage consumers to avoid sales taxes by shopping online 
B) are frequently used to encourage exports 
C) are rarely preferred to direct regulation 
D) give factory owners an economic incentive to reduce pollution 
A) encourage consumers to avoid sales taxes by shopping online 
B) are frequently used to encourage exports 
C) are rarely preferred to direct regulation 
D) give factory owners an economic incentive to reduce pollution

Question 15

Airports can generate a negative externality with the noise the landing aircraft makes on neighbourhoods.Policies to reduce this noise problem include:

Accepted Answer

A) charging passengers an airport departure tax 
B) charging excise taxes on airline fuel 
C) encouraging people to drive rather than fly 
D) requiring aircraft to use 'whisper' technology to quieten their engines 
A) charging passengers an airport departure tax 
B) charging excise taxes on airline fuel 
C) encouraging people to drive rather than fly 
D) requiring aircraft to use 'whisper' technology to quieten their engines

Question 16

The government attempts to resolve negative externalities caused by automobile exhaust by:
(i) taxing gasoline to reduce the amount that people drive
(ii) building safer highways
(iii) setting emission standards for automobiles

Accepted Answer

A) (i), (ii) and (iii) are all used to reduce emissions 
B) only (i) and (iii) are used to reduce emissions 
C) only (ii) and (iii) are used to reduce emissions 
D) only (i) and (ii) are used to reduce emissions 
A) (i), (ii) and (iii) are all used to reduce emissions 
B) only (i) and (iii) are used to reduce emissions 
C) only (ii) and (iii) are used to reduce emissions 
D) only (i) and (ii) are used to reduce emissions

Question 17

Graph 10-1  
-Refer to Graph 10-1.This graph reflects the presence of a:

Accepted Answer

A) negative production externality 
B) positive production externality 
C) negative consumption externality 
D) positive consumption externality 
A) negative production externality 
B) positive production externality 
C) negative consumption externality 
D) positive consumption externality

Question 18

The Coase theorem suggests that private solutions to the externality problem:

Accepted Answer

A) will always allocate resources efficiently if private parties can bargain without cost 
B) are effective under all conditions 
C) are only efficient when there are negative externalities 
D) may not be possible because of the distribution of property rights 
A) will always allocate resources efficiently if private parties can bargain without cost 
B) are effective under all conditions 
C) are only efficient when there are negative externalities 
D) may not be possible because of the distribution of property rights

Question 19

Market outcomes cannot be improved by government policies.

Accepted Answer

A) True 
 B)False

Question 20

Pigovian taxes enhance efficiency but the cost of administering such taxes frequently exceeds the revenue they raise for the government.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Internalising a negative consumption externality will cause the market supply curve to shift to the left.

Which of the following could be associated with positive consumption externalities? (i) child immunisations (ensuring that the general population is vaccinated against communicable diseases) (ii) alcohol consumption (iii) maintaining the appearance of historic buildings

Suppose people plant flowering trees near their homes to encourage rare native birds to feed.If people believe that an increase in native bird populations is valuable, people who plant these trees:

Which of the following is one problem that keeps people from privately solving externalities?

Which policy would best suit a positive externality?

Graph 10-3 This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees. -Refer to Graph 10-3.What price and quantity combination best represents the optimum price and number of kiwifruit trays that should be produced?

Graph 10-4 -Refer to Graph 10-4.The equivalence of a Pigovian tax and a pollution permit would require that:

When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality:

Katie owns a rabbit which loves to roam in the neighbours' garden and eat the grass, as Katie only has a courtyard.However, when Katie's parents buy the property next door and she moves in with her family, Katie decides to keep her rabbit in a cage.What can explain the change in Katie's behaviour?

Tim and Tom are having an argument because they can't agree on which television show to watch and they have only one television in their house, which they share.A possible solution to this problem is:

The height of the supply curve at any given quantity of coal shows the:

Which of the following statements about internalising a negative production externality is LEAST correct?

A market for pollution permits can efficiently allocate the right to pollute through the forces of supply and demand.

Pigovian taxes:

Airports can generate a negative externality with the noise the landing aircraft makes on neighbourhoods.Policies to reduce this noise problem include:

The government attempts to resolve negative externalities caused by automobile exhaust by: (i) taxing gasoline to reduce the amount that people drive (ii) building safer highways (iii) setting emission standards for automobiles

Graph 10-1 -Refer to Graph 10-1.This graph reflects the presence of a:

The Coase theorem suggests that private solutions to the externality problem:

Market outcomes cannot be improved by government policies.

Pigovian taxes enhance efficiency but the cost of administering such taxes frequently exceeds the revenue they raise for the government.

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

Filters