Question 1

The difference between social cost and private cost is a measure of the

Accepted Answer

A)  loss in profit to the seller as the result of a negative externality. 
B)  cost of an externality. 
C)  cost reduction when the negative externality is eliminated. 
D)  cost incurred by the government when it intervenes in the market. 
A)  loss in profit to the seller as the result of a negative externality. 
B)  cost of an externality. 
C)  cost reduction when the negative externality is eliminated. 
D)  cost incurred by the government when it intervenes in the market.

Question 2

Most taxes distort incentives and move the allocation of resources away from the social optimum.Why do corrective taxes avoid the disadvantages of most other taxes?

Accepted Answer

A)  Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol. 
B)  Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders. 
C)  Corrective taxes provide incentives for the conservation of natural resources. 
D)  Corrective taxes do not affect deadweight loss. 
A)  Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol. 
B)  Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders. 
C)  Corrective taxes provide incentives for the conservation of natural resources. 
D)  Corrective taxes do not affect deadweight loss.

Question 3

Figure 10-5
  
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Accepted Answer

A)  P0 and Q1. 
B)  P2 and Q1. 
C)  P1 and Q0. 
D)  P2 and Q0. 
A)  P0 and Q1. 
B)  P2 and Q1. 
C)  P1 and Q0. 
D)  P2 and Q0.

Question 4

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 5

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Accepted Answer

A) True 
 B)False

Question 6

Monte owns a dog; the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)  Teresa pays Monte $150 to give the dog to his parents who live on an isolated farm. 
B)  Monte pays Teresa $350 for her inconvenience. 
C)  Teresa pays Monte $300 to give the dog to his parents who live on an isolated farm. 
D)  There is no private transaction that would improve this situation. 
A)  Teresa pays Monte $150 to give the dog to his parents who live on an isolated farm. 
B)  Monte pays Teresa $350 for her inconvenience. 
C)  Teresa pays Monte $300 to give the dog to his parents who live on an isolated farm. 
D)  There is no private transaction that would improve this situation.

Question 7

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

Accepted Answer

A)  The private cost of producing the 160th unit of output is $16. 
B)  The social cost of producing the 160th unit of output is $22. 
C)  The external cost of producing the 160th unit of output is $6. 
D)  All of the above are correct. 
A)  The private cost of producing the 160th unit of output is $16. 
B)  The social cost of producing the 160th unit of output is $22. 
C)  The external cost of producing the 160th unit of output is $6. 
D)  All of the above are correct.

Question 8

Figure 10-9

-Refer to Figure 10-9.The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the market for antibiotics is shown in

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 9

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production. 
A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production.

Question 10

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub.Further suppose that the local government offers a $7 per-shrub subsidy to planters.The number of shrubs that are planted is then

Accepted Answer

A)  less than the socially optimal quantity. 
B)  greater than the socially optimal quantity. 
C)  equal to the socially optimal quantity. 
D)  There is not enough information to answer the question. 
A)  less than the socially optimal quantity. 
B)  greater than the socially optimal quantity. 
C)  equal to the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 11

Figure 10-2. The graph depicts the market for plastic.
  
-Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.What is the socially optimal quantity of plastic?

Accepted Answer

A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units 
A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units

Question 12

Figure 10-15
  
-Refer to Figure 10-15.The supply of pollution permits is

Accepted Answer

A)  elastic and represented by line A. 
B)  inelastic and represented by line A. 
C)  elastic and represented by line F 
D)  inelastic and represented by line F. 
A)  elastic and represented by line A. 
B)  inelastic and represented by line A. 
C)  elastic and represented by line F 
D)  inelastic and represented by line F.

Question 13

Which of the following is a difference between corrective taxes and tradable pollution permits?

Accepted Answer

A)  Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy. 
B)  With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution. 
C)  With corrective taxes firms pay for pollution; with tradable pollution permits firms do not. 
D)  Corrective taxes internalize the pollution externality while tradable pollution permits do not. 
A)  Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy. 
B)  With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution. 
C)  With corrective taxes firms pay for pollution; with tradable pollution permits firms do not. 
D)  Corrective taxes internalize the pollution externality while tradable pollution permits do not.

Question 14

The goal of industrial policy should be that

Accepted Answer

A)  industries yielding the largest positive externalities should receive the biggest subsidies. 
B)  any industry that produces negative externalities should be heavily taxed. 
C)  any production process that produces negative externalities should be shut down. 
D)  all industries that produce positive externalities should be equally subsidized. 
A)  industries yielding the largest positive externalities should receive the biggest subsidies. 
B)  any industry that produces negative externalities should be heavily taxed. 
C)  any production process that produces negative externalities should be shut down. 
D)  all industries that produce positive externalities should be equally subsidized.

Question 15

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the remedy for climate change that is overwhelmingly supported by economists is

Accepted Answer

A)  a "cap and trade" system in which the government would give away permits to emit carbon. 
B)  an expansion of regulations on carbon emissions. 
C)  stricter enforcement of existing regulations on carbon emissions. 
D)  a tax on carbon emissions. 
A)  a "cap and trade" system in which the government would give away permits to emit carbon. 
B)  an expansion of regulations on carbon emissions. 
C)  stricter enforcement of existing regulations on carbon emissions. 
D)  a tax on carbon emissions.

Question 16

To produce honey,beekeepers place hives of bees in the fields of farmers.As bees gather nectar,they pollinate the crops in the fields,which increases the yields of these fields at no additional cost to the farmer.What might be a reasonable private solution to this externality,and how might the solution be reached?

Accepted Answer

One solution would be to have one person

Question 17

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.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)  $3 
B)  $5 
C)  $7 
D)  $9 
A)  $3 
B)  $5 
C)  $7 
D)  $9

Question 18

The tax on gasoline causes deadweight losses,as is the case with all taxes.

Accepted Answer

A) True 
 B)False

Question 19

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution. 
A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution.

Question 20

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

Accepted Answer

A)  regulation. 
B)  corrective tax. 
C)  subsidy. 
D)  market-based policy. 
A)  regulation. 
B)  corrective tax. 
C)  subsidy. 
D)  market-based policy.

Exam 10: Externalities.

The difference between social cost and private cost is a measure of the

Most taxes distort incentives and move the allocation of resources away from the social optimum.Why do corrective taxes avoid the disadvantages of most other taxes?

Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

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

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Monte owns a dog; the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

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

Figure 10-9 -Refer to Figure 10-9.The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the market for antibiotics is shown in

An optimal tax on pollution would result in which of the following?

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub.Further suppose that the local government offers a $7 per-shrub subsidy to planters.The number of shrubs that are planted is then

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.What is the socially optimal quantity of plastic?

Figure 10-15 -Refer to Figure 10-15.The supply of pollution permits is

Which of the following is a difference between corrective taxes and tradable pollution permits?

The goal of industrial policy should be that

Writing in the New York Times in August 2009,N.Gregory Mankiw asserted that the remedy for climate change that is overwhelmingly supported by economists 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.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

The tax on gasoline causes deadweight losses,as is the case with all taxes.

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

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

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.

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.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

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