Question 1

Which of the following is an example of an externality?

Accepted Answer

A)  cigarette smoke that permeates an entire restaurant 
B)  a flu shot that prevents a student from transmitting the virus to her roommate 
C)  a beautiful flower garden outside of the local post office 
D)  All of the above are correct. 
A)  cigarette smoke that permeates an entire restaurant 
B)  a flu shot that prevents a student from transmitting the virus to her roommate 
C)  a beautiful flower garden outside of the local post office 
D)  All of the above are correct.

Question 2

The tax on gasoline

Accepted Answer

A)  reduces efficiency by causing large deadweight losses. 
B)  reduces efficiency by decreasing consumer surplus and producer surplus. 
C)  enhances efficiency by serving as a corrective device in a market with positive externalities. 
D)  enhances efficiency by serving as a corrective device in a market with negative externalities. 
A)  reduces efficiency by causing large deadweight losses. 
B)  reduces efficiency by decreasing consumer surplus and producer surplus. 
C)  enhances efficiency by serving as a corrective device in a market with positive externalities. 
D)  enhances efficiency by serving as a corrective device in a market with negative externalities.

Question 3

A positive externality will cause a market to produce

Accepted Answer

A)  more than is socially desirable. 
B)  less than is socially desirable. 
C)  the socially optimal equilibrium amount. 
D)  more than the same market would produce in the presence of a negative externality. 
A)  more than is socially desirable. 
B)  less than is socially desirable. 
C)  the socially optimal equilibrium amount. 
D)  more than the same market would produce in the presence of a negative externality.

Question 4

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

Accepted Answer

A)  encourage the production of computer chips with subsidies. 
B)  discourage the production of potato chips with taxes. 
C)  encourage the production of potato chips with subsidies. 
D)  discourage the production of computer chips with taxes. 
A)  encourage the production of computer chips with subsidies. 
B)  discourage the production of potato chips with taxes. 
C)  encourage the production of potato chips with subsidies. 
D)  discourage the production of computer chips with taxes.

Question 5

A negative externality

Accepted Answer

A)  is a cost to a bystander. 
B)  is a cost to the buyer. 
C)  is a cost to the seller. 
D)  exists with all market transactions. 
A)  is a cost to a bystander. 
B)  is a cost to the buyer. 
C)  is a cost to the seller. 
D)  exists with all market transactions.

Question 6

The difference between a corrective tax and a tradable pollution permit is that

Accepted Answer

A)  a corrective tax sets the price of pollution and a permit sets the quantity of pollution. 
B)  a corrective tax creates a more efficient outcome than a permit. 
C)  a corrective tax sets the quantity of pollution and a permit sets the price of pollution. 
D)  a permit creates a more efficient outcome than a corrective tax. 
A)  a corrective tax sets the price of pollution and a permit sets the quantity of pollution. 
B)  a corrective tax creates a more efficient outcome than a permit. 
C)  a corrective tax sets the quantity of pollution and a permit sets the price of pollution. 
D)  a permit creates a more efficient outcome than a corrective tax.

Question 7

Economists believe that the optimal level of pollution is zero.

Accepted Answer

A) True 
 B)False

Question 8

When firms internalize a negative externality,the market supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is not correct?

Accepted Answer

A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution. 
A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution.

Question 10

In a market with positive externalities,the market equilibrium quantity maximizes the welfare of society as a whole.

Accepted Answer

A) True 
 B)False

Question 11

Technology spillover is one type of

Accepted Answer

A)  negative externality. 
B)  positive externality. 
C)  subsidy. 
D)  producer surplus. 
A)  negative externality. 
B)  positive externality. 
C)  subsidy. 
D)  producer surplus.

Question 12

A corrective tax

Accepted Answer

A)  can be used to internalize a negative externality. 
B)  imposed on sellers shifts the supply curve to the left. 
C)  imposed on buyers shifts the demand curve to the left. 
D)  All of the above. 
A)  can be used to internalize a negative externality. 
B)  imposed on sellers shifts the supply curve to the left. 
C)  imposed on buyers shifts the demand curve to the left. 
D)  All of the above.

Question 13

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the railroad is not liable for any damage caused to the crops.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)  The railroad will continue to operate but will pay the farmer $1,500 in damages. 
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. 
C)  The farmer will incur $1,500 in damages to his crops. 
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur. 
A)  The railroad will continue to operate but will pay the farmer $1,500 in damages. 
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. 
C)  The farmer will incur $1,500 in damages to his crops. 
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

Question 14

According to the Coase theorem,in the presence of externalities

Accepted Answer

A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome. 
A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome.

Question 15

Which of the following is an example of a positive externality?

Accepted Answer

A)  air pollution 
B)  a person littering in a public park 
C)  a nice garden in front of your neighbor's house 
D)  the pollution of a stream 
A)  air pollution 
B)  a person littering in a public park 
C)  a nice garden in front of your neighbor's house 
D)  the pollution of a stream

Question 16

Since restored historic buildings convey a positive externality,local governments may choose to

Accepted Answer

A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct. 
A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct.

Question 17

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo.Mary,who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo,bears a $350 cost from the noise.Mary would like to offer Alexander some money to turn down the volume on his stereo.If Mary had to hire a lawyer to draw up the contract,what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?

Accepted Answer

A)  an amount less than $100 
B)  an amount between $100 and $250 
C)  an amount between $250 and $350 
D)  Any amount could result in both parties benefiting from the agreement. 
A)  an amount less than $100 
B)  an amount between $100 and $250 
C)  an amount between $250 and $350 
D)  Any amount could result in both parties benefiting from the agreement.

Question 18

Market failure can be caused by

Accepted Answer

A)  too much competition. 
B)  externalities. 
C)  low consumer demand. 
D)  scarcity. 
A)  too much competition. 
B)  externalities. 
C)  low consumer demand. 
D)  scarcity.

Question 19

Private contracts between parties with mutual interests

Accepted Answer

A)  will reduce the well-being of society. 
B)  will lead to market outcomes in which the public interest is sacrificed for personal gain. 
C)  can solve some inefficiencies associated with positive externalities. 
D)  will create negative externalities. 
A)  will reduce the well-being of society. 
B)  will lead to market outcomes in which the public interest is sacrificed for personal gain. 
C)  can solve some inefficiencies associated with positive externalities. 
D)  will create negative externalities.

Question 20

Corrective taxes

Accepted Answer

A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than 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 discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution.

Which of the following is an example of an externality?

The tax on gasoline

A positive externality will cause a market to produce

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

A negative externality

The difference between a corrective tax and a tradable pollution permit is that

Economists believe that the optimal level of pollution is zero.

When firms internalize a negative externality,the market supply curve shifts to the left.

Which of the following statements is not correct?

In a market with positive externalities,the market equilibrium quantity maximizes the welfare of society as a whole.

Technology spillover is one type of

A corrective tax

According to the Coase theorem,in the presence of externalities

Which of the following is an example of a positive externality?

Since restored historic buildings convey a positive externality,local governments may choose to

Market failure can be caused by

Private contracts between parties with mutual interests

Corrective taxes

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.

Filters

Exam 10: Externalities.

Which of the following is an example of an externality?

The tax on gasoline

A positive externality will cause a market to produce

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

A negative externality

The difference between a corrective tax and a tradable pollution permit is that

Economists believe that the optimal level of pollution is zero.

When firms internalize a negative externality,the market supply curve shifts to the left.

Which of the following statements is not correct?

In a market with positive externalities,the market equilibrium quantity maximizes the welfare of society as a whole.

Technology spillover is one type of

A corrective tax

According to the Coase theorem,in the presence of externalities

Which of the following is an example of a positive externality?

Since restored historic buildings convey a positive externality,local governments may choose to

Market failure can be caused by

Private contracts between parties with mutual interests

Corrective taxes

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.

Filters