Question 1

When a particular negative externality affects a very large number of people,it is likely that

Accepted Answer

A)  government will not find it worthwhile to impose a corrective tax. 
B)  private solutions to the problem will dominate any attempt by government to alleviate the problem. 
C)  the solution to externalities suggested by the Coase theorem will work very well. 
D)  the solution to externalities suggested by the Coase theorem will not work. 
A)  government will not find it worthwhile to impose a corrective tax. 
B)  private solutions to the problem will dominate any attempt by government to alleviate the problem. 
C)  the solution to externalities suggested by the Coase theorem will work very well. 
D)  the solution to externalities suggested by the Coase theorem will not work.

Question 2

Suppose that Charles wants to dine at a fancy restaurant,but the only available table is in the smoking section.Charles dislikes the smell of cigarette smoke.He notices that only one person,Sam,is smoking in the smoking section.Charles values the absence of smoke at $40.Sam values the ability to smoke in the restaurant at $15.Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A)  Sam continues to smoke because he has a right to smoke in the smoking section. 
B)  Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C)  Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D)  Only a government policy banning smoking in restaurants will solve this problem. 
A)  Sam continues to smoke because he has a right to smoke in the smoking section. 
B)  Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C)  Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D)  Only a government policy banning smoking in restaurants will solve this problem.

Question 3

When negative externalities are present in a market,

Accepted Answer

A)  producers will be affected but consumers will not. 
B)  producers will supply too much of the product. 
C)  demand will be too high. 
D)  the market will still maximize total benefits. 
A)  producers will be affected but consumers will not. 
B)  producers will supply too much of the product. 
C)  demand will be too high. 
D)  the market will still maximize total benefits.

Question 4

The Coase theorem suggests that private solutions to an externality problem

Accepted Answer

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

Question 5

Table 10-4
  
-Refer to Table 10-4.Take into account private and external costs and assume the quantity of output is always a whole number (that is,fractional units of output are not possible).The maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $19. 
B)  $21. 
C)  $24. 
D)  $28. 
A)  $19. 
B)  $21. 
C)  $24. 
D)  $28.

Question 6

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Accepted Answer

A)  Sally should pay Mike $400 so that she may keep her cat. 
B)  Sally should pay Mike $350 for tissues and allergy medication. 
C)  Mike should pay Sally $325 to give away her cat. 
D)  Mike should move. 
A)  Sally should pay Mike $400 so that she may keep her cat. 
B)  Sally should pay Mike $350 for tissues and allergy medication. 
C)  Mike should pay Sally $325 to give away her cat. 
D)  Mike should move.

Question 7

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 8

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A)  the government should ban all transportation. 
B)  the government should ban all pollution. 
C)  society has to weigh the cost and benefits when deciding how much pollution to allow. 
D)  refrain from intervening because the market can best solve this problem. 
A)  the government should ban all transportation. 
B)  the government should ban all pollution. 
C)  society has to weigh the cost and benefits when deciding how much pollution to allow. 
D)  refrain from intervening because the market can best solve this problem.

Question 9

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)  Dick pays Jane $600 for her inconvenience. 
B)  Jane pays Dick $400 to give the dog to his parents who live on an isolated farm. 
C)  Jane pays Dick $550 to give the dog to his parents who live on an isolated farm. 
D)  The current situation is efficient. 
A)  Dick pays Jane $600 for her inconvenience. 
B)  Jane pays Dick $400 to give the dog to his parents who live on an isolated farm. 
C)  Jane pays Dick $550 to give the dog to his parents who live on an isolated farm. 
D)  The current situation is efficient.

Question 10

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A)  increase private profit at the expense of consumers. 
B)  internalize some forms of positive externalities. 
C)  reduce the impact of government regulations on their business. 
D)  increase the private marginal cost of production. 
A)  increase private profit at the expense of consumers. 
B)  internalize some forms of positive externalities. 
C)  reduce the impact of government regulations on their business. 
D)  increase the private marginal cost of production.

Question 11

One reason that private solutions to externalities do not always work is that

Accepted Answer

A)  government intervention negates the benefits of positive externalities. 
B)  some people benefit from externalities. 
C)  interested parties incur costs in the bargaining process. 
D)  charities are not well organized. 
A)  government intervention negates the benefits of positive externalities. 
B)  some people benefit from externalities. 
C)  interested parties incur costs in the bargaining process. 
D)  charities are not well organized.

Question 12

Which of the following is NOT an example of a negative externality?

Accepted Answer

A)  air pollution from a manufacturing plant. 
B)  disrupted sleep from a neighbor's loud music. 
C)  an illness caused by secondhand cigarette smoke. 
D)  a decrease in your property value from neglecting your lawn and garden. 
A)  air pollution from a manufacturing plant. 
B)  disrupted sleep from a neighbor's loud music. 
C)  an illness caused by secondhand cigarette smoke. 
D)  a decrease in your property value from neglecting your lawn and garden.

Question 13

Figure 10-19
  
-Refer to Figure 10-19.How many units of the good are produced in a market equilibrium?

Accepted Answer

A)  fewer than 58 
B)  58 
C)  73 
D)  94 
A)  fewer than 58 
B)  58 
C)  73 
D)  94

Question 14

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A)  it is hard to estimate the market demand curve and thus charge the "right" corrective tax. 
B)  selling pollution permits create a net increase in pollution. 
C)  Corrective taxes distort incentives. 
D)  Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. 
A)  it is hard to estimate the market demand curve and thus charge the "right" corrective tax. 
B)  selling pollution permits create a net increase in pollution. 
C)  Corrective taxes distort incentives. 
D)  Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.

Question 15

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 16

Figure 10-9

-Refer to Figure 10-9,Panel (b).The market equilibrium quantity is

Accepted Answer

A)  Q2, which is the socially optimal quantity. 
B)  Q3, which is the socially optimal quantity. 
C)  Q2, and the socially optimal quantity is Q3. 
D)  Q3, and the socially optimal quantity is Q2. 
A)  Q2, which is the socially optimal quantity. 
B)  Q3, which is the socially optimal quantity. 
C)  Q2, and the socially optimal quantity is Q3. 
D)  Q3, and the socially optimal quantity is Q2.

Question 17

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 18

Figure 10-8
  
-Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Accepted Answer

A)  less than $2 
B)  $2 
C)  more than $2 
D)  The size of the subsidy cannot be determined from the figure. 
A)  less than $2 
B)  $2 
C)  more than $2 
D)  The size of the subsidy cannot be determined from the figure.

Question 19

Table 10-4
  
-Refer to Table 10-4.The social cost of the 2ⁿᵈ unit of output that is produced is

Accepted Answer

A)  $7. 
B)  $23. 
C)  $30. 
D)  $38. 
A)  $7. 
B)  $23. 
C)  $30. 
D)  $38.

Question 20

Research into new technologies provides a

Accepted Answer

A)  negative externality, and too few resources are devoted to research as a result. 
B)  negative externality, and too many resources are devoted to research as a result. 
C)  positive externality, and too few resources are devoted to research as a result. 
D)  positive externality, and too many resources are devoted to research as a result. 
A)  negative externality, and too few resources are devoted to research as a result. 
B)  negative externality, and too many resources are devoted to research as a result. 
C)  positive externality, and too few resources are devoted to research as a result. 
D)  positive externality, and too many resources are devoted to research as a result.

When a particular negative externality affects a very large number of people,it is likely that

When negative externalities are present in a market,

The Coase theorem suggests that private solutions to an externality problem

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Markets sometimes fail to allocate resources efficiently.

Since almost all forms of transportation produce some type of pollution,

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Firms that are involved in more than one type of business could be evidence of an attempt to

One reason that private solutions to externalities do not always work is that

Which of the following is NOT an example of a negative externality?

Figure 10-19 -Refer to Figure 10-19.How many units of the good are produced in a market equilibrium?

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Figure 10-9 -Refer to Figure 10-9,Panel (b).The market equilibrium quantity is

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Figure 10-8 -Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Table 10-4 -Refer to Table 10-4.The social cost of the 2ⁿᵈ unit of output that is produced is

Research into new technologies provides 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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Exam 10: Externalities.

When a particular negative externality affects a very large number of people,it is likely that

When negative externalities are present in a market,

The Coase theorem suggests that private solutions to an externality problem

Table 10-4 -Refer to Table 10-4.Take into account private and external costs and assume the quantity of output is always a whole number (that is,fractional units of output are not possible).The maximum total surplus that can be achieved in this market is

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Markets sometimes fail to allocate resources efficiently.

Since almost all forms of transportation produce some type of pollution,

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Firms that are involved in more than one type of business could be evidence of an attempt to

One reason that private solutions to externalities do not always work is that

Which of the following is NOT an example of a negative externality?

Figure 10-19 -Refer to Figure 10-19.How many units of the good are produced in a market equilibrium?

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Figure 10-9 -Refer to Figure 10-9,Panel (b).The market equilibrium quantity is

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Figure 10-8 -Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Table 10-4 -Refer to Table 10-4.The social cost of the 2ⁿᵈ unit of output that is produced is

Research into new technologies provides 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.

Filters