Question 1

Which of the following statements is correct?

Accepted Answer

A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities. 
A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities.

Question 2

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Accepted Answer

A)  lower levels of nutrition, health care, and housing 
B)  a lower standard of living 
C)  slowing or reversing technological advancement 
D)  the elimination of all pollution 
A)  lower levels of nutrition, health care, and housing 
B)  a lower standard of living 
C)  slowing or reversing technological advancement 
D)  the elimination of all pollution

Question 3

Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 4

Figure 10-4
  
-Refer to Figure 10-4.Externalities in this market could be internalized if

Accepted Answer

A)  there were a tax on the product. 
B)  there were a subsidy for the product. 
C)  production were stopped. 
D)  the Coase theorem failed. 
A)  there were a tax on the product. 
B)  there were a subsidy for the product. 
C)  production were stopped. 
D)  the Coase theorem failed.

Question 5

To enhance the well-being of society,a social planner will encourage firms to increase production when

Accepted Answer

A)  the firms are producing basic goods. 
B)  there is a shortage in the market. 
C)  technology spillovers are associated with production. 
D)  negative externalities "spill over" into production. 
A)  the firms are producing basic goods. 
B)  there is a shortage in the market. 
C)  technology spillovers are associated with production. 
D)  negative externalities "spill over" into production.

Question 6

In a market economy,government intervention

Accepted Answer

A)  will always improve market outcomes. 
B)  reduces efficiency in the presence of externalities. 
C)  may improve market outcomes in the presence of externalities. 
D)  is necessary to control individual greed. 
A)  will always improve market outcomes. 
B)  reduces efficiency in the presence of externalities. 
C)  may improve market outcomes in the presence of externalities. 
D)  is necessary to control individual greed.

Question 7

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A)  assisted technology. 
B)  intervention policy. 
C)  industrial technology assistance. 
D)  industrial policy. 
A)  assisted technology. 
B)  intervention policy. 
C)  industrial technology assistance. 
D)  industrial policy.

Question 8

Which of the following require firms to pay to pollute?
(i)corrective taxes
(ii)tradable pollution permits
(iii)pollution regulations

Accepted Answer

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

Question 9

Figure 10-7
  
-Refer to Figure 10-7.Which quantity represents the social optimum for this market?

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 10

The proposition that if private parties can bargain without cost over the allocation of resources,they can solve the problem of externalities on their own,is called

Accepted Answer

A)  the Pigovian theorem. 
B)  a corrective tax. 
C)  the externality theorem. 
D)  the Coase theorem. 
A)  the Pigovian theorem. 
B)  a corrective tax. 
C)  the externality theorem. 
D)  the Coase theorem.

Question 11

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?

Accepted Answer

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

Question 12

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Accepted Answer

Pigovian taxes allow markets to coordina

Question 13

Negative externalities occur when one person's actions

Accepted Answer

A)  cause another person to lose money in a stock market transaction. 
B)  cause his or her employer to lose business. 
C)  reveal his or her preference for foreign-produced goods. 
D)  adversely affect the well-being of a bystander who is not a party to the action. 
A)  cause another person to lose money in a stock market transaction. 
B)  cause his or her employer to lose business. 
C)  reveal his or her preference for foreign-produced goods. 
D)  adversely affect the well-being of a bystander who is not a party to the action.

Question 14

In some cases,tradable pollution permits may be better than a corrective tax because

Accepted Answer

A)  pollution permits allow for a market solution while a corrective tax does not. 
B)  pollution permits generate more revenue for the government than a corrective tax. 
C)  pollution permits are never preferred over a corrective tax. 
D)  the government can set a maximum level of pollution using permits. 
A)  pollution permits allow for a market solution while a corrective tax does not. 
B)  pollution permits generate more revenue for the government than a corrective tax. 
C)  pollution permits are never preferred over a corrective tax. 
D)  the government can set a maximum level of pollution using permits.

Question 15

In the case of a technology spillover,internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)  shift to the right. 
B)  shift to the left. 
C)  become more elastic. 
D)  remain unchanged. 
A)  shift to the right. 
B)  shift to the left. 
C)  become more elastic. 
D)  remain unchanged.

Question 16

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)  Each party involved holds out for a better deal. 
B)  The externality is large. 
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)  The externality is large. 
C)  Only problems with a sufficiently large number of parties can be solved. 
D)  There is a lack of government intervention.

Question 17

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Accepted Answer

A) True 
 B)False

Question 18

Public Policies Toward Externalities
Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.
  
-Refer to Figure 10-13.If the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum,then tax revenue for the government would amount to

Accepted Answer

A)  $1,250. 
B)  $1,600. 
C)  $2,000. 
D)  $2,500. 
A)  $1,250. 
B)  $1,600. 
C)  $2,000. 
D)  $2,500.

Question 19

A negative externality arises when a person engages in an activity that has

Accepted Answer

A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect. 
A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect.

Question 20

Suppose that flu shots create a positive externality equal to $12 per shot.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Accepted Answer

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

Exam 10: Externalities.

Which of the following statements is correct?

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Suppose a certain good conveys either an external cost or an external benefit.If the private cost of the last unit of the good that was produced is equal to the private value of that unit,then the sum of producer and consumer surplus is maximized.

Figure 10-4 -Refer to Figure 10-4.Externalities in this market could be internalized if

To enhance the well-being of society,a social planner will encourage firms to increase production when

In a market economy,government intervention

Government intervention that aims to promote technology-enhancing industries is called

Which of the following require firms to pay to pollute? (i)corrective taxes (ii)tradable pollution permits (iii)pollution regulations

Figure 10-7 -Refer to Figure 10-7.Which quantity represents the social optimum for this market?

The proposition that if private parties can bargain without cost over the allocation of resources,they can solve the problem of externalities on their own,is called

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Negative externalities occur when one person's actions

In some cases,tradable pollution permits may be better than a corrective tax because

In the case of a technology spillover,internalizing a positive externality will cause the supply curve of an industry to

Which of the following is a problem that keeps people from privately solving externality problems?

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

A negative externality arises when a person engages in an activity that has

Suppose that flu shots create a positive externality equal to $12 per shot.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

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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