Question 1

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Accepted Answer

A) True 
 B)False

Question 2

Two types of private solutions to the problem of externalities are

Accepted Answer

A)  charities and the Golden Rule. 
B)  charities and subsidies. 
C)  the Golden Rule and taxes. 
D)  taxes and subsidies. 
A)  charities and the Golden Rule. 
B)  charities and subsidies. 
C)  the Golden Rule and taxes. 
D)  taxes and subsidies.

Question 3

Figure 10-10
  
-Refer to Figure 10-10.Taking into account private and external costs,the maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $760. 
B)  $1,080. 
C)  $1,440. 
D)  $1,920. 
A)  $760. 
B)  $1,080. 
C)  $1,440. 
D)  $1,920.

Question 4

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)  the "invisible hand" 
B)  the law of diminishing social returns 
C)  the Coase theorem 
D)  technology policy 
A)  the "invisible hand" 
B)  the law of diminishing social returns 
C)  the Coase theorem 
D)  technology policy

Question 5

When externalities exist,buyers and sellers

Accepted Answer

A)  neglect the external effects of their actions, but the market equilibrium is still efficient. 
B)  do not neglect the external effects of their actions, and the market equilibrium is efficient. 
C)  neglect the external effects of their actions, and the market equilibrium is not efficient. 
D)  do not neglect the external effects of their actions, and the market equilibrium is not efficient. 
A)  neglect the external effects of their actions, but the market equilibrium is still efficient. 
B)  do not neglect the external effects of their actions, and the market equilibrium is efficient. 
C)  neglect the external effects of their actions, and the market equilibrium is not efficient. 
D)  do not neglect the external effects of their actions, and the market equilibrium is not efficient.

Question 6

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

Accepted Answer

A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized. 
A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized.

Question 7

Figure 10-11
  
-Refer to Figure 10-11.Which of the following statements is correct?

Accepted Answer

A)  The private value of the 160th unit of output is $16. 
B)  The social value of the 160th unit of output is $28. 
C)  The external benefit of the 160th unit of output is $6. 
D)  All of the above are correct. 
A)  The private value of the 160th unit of output is $16. 
B)  The social value of the 160th unit of output is $28. 
C)  The external benefit of the 160th unit of output is $6. 
D)  All of the above are correct.

Question 8

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 325 units of plastics are produced and consumed,then the

Accepted Answer

A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome. 
A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome.

Question 9

The Coase theorem states that

Accepted Answer

A)  taxes are an efficient way for governments to remedy negative externalities. 
B)  subsidies are an efficient way for governments to remedy positive externalities. 
C)  industrial policies encourage technology spillovers. 
D)  in the absence of transaction costs, private parties can solve the problem of externalities on their own. 
A)  taxes are an efficient way for governments to remedy negative externalities. 
B)  subsidies are an efficient way for governments to remedy positive externalities. 
C)  industrial policies encourage technology spillovers. 
D)  in the absence of transaction costs, private parties can solve the problem of externalities on their own.

Question 10

Figure 10-11
  
-Refer to Figure 10-11.The socially optimal quantity of output is

Accepted Answer

A)  160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. 
B)  160 units, since the value to society of the 160th unit is equal to the cost incurred by the seller of the 160th unit. 
C)  280 units, since the value to the buyer of the 280th unit is equal to the cost incurred by the seller of the 280th unit. 
D)  280 units, since the value to society of the 280th unit is equal to the cost incurred by the seller of the 280th unit. 
A)  160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. 
B)  160 units, since the value to society of the 160th unit is equal to the cost incurred by the seller of the 160th unit. 
C)  280 units, since the value to the buyer of the 280th unit is equal to the cost incurred by the seller of the 280th unit. 
D)  280 units, since the value to society of the 280th unit is equal to the cost incurred by the seller of the 280th unit.

Question 11

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government impose a $5 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

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

Question 12

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality. 
A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality.

Question 13

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway.This is an example of a negative externality.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is correct?

Accepted Answer

A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced. 
A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

Question 15

Figure 10-11
  
-Refer to Figure 10-11.The graph represents a market in which

Accepted Answer

A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the graph. 
A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the graph.

Question 16

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a

Question 17

Mary and Cathy are roommates.Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15.Which of the following scenarios is a successful example of the Coase theorem?

Accepted Answer

A)  Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. 
B)  Mary pays Cathy $16 so that Mary can smoke. 
C)  Mary pays Cathy $14 so that Mary can smoke. 
D)  Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke. 
A)  Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. 
B)  Mary pays Cathy $16 so that Mary can smoke. 
C)  Mary pays Cathy $14 so that Mary can smoke. 
D)  Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

Question 18

Figure 10-9

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

Accepted Answer

A)  P2. 
B)  P3a. 
C)  P3b. 
D)  P3a - P3b. 
A)  P2. 
B)  P3a. 
C)  P3b. 
D)  P3a - P3b.

Question 19

Figure 10-11
  
-Refer to Figure 10-11.Taking into account private value and external benefits,the maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $3,980. 
B)  $4,460. 
C)  $5,240. 
D)  $5,880. 
A)  $3,980. 
B)  $4,460. 
C)  $5,240. 
D)  $5,880.

Question 20

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover,it should

Accepted Answer

A)  impose a corrective tax on any firm producing a technology spillover. 
B)  offer tax credits to consumers who are adversely affected by the new technology. 
C)  subsidize producers by an amount equal to the value of the technology spillover. 
D)  provide research grants to those firms not currently engaging in research to increase competition in the industry. 
A)  impose a corrective tax on any firm producing a technology spillover. 
B)  offer tax credits to consumers who are adversely affected by the new technology. 
C)  subsidize producers by an amount equal to the value of the technology spillover. 
D)  provide research grants to those firms not currently engaging in research to increase competition in the industry.

Exam 10: Externalities.

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Two types of private solutions to the problem of externalities are

Figure 10-10 -Refer to Figure 10-10.Taking into account private and external costs,the maximum total surplus that can be achieved in this market is

Which of the following suggests that private markets can be effective in dealing with externalities?

When externalities exist,buyers and sellers

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

Figure 10-11 -Refer to Figure 10-11.Which of the following statements is correct?

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 325 units of plastics are produced and consumed,then the

The Coase theorem states that

Figure 10-11 -Refer to Figure 10-11.The socially optimal quantity of output is

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government impose a $5 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway.This is an example of a negative externality.

Which of the following statements is correct?

Figure 10-11 -Refer to Figure 10-11.The graph represents a market in which

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Mary and Cathy are roommates.Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15.Which of the following scenarios is a successful example of the Coase theorem?

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

Figure 10-11 -Refer to Figure 10-11.Taking into account private value and external benefits,the maximum total surplus that can be achieved in this market is

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover,it should

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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