Question 1

In some circumstances,selling pollution permits may be better than levying a corrective tax.

Accepted Answer

A) True 
 B)False

Question 2

If education produces positive externalities,we would expect

Accepted Answer

A)  the government to tax education. 
B)  the government to subsidize education. 
C)  people to realize the benefits, which would increase the demand for education. 
D)  colleges to relax admission requirements. 
A)  the government to tax education. 
B)  the government to subsidize education. 
C)  people to realize the benefits, which would increase the demand for education. 
D)  colleges to relax admission requirements.

Question 3

Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

Accepted Answer

A)  The groundwater pollution reduces the cost of large-scale pork production. 
B)  The economic impact of a large-scale pork production facility is localized in a small geographic area. 
C)  The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. 
D)  Consumers will not reap the benefits of lower production cost from large-scale pork production. 
A)  The groundwater pollution reduces the cost of large-scale pork production. 
B)  The economic impact of a large-scale pork production facility is localized in a small geographic area. 
C)  The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. 
D)  Consumers will not reap the benefits of lower production cost from large-scale pork production.

Question 4

A positive externality

Accepted Answer

A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander. 
A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander.

Question 5

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Accepted Answer

A)  externalize the positive externality. 
B)  externalize the negative externality. 
C)  internalize the positive externality. 
D)  internalize the negative externality. 
A)  externalize the positive externality. 
B)  externalize the negative externality. 
C)  internalize the positive externality. 
D)  internalize the negative externality.

Question 6

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A)  Ed is allergic to his roommate's cat. 
B)  Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. 
C)  Polluted water runoff from farms is making residents of a nearby town sick. 
D)  Industrialization around the world is causing global warming. 
A)  Ed is allergic to his roommate's cat. 
B)  Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. 
C)  Polluted water runoff from farms is making residents of a nearby town sick. 
D)  Industrialization around the world is causing global warming.

Question 7

Figure 10-4
  
-Refer to Figure 10-4.At Q₃

Accepted Answer

A)  the marginal consumer values this product less than the social cost of producing it. 
B)  every consumer values this product less than the social cost of producing it. 
C)  the cost to society is equal to the value to society. 
D)  the marginal consumer values this product more than the private cost. 
A)  the marginal consumer values this product less than the social cost of producing it. 
B)  every consumer values this product less than the social cost of producing it. 
C)  the cost to society is equal to the value to society. 
D)  the marginal consumer values this product more than the private cost.

Question 8

Table 10-6
The following table shows the total costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103.
  
-Refer to Table 10-6.Suppose the government wanted to reduce pollution from 16 units to exactly 8 units.Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $58 
B)  $65 
C)  $78 
D)  $95 
A)  $58 
B)  $65 
C)  $78 
D)  $95

Question 9

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of

Accepted Answer

A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy. 
A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy.

Question 10

An externality exists whenever

Accepted Answer

A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence. 
A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.

Question 11

Table 10-3
  
-Refer to Table 10-3.The market equilibrium quantity of output is

Accepted Answer

A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units. 
A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units.

Question 12

Which of the following statements is true of both pollution permits and corrective taxes?

Accepted Answer

A)  Both policies internalize the externality of pollution. 
B)  Both policies require firms to pay for their pollution. 
C)  Both policies lead to the establishment of an equilibrium price of pollution. 
D)  All of the above are correct. 
A)  Both policies internalize the externality of pollution. 
B)  Both policies require firms to pay for their pollution. 
C)  Both policies lead to the establishment of an equilibrium price of pollution. 
D)  All of the above are correct.

Question 13

Figure 10-10
  
-Refer to Figure 10-10.A decrease in output from 160 units to 120 units would

Accepted Answer

A)  move the market from a socially efficient outcome to a socially inefficient outcome. 
B)  reduce the external cost per unit of output. 
C)  increase total economic well-being. 
D)  not be an action of which a benevolent social planner would approve. 
A)  move the market from a socially efficient outcome to a socially inefficient outcome. 
B)  reduce the external cost per unit of output. 
C)  increase total economic well-being. 
D)  not be an action of which a benevolent social planner would approve.

Question 14

When externalities cause markets to be inefficient,

Accepted Answer

A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time, externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market. 
A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time, externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market.

Question 15

Figure 10-11
  
-Refer to Figure 10-11.Taking only private value and private cost into account,total surplus at the market equilibrium amounts to

Accepted Answer

A)  $1,920. 
B)  $2,240. 
C)  $2,860. 
D)  $3,980. 
A)  $1,920. 
B)  $2,240. 
C)  $2,860. 
D)  $3,980.

Question 16

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.What is the equilibrium quantity of output in this market?

Accepted Answer

A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units 
A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units

Question 17

Externalities tend to cause markets to be

Accepted Answer

A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed. 
A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed.

Question 18

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity,the government is effectively

Accepted Answer

A)  alleviating the negative externalities that are associated with charitable giving. 
B)  imposing a negative externality on those who do not pay income taxes. 
C)  encouraging a private solution to a positive-externality problem. 
D)  encouraging a private solution to a negative-externality problem. 
A)  alleviating the negative externalities that are associated with charitable giving. 
B)  imposing a negative externality on those who do not pay income taxes. 
C)  encouraging a private solution to a positive-externality problem. 
D)  encouraging a private solution to a negative-externality problem.

Question 19

Table 10-3
  
-Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Accepted Answer

A)  $2 
B)  $3 
C)  $5 
D)  $10 
A)  $2 
B)  $3 
C)  $5 
D)  $10

Question 20

Figure 10-9

-Refer to Figure 10-9,Panel (b)and Panel (c).The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the socially optimal quantity of antibiotics is represented by point

Accepted Answer

A)  Q2. 
B)  Q3. 
C)  Q4. 
D)  Q5. 
A)  Q2. 
B)  Q3. 
C)  Q4. 
D)  Q5.

Exam 10: Externalities.

In some circumstances,selling pollution permits may be better than levying a corrective tax.

If education produces positive externalities,we would expect

Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

A positive externality

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

In which of the following cases is the Coase theorem most likely to solve the externality?

Figure 10-4 -Refer to Figure 10-4.At Q₃

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of

An externality exists whenever

Table 10-3 -Refer to Table 10-3.The market equilibrium quantity of output is

Which of the following statements is true of both pollution permits and corrective taxes?

Figure 10-10 -Refer to Figure 10-10.A decrease in output from 160 units to 120 units would

When externalities cause markets to be inefficient,

Figure 10-11 -Refer to Figure 10-11.Taking only private value and private cost into account,total surplus at the market equilibrium amounts to

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.What is the equilibrium quantity of output in this market?

Externalities tend to cause markets to be

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity,the government is effectively

Table 10-3 -Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Figure 10-9 -Refer to Figure 10-9,Panel (b)and Panel (c).The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the socially optimal quantity of antibiotics is represented by point

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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